3.5 Decision making to improve financial performance

Question 1

The value of setting financial objectives

Answer 1

Financial objectives to include:

the concept of a return on investment
an understanding of the proportion of long-term funding that is debt

Question 2

The distinction between cash flow and profit

Question 3

The distinction between gross profit, operating profit and profit for the year

Question 4

Revenue, costs and profit objectives

Question 5

Cash flow objectives

Question 6

Objectives for investment (capital expenditure) levels

Question 7

Capital structure objectives

Question 8

External and internal influences on financial objectives and decisions

Question 9

How to construct and analyse budgets and cash flow forecasts

Answer 9

Analysing budgets should include variance analysis and adverse and favourable variances.

Question 10

The value of budgeting

Question 11

How to construct and interpret break-even charts

Answer 11

How to construct and interpret break-even charts

Break-even analysis should include:

break-even output
margin of safety
contribution per unit
total contribution.

Question 12

How to construct and interpret break-even charts

Answer 12

How to construct and interpret break-even charts

Break-even analysis should include:

break-even output
margin of safety
contribution per unit
total contribution.

Question 13

How to calculate and illustrate on a break-even chart the effects of changes in price, output and cost

Question 14

The value of break-even analysis

Question 15

How to analyse profitability

Answer 15

Analysing profitability should include the following ratio analysis:
gross profit
profit from operations
profit for the year

Question 16

How to analyse timings of cash inflows and outflows

Question 17

Analysing timings of cash flow should include an understanding of payables and receivables

Question 18

The use of data for financial decision making and planning

Question 19

Internal and external sources of finance

Answer 19

Sources of finance should include:

debt factoring
overdrafts
retained profits
share capital
loans
venture capital

Question 20

Methods of improving cash flow

Answer 20

Students should be able to assess ways of improving cash flow

Question 21

Methods of improving profits and profitability

Answer 21

Students should be able to assess ways of improving profitability.

Question 22

Difficulties improving cash flow and profit