5: Finance Flashcards
Breakeven formula
Fixed costs/contribution per unit = BE (units)
Contribution per unit formula
Contribution per unit = selling price - variable costs per unit
Total contribution formula
Contribution per unit x units sold = T Contribution
Margin of safety formula
Actual output - BE output
Profit formula
Revenue - Total costs
Return on investment formula
Return on investment = (Op. profit x100) / capital invested
What’s the gross profit margin?
Income from sales minus the cost of goods sold aka Revenue - direct costs
Gross profit formula
Revenue - direct costs = Gross profit
Where do you get information for Gross profit Margin from?
The income statement
What’s an income statement?
A record of a business sales revenue over a trading period and all relevant costs
Gross profit Margin formula
GP/Rev x100
What is operating profit?
Financial surplus from businesses normal trading activities, before taxation.
Operating profit formula
Gross profit - Indirect costs (overheads) = Operating profit
Operating profit margin formula
OP/Rev x100 = OPM
What is profit for the year?
Profits that take into account a wider range of expenditures and incomes eg. tax,interest
Profit for the year formula
OP - taxation = PFTY
Profit for the year margin formula
PFTY/Rev x100w
what type of tax do companies pay?
Corporate tax
Define profitability
Measure of financial performance that compares a businesses profits to some other factors like revenue
what is a profit margin?
Ratio that expresses a businesses profit as a % of its revenue over a trading period
What is break-even?
The point where level of sales exactly equal to total costs
What is contribution?
Difference between revenue and fixed costs
What is margin of safety?
The amount by which a businesses current level of output exceeds break-even output
What’s working capital?
Money for day to day trading activities (made of creditors, debtors and inventories)
What is trade credit
When a period of time is offered to a purchaser before they must pay
Define cash flow
Money moving in and out of a business in a given time period.
When is a business said to have cash flow issues?
When they don’t have enough cash to pay its liabilities (short-term debts)
Define cash flow forecast
State the inflows and outflows of cash that the managers of a business expect over some future period
What is capital expenditure (aka investments) ?
Buying non-current assets.
What’s a non-current asset?
Not converted to cash within a year in purchasing eg. vehicles, property, staff.
What’s a current asset?
Cash gained from the asset in under a year
Define capital structure
The way in which a business has raised the capital required to buy assets.
Define financial objective
A specific goal or target relating to financial performance, recourses and structure of a business
Define budget
A financial plan that forecasts revenue and expected costs over a time period
What are the two approaches to budgeting?
Zero (set from 0 then persuade) and historical (prior patterns)
What are the 3 types of budget?
Revenue, Profit & Expenditure
Define variance analysis
Calculating and investigating differences between actual results and the budget
