3.5.1 - Financial Management

Question 1

What are financial objectives?

Answer 1

A specific goal or target relating to the financial performance, resources and structure of a business.

Question 2

What are the key benefits of setting financial objectives?

Answer 2

• Provide target to help make investment decisions
• Reduced risk of business failure (cash flow objectives)
• A measure of success or failure for the business (allows performance to be judged).

Question 3

What is profit?

Answer 3

The extent to which revenues, generated from selling a product, over a time period exceed the costs incurred in producing it.

Question 4

What is cash flow?

Answer 4

The movement of cash into and out of a business over a period of time.

Question 5

What is net cash flow?

Answer 5

The difference between the cash inflows and outflows during a specific time period.

Question 6

What is gross profit?

Answer 6

The income received from sales revenue minus the cost of goods sold.

Question 7

What is operating profit?

Answer 7

The financial surplus arising from a business’s normal trading activities, before taxes.

Question 8

What is a profit of the year?

Answer 8

A measure of a business’s profits that factors in a range of expenditures and incomes including tax.

Question 9

How do you calculate gross profit?

Question 10

How do you calculate a gross profit margin?

Question 11

What could a change in the gross margin indicate? (e.g rise or fall)

Answer 11

1. A fall may indicate: higher costs from suppliers, prices of products lowered.
2. An increase may indicate: lower costs from suppliers, selling price rises.

Question 12

How do you calculate operating profit?

Question 13

How do you calculate an operating profit margin?