5 Decision making to improve financial performance

Question 1

common financial objectives

Answer 1

• Profit
• Revenue
• Cash flow
• Break even
• ROI
• Gearing

Question 2

what is the value of setting financial objectives

Answer 2

• helps meet corporate objectives
• keep on track with functional objectives
• allows for budgeting for resource allocation
• measurements for SMART objectives

Question 3

investment appraisal

Answer 3

a decision making tool that is used to compare the costs of an investment and its expected revenue

Question 4

capital employed is the

Answer 4

long term funding that shows where business gets money from

Question 5

Share equity is the

Answer 5

money that is funded through shareholders

Question 6

internal influences on financial objectives

Answer 6

• corporate objectives
• functional objectives
• leaders
• finances available for the business

Question 7

external influences on financial objectives

Answer 7

• PESTLE
• Competitors

Question 8

a budget is

Answer 8

a monetary target set to enable a business to achieve its corporate objectives

Question 9

the three types of budgets are

Answer 9

• expenditure
• profit
• income

Question 10

capital structure has got to do with

Answer 10

the amount of funding the business has via equity and debt

Question 11

gross profit

Answer 11

revenue - cost of goods

Question 12

operating profit

Answer 12

gross profit - cost of operating

Question 13

profit for the year

Answer 13

operating profit - all other expenses

Question 14

purpose of setting budgets

Answer 14

• provides a clear plan for the business
• motivating for staff
• enhances credibility of a business plan
• allows for purchasing decisions to be made by experts

Question 15

difficulties in setting budgets

Answer 15

• bias
• relies on accurate data
• relies on expertise of entrepreneur
• unforeseen changes in external environment like competition, inflation
• time consuming - opportunity cost

Question 16

variance analysis

Answer 16

process of comparing budgets to the actual financial performance of the business

Question 17

what does a favourable variance lead to

Answer 17

lead to greater profits

Question 18

what does an adverse variance analysis lead to

Answer 18

leads to lower profits

Question 19

receivables is

Answer 19

the money that the business is owed by its debtors

Question 20

payables is

Answer 20

the money the business owes to its creditors

Question 21

what order is the cash flow forecast in

Answer 21

• Cash inflows
  all the inflows like capital, revenue, receivables etc
• Cash outflows
  all the outflows like wages, materials, payables
• Net cash flow (inflows - outflows)
• Opening balance (last months closing balance)
• Closing balance ( opening balance + net cash flow)