5. Decision Making to Improve Financial Performance Flashcards
Name 4 financial objectives
Profit
Cutting costs
Borrowing
Cash flow
Extra:
Revenue
Investments
Calculate return on capital
Net profit / capital investment x 100
Name 2 reasons why companies set objectives
Acts as a focus for decisions
Measures success
Extra:
Allows shareholders to assess company
Direction
Calculate revenue
Quantity sold x Selling price
Calculate variable cost
Quantity sold x VC per unit
Calculate total cost
Fixed cost + Variable cost
Give 2 examples of a fixed cost
Insurance
Rent
Extra:
Business rates
Salaries
Give 2 examples of a variable cost
Packaging
Materials
Extra:
Equipment
Commission
Calculate profit
Total Revenue - Total Costs
Calculate contribution
Selling price per unit - Variable cost per unit
Calculate total contribution
Revenue - Total Variable Costs
Define break even output
The level of output at which total sales revenue is equal to total costs of production
Calculate breakeven output
Fixed costs / (selling price - variable cost per unit)
Define breakeven analysis
The study of the relationship between total costs and total revenue
Name 2 pros and 2 cons of breakeven analysis
+ Helps set targets
+ Easy to calculate
- Businesses sell more than one product usually
- Unrealistic assumptions
