3.5 Financial management Flashcards
What is a Return On Investment (ROI)?
A measure of the profitability of an investment, calculated as the ratio of net profit generated by the investment to the initial investment cost.
What is meant by Gross Profit?
The difference between revenue and the cost of goods sold, representing the profit earned from primary business activities before deducting other expenses.
What is Operating Profit?
The profit earned from a company’s core business operations after deducting operating expenses from gross profit.
What is Profit of the Year?
The net income or profit earned by a company over a specific accounting period, typically calculated after deducting all expenses, taxes and dividends.
What is Adverse Variance?
A difference between actual performance and budgeted or expected performance that results in a negative impact on a company’s financial results.
What is a Favourable Variance?
A difference between actual performance and budgeted or expected performance that results
in a positive impact on a company’s financial results.
What is Break Even Output?
The level of output at which total revenue equals total costs, resulting in neither profit nor loss.
What is Margin of Safety?
The difference between actual sales and the break-even point, representing the amount by
which sales can drop before a company incurs losses.
What is Contribution per unit?
The amount of revenue remaining after deducting variable cost per unit from selling price, representing the contribution of each unit sold towards covering fixed costs.
What is Total Contribution?
The total amount of revenue remaining after deducting variable costs from sales revenue, available to cover fixed costs and contribute to profit.
What are Payables?
Amounts owed by a business to its suppliers or creditors for goods or services purchased on credit.
What are Receivables?
Amounts owed to a business by its customers or debtors for goods or services provided on credit.
What is Profit from Operations?
The profit earned from a company’s core business activities before deducting interest and
taxes.
What is a Break Even Analysis?
A financial technique used to determine the level of sales or output needed to cover total costs and break even, helping businesses make informed decisions.
What is Debt Factoring?
A financing arrangement where a business sells its accounts receivable to a third party (factor) at a discount to obtain immediate cash.
