3.5.4 Making financial decisions: improving cash flow and profits

Question 1

Improving profitability

Answer 1

• Decrease costs
• Changing its price
• Product development
• Marketing
• Invest in fixed assets
• Increase sales volume and HR strategies

Question 2

Improving profitability by decreasing costs

Answer 2

Cutting variable costs will widen profit margins

Question 3

Improving profitability by changing its price

Answer 3

• If the price is elastic then the price can be decreased causing an increase in sales
• If the price is inelastic then the price can be increased therefore increasing profit margins

Question 4

Improving profitability through product development

Answer 4

Increases customer interest, can then increase the price and sales volume

Question 5

Improving profitability by investing in fixed assets

Answer 5

New equipment, staff training etc. will increase efficiency and therefore improve profitability

Question 6

Improving profitability through marketing

Answer 6

Encourages customers to buy, increasing product value and therefore can charge higher prices

Question 7

Improving profitability through HR strategies

Answer 7

Training staff can increase motivation and therefore increase productivity and efficiency

Question 8

Improving profitability by increasing sales volume

Answer 8

Increase in demand possibly through marketing, reputation etc

Question 9

Improving cash flow

Answer 9

• Sale and lease back
• Overdrafts
• Leasing non-current assets
• Improving work capital control
• Debt management
• Cash management and inventory management

Question 10

Improving cash flow through sale and lease back

Answer 10

Selling and renting assets create an immediate inflow

Question 11

Improving cash flow through overdrafts

Answer 11

Allows the business to survive even without cash

Question 12

Improving cash flow by leasing non-current assets

Answer 12

Can create even and regular outflows

Question 13

Improving cash flow by improving working capital and control

Answer 13

Careful management of a firms current assets can help regulate inflows and outflows

Question 14

Improving cash flow through debt management

Answer 14

Controlling receivables to ensure quick inflows

Question 15

Improving cash flow through cash management

Answer 15

Overdrafts or setting aside contingency fund can leave room for unexpected payments

Question 16

Improving cash flow through inventory management

Answer 16

High levels of inventory will guarantee continuation of productivity