3.5 Finance

Question 1

What is an objective

Answer 1

Target set to achieve long term aim and goal

Question 2

What is profit

Answer 2

Money coming in minus the costs
(Revenue-total costs)

Question 3

What is cash flow

Answer 3

Money coming in and out the business
(Net cash flow=total cash inflow - total cash outflow)

Question 4

What is revenue

Answer 4

Money coming into the business
(Selling price times quantity)

Question 5

What is fixed costs

Answer 5

Costs that don’t change despite output (rent)

Question 6

What are variable costs

Answer 6

Costs that change due to output (raw material)

Question 7

What are total costs

Answer 7

Fixed + variable

Question 8

What is finance

Answer 8

-Most important factor, without finance security a business will cease to trade
-financial measures determine success of other departments (hr, operations,marketing)

Question 9

What is return on capital employed (ROCE)

Answer 9

Indicates the amount of profit made compared to how much had been put in

Question 10

Calculation for ROCE

Answer 10

Operating profit/capital employed times 100

Question 11

What is capital employed

Answer 11

A long term finance put into a business

Question 12

How to get capital employed

Answer 12

Total equity (shares and owners capital) + non current liability

Question 13

What is non current liability

Answer 13

A long term debt payed off in years

Question 14

What is an income statement

Answer 14

A financial document that summarises a business’s trading activity (sales revenue) and expenses to show whether it has made a profit or a loss

Question 15

What are three types of profit

Answer 15

Gross profit, operating profit, profit for the year (net profit)

Question 16

What is gross profit

Answer 16

The income received from sales minus the cost slow goods and services sold

Question 17

What is operating profit

Answer 17

The financial surplus arising from a business’s normal trading activities and before taxation

Question 18

Calculation for operating profit

Answer 18

Gross profit - indirect costs (overhead expenses)

Question 19

What is profit for the year (net profit)

Answer 19

A measure of a business’s profits that takes into account a wider range of expenditures and incomes including taxation

Question 20

Calculation for net profit

Answer 20

Operating profit-net finance costs-taxation

Question 21

What is a budget

Answer 21

-A forward financial plan concerning the revenues and costs of a business
-provides a target for costs or revenue that a firm aims to reach over time

Question 22

What are the three types of budget

Answer 22

Sales revenue/earning budget
Expenditure budget
Profit budgets

Question 23

What is sales revenue or earning budget

Answer 23

Sets out expected sales revenue for sales

Question 24

What is an expenditure budget

Answer 24

All the costs and production budgets

Question 25

What are profit budgets

Answer 25

Combining revenue and expenditure budget

Question 26

What is a variance analysis

Answer 26

Calculates and investigates the differences between actual results and the budget

Question 27

When does variance analysis happen

Answer 27

When there is a difference between actual and budget figures

Question 28

Two types of results for variance analysis

Answer 28

-positive / favourable -adverse / unfavourable

Question 29

Pros of budgeting

Answer 29

-provides a target -sales budget can motivate -delegated budget(when a business grows, more work, gives employees motivated)

Question 30

Cons of budgeting

Answer 30

-difficult to forecast (no history to base data on) -unexpected changes (unforeseen costs like fuel)

Question 31

What are inflow examples

Answer 31

Sales/selling shares/revenue/crowd funding/bank loans/selling assets

Question 32

What are outflows

Answer 32

Rent/salaries/equipment/raw materials/wages/taxes/start up costs

Question 33

What is working capital

Answer 33

Pays for day to day running costs such as wages and sales on credit (Cash available in the business)

Question 34

What is cash flow

Answer 34

Flow of money in and out of a business

Question 35

What is cash flow statement

Answer 35

Looking a past historical cash flows in the business (last year cash inflow and outflow)

Question 36

What is a payable

Answer 36

Amount of time for a business to pay its suppliers (trade credit)

Question 37

What is a receivable

Answer 37

Time taken for customers to pay the business (needs to be quick)

Question 38

What is trade credit

Answer 38

Offered when purchases are allowed a period of time to pay for the products

Question 39

What is profitability

Answer 39

How efficiently a business generates a profit from its revenue or the % of profit that is generated from its revenue

Question 40

Formula for gross profit

Answer 40

Sales revenue (turnover) - cost os sales (direct costs)

Question 41

Formula for gross profit margin

Answer 41

Gross profit/revenue times 100

Question 42

Formula for operating profit

Answer 42

Revenue - (cost of sales + overheads) Or gross profit - operating expenses (overheads)

Question 43

Formula for operating profit margin

Answer 43

Operating profit/revenue times 100

Question 44

Formula for profit for the year

Answer 44

Operating profit - all costs