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Business Studies > 3.5 APN Finance > Flashcards

3.5 APN Finance Flashcards

1
Q

What is a financial objective?

A

A goal or target pursued by the finance department within an organisation

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2
Q

What are the 4 financial objectives?

A

Revenue,costs, profits
Cash flow
Return on investment
Cost minimisation

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3
Q

How would you increase revenue?

A

Growth, expansion, new products, advertising

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4
Q

How would you lower costs?

A

Change suppliers
Shop around
Negotiate
Save/waste less

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5
Q

How to increase profits ?

A

More revenue, lower costs

And in a recession?

Cut costs with machinery (get more effective machinery) or lower prices and add promotion schemes

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6
Q

What is cash flow?

A

The money that flows in and out of the business on a day to day business, it should be enough to pay expected bills in coming months

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7
Q

What is return on investment?

A

The financial return a company makes for investing in a project

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8
Q

How to calculate return on investment?

A

Net profit / capital invested x100

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9
Q

What does return on investment tell us?

A

A measure of the returns made from investing in the business

How good the business is at converting money invested into profit

Provides a means of comparison with other investment opportunities

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10
Q

How can a business reduce costs?

A

Minimise cost of raw materials
Reduce wage cost
Lower waste
Move to lower cost location
Delayering

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11
Q

How does cost minimisation benefit a business?

A

Keep price the same and benefit from a higher profit margin
Use cost reduction to reduce selling price an attract more customers

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12
Q

Why are profits important?

A

Provide a measure of success
Source of capital for business growth
Attract further funds from investors

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13
Q

What’s another word for sales revenue?

A

Sales turnover

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14
Q

What is a profit margin?

A

Profits as a % of its sales revenue

Profit margin = profit/SR x100

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15
Q

Definition of profitability ?

A

A relative measure comparing profits to another variable . Eg. Sales revenue to operating profit margin

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16
Q

What is gross profit and how do u calculate the profit margin for it?

A

Sales revenue - cost of sales
(Cost of sales might also be referred to as direct costs as they’re direct costs used to make/provide for goods and services )

GP/SR x100

17
Q

How do you improve gross profit margins?

A

Need to increase the gap/ difference between sales revenue and direct costs

Increase SP
Decrease direct costs (VC)
Both

18
Q

What is operating profit and how do u calculate its profit margin ?

A

Gross profit - fixed overheads

(Gross profit is the figure focused on by city analysts)

OP/SR x100

19
Q

How to improve profit margins?

A

Fewer staff
Effectiveness of advertising
Reduce wastage
More production abroad
Outsourcing

20
Q

What is profit for the year and how do u calculate its profit margins?

A

Profit after all other costs have been deducted (finance and tax)

This is the profit business has to retain for reinvestment or to pay out to shareholders as dividends.

OP- finance and tax

PFY/SR x100

21
Q

What is price elasticity?

A

a measurement of the change in the demand for a product as a result of a change in its price.

22
Q

What is contribution and what is the formula for it?

A

Amount of money business makes after variable cost of production has been payed

SP-VC per unit

23
Q

How to calculate total contribution?

A

Contribution X no. Of units sold

Or

SR - total VC

24
Q

What is the significance of total contribution?

A

If total contribution exceeds fixed costs, then the business is making a profit,

If the fixed costs exceed the contribution then the firm is making a loss

A firm will break even if the total contribution is equal to the FC

25
Q

What is break even?

A

Level of output at which total sales revenue is equal to the total costs of production

26
Q

What is break even analysis and what can it be used for?

A

Study of relationship between TC and TR to identify level of output at which business breaks even

A business can also use BE analysis to discover impact of changes in output on its profit levels

27
Q

How do you calculate Break even?

A

FC/ (SP-VC)

Or

FC / Contribution

28
Q

What is margin of safety?

A

Current/ actual sales - Break even level of sales

Amount of which sales can fall before a firm starts making a loss. Higher margin of safety the less likely it is that a loss making situation will develop

Business Studies (3 decks)

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