3.5.1 Flashcards
Return on investment formula
Return on
investment (£)
——————— X100
Cost of
Investment (£)
Give two external and internal factors that influence financial objectives
Internal:
-overall objectives of the business: the financial objectives need to be consistent with the corporate objectives of a business
-other areas of the business: financial objectives may be limited by what’s happening with other departments of a business.
External:
-competitors: a business might set objectives to cut down prices to be more competitive.
-shareholders might put pressure on the business for objectives to have increased profits and dividends.
Percentage change in profit formula?
Current years profit
-previous years profit
——————————- X100
Previous years profit
Gross profit formula
Sales revenue -cost of sales
Operating profit formula
Sales revenue - cost of sales -operating expenses
Profit for the year formula
Operating profit +other profit -net finance costs -tax
Gross profit margin formula
Gross profit
——————- X100
Sales revenue
Operating profit margin formula
Operating profit
———————— x100
Sales revenue
Profit for the year margin
profit for the year
———————— x100
Sales revenue
Two methods to improve Cash flow?
-Overdrafts can be arranged to allow businesses to borrow money can help with short term debts but in the long term can be expensive
-hold less stock so less cash is tied up in stock
Why cash flow forecasts is useful?
Help manager to make sure there is always enough cash to pay suppliers and employees.
Can also show banks forecasts to get a loan.
DisAdvantages of using a cash flow forecast?
-Can be based off false assumptions
-circumstances can change suddenly eg costs could go up machinery can break down.
-could end up with a business being insolvent due to false forecast.
