5: Finance

Question 1

Breakeven formula

Answer 1

Fixed costs/contribution per unit = BE (units)

Question 2

Contribution per unit formula

Answer 2

Contribution per unit = selling price - variable costs per unit

Question 3

Total contribution formula

Answer 3

Contribution per unit x units sold = T Contribution

Question 4

Margin of safety formula

Answer 4

Actual output - BE output

Question 5

Profit formula

Answer 5

Revenue - Total costs

Question 6

Return on investment formula

Answer 6

Return on investment = (Op. profit x100) / capital invested

Question 7

What’s the gross profit margin?

Answer 7

Income from sales minus the cost of goods sold aka Revenue - direct costs

Question 8

Gross profit formula

Answer 8

Revenue - direct costs = Gross profit

Question 9

Where do you get information for Gross profit Margin from?

Answer 9

The income statement

Question 10

What’s an income statement?

Answer 10

A record of a business sales revenue over a trading period and all relevant costs

Question 11

Gross profit Margin formula

Answer 11

GP/Rev x100

Question 12

What is operating profit?

Answer 12

Financial surplus from businesses normal trading activities, before taxation.

Question 13

Operating profit formula

Answer 13

Gross profit - Indirect costs (overheads) = Operating profit

Question 14

Operating profit margin formula

Answer 14

OP/Rev x100 = OPM

Question 15

What is profit for the year?

Answer 15

Profits that take into account a wider range of expenditures and incomes eg. tax,interest

Question 16

Profit for the year formula

Answer 16

OP - taxation = PFTY

Question 17

Profit for the year margin formula

Answer 17

PFTY/Rev x100w

Question 18

what type of tax do companies pay?

Answer 18

Corporate tax

Question 19

Define profitability

Answer 19

Measure of financial performance that compares a businesses profits to some other factors like revenue

Question 20

what is a profit margin?

Answer 20

Ratio that expresses a businesses profit as a % of its revenue over a trading period

Question 21

What is break-even?

Answer 21

The point where level of sales exactly equal to total costs

Question 22

What is contribution?

Answer 22

Difference between revenue and fixed costs

Question 23

What is margin of safety?

Answer 23

The amount by which a businesses current level of output exceeds break-even output

Question 24

What’s working capital?

Answer 24

Money for day to day trading activities (made of creditors, debtors and inventories)

Question 25

What is trade credit

Answer 25

When a period of time is offered to a purchaser before they must pay

Question 26

Define cash flow

Answer 26

Money moving in and out of a business in a given time period.

Question 27

When is a business said to have cash flow issues?

Answer 27

When they don’t have enough cash to pay its liabilities (short-term debts)

Question 28

Define cash flow forecast

Answer 28

State the inflows and outflows of cash that the managers of a business expect over some future period

Question 29

What is capital expenditure (aka investments) ?

Answer 29

Buying non-current assets.

Question 30

What’s a non-current asset?

Answer 30

Not converted to cash within a year in purchasing eg. vehicles, property, staff.

Question 31

What’s a current asset?

Answer 31

Cash gained from the asset in under a year

Question 32

Define capital structure

Answer 32

The way in which a business has raised the capital required to buy assets.

Question 33

Define financial objective

Answer 33

A specific goal or target relating to financial performance, recourses and structure of a business

Question 34

Define budget

Answer 34

A financial plan that forecasts revenue and expected costs over a time period

Question 35

What are the two approaches to budgeting?

Answer 35

Zero (set from 0 then persuade) and historical (prior patterns)

Question 36

What are the 3 types of budget?

Answer 36

Revenue, Profit & Expenditure

Question 37

Define variance analysis

Answer 37

Calculating and investigating differences between actual results and the budget