3.5 Financial Flashcards
Financial objectives
Revenue, costs, profit, cash flow and return on investment objectives
Internal factors on financial obj
Overall objectives of business, status of business, other dep
External factors of financial obj
Availability of finance, competitors, economy, shareholders
Profit
money earned by a business when its total revenue exceeds its total expenses
Profitability
Amount of profit relative to revenue or investment.
Cash flow forecast
Show amount of money businesses expect to flow in and out of the business
Budget
Financial plan for the future
Variance
Difference between actual figures and budgeted figures
Favourable variance
Increased profit
Adverse variance
Reduces profits
Why can variances still be bad?
When variances occur, it means that what has happened is not what the business was expecting.
Break even
Level of sales a business needs to cover its costs
Break even chart
NEEDS TO BE LOOKED AT!!
Margin of safety
Amount between actual output and break even
Gross profit
Sales revenue - cost of sales
Operating profit
Sales revenue - cost of sales - operating expenses
Profit for the year
Operating profit + other profit - net finance costs - tax
GPM
gross profit divided by sales rev x 100
Operating profit margin
Operating profit/sales rev x 100
Debt factoring
When banks and other financial institutions take unpaid invoices off the hands of the business, and give them instant cash payment.
Payables
Debts owed by a business
Recieveables
Money owed to the business by customers or any assets etc
Overdraft
Where a bank lets a business have a negative amount of money in its bank account but then pay interest on that.
Loans
Businesses can borrow a fixed amount of money and pay it back over a fixed period of time with interest.
Retained profit
Profit can be kept and built up over the years for later investment
Share capital
Money raised by selling shares in the business
Venture capital
Funding in the form of share or loan capital that is invested in a business that is thought to be high risk.
Crowdfunding
Business uses contributions made by a large number of people.
Improving cash flow
Overdrafts, business can hold less stock, reduce time between paying suppliers and getting money from customer, credit controllers, debt factoring, sale and leaseback.
Improving profitability
Reduce costs, increase turnover, increase effiency, increase productivity
