3.Finace Flashcards
Administration expenses
Operating costs and expenses that are not directly related to producing goods or services. It’s usually distribution costs. 
Profit of the year
Amount of profit that is left after the tax has been accounted for
Profit objective
Profit maximisation
Exceed profit margins for the market
Cash flow objectives
Minimise interest cost
Reduce amount held in inventories
Reduce borrowings to target level
Equity
Amount invested by the owners of the business, such as share, capital and retain profits
Debt
Finance provided to the business by external party, such as bank, loans, and other long-term debt
Influences on financial objectives
Business owners
Competitors
Economic conditions
Sides and status of the business
Social and political change
Financial objective
Specific goal, target of relating to a financial performance resources and structure of business
Budget
Financial plan for the future concerning the revenues and costs of the business
Historical budgeting
Using previous figures such as last years
Zero budgeting
Budgeted costs and revenues I said zero
Main types of budget
Revenue
Cost
Profit
Variance analysis
Calculating investigating the differences between actual results and the budget
Favourable variances
Actual figures are better than the budget figure
Adverse variances
Actual figure is worse than the budget figure
Cause of favourable variance
Stronger, market demand
Selling prices in increase
Competitive weakness
Better productivity/efficiency
Limitations of budgets
Only as good as the data being used
Lead to flexibility in decision-making
May take time to complete manage
Result in short-term decisions to keep them in the budget
Incremental budgeting
A new budget is formed for making minor changes from the current budget
Contribution
Per unit, when variable cost per unit is taken away from selling price per unit
Advantages of breakeven analysis
Focuses on what output is required for a business, which probability
Calculations are quick and easy
Illustrates importance of keeping fest cost down to a minimum
Disadvantages of breakeven analysis
On will take assumptions, where products are not sold at the same price at different levels of output
Sales are unlikely to be the same as output
Most businesses sell more than one product
And it’s more of a planning aid rather than a decision, making tool
Why to produce a cash flow forecast?
Advanced warning of cash, shortages
Provide reassurance to investors and leaders
Make sure the business can afford to pay supplies and employees
Cash flow problem
When the business does not have enough cash to be able to pay its liabilities
Common problems with cash flow forecast
Sales proof love and expected
Customers do not pay up on time
Costs proof higher than expected
What would happen to much spending on fixed assets
Spending too much on fixed assets made worse of short-term finances used fixed assets are hard to turn back into cash in the short term
What happens if there’s too much in inventory
Access stock up cash
Increased that stocks become obsolete
But there needs to be enough stock to meet demand
Bulk buying may mean lower price
Overtrading
Why business expands too quickly putting pressure on short-term finances such as keen to open new outlets. Have to pay rent in advance pay for shop fitting pay for stocks.
Debtors
Amount owed by customers
Creditors
Amounts owed to suppliers
Debt, factoring
The selling of debtors to a third-party
This generates cash, which guarantees the firm, a percentage of money owed to it, but will produce income. Profit margin made on sales.
Costs involved in factoring can be high
Credit control?
Establishing credit limits for new customers
Chasing up debts
Monitoring the age of debts
Setting realistic limits
Improving cash position in short term
Reduce current assets
Increase current liabilities
Sell, surplus, fixed assets
Improve cash position long-term
Increase equity finance
Increase long-term liabilities
Reduce net outflow on fixed assets
Short term finance
Overdraft
Trade credit
Factoring
Long-term finance
Share capital
Retain profits
Venture capital
Mortgages
Long-term bank loans
Medium term finance
Bank loan
Leasing
Hire precious
Government grant
Debenture
Form of bond, or long-term loan, which is issued by the company, usually with a fixed rate of interest
Usually secured against the assets of the company, which can be traded
Ratio analysis
Analysing relationships between financial data to assess the performance of a business
What does gross profit margin show?
The profit business makes on its sales minus cost of good
Percentage of gross profit made on sales
Help a business, decide whether it needs to race price or reduce the cost
How does operating/net profit margin tell us
How effectively a business turn sales into profit
How efficiently businesses run
Where business is able to add value?
