5.1/5.2/5.3/5.4 Finance Flashcards
Why is a positive cash flow important?
Receipts need to exceed payments so the business has enough money to pay its bills
Allows a business to survive
Main financial objectives?
Cash Profit Revenue Costs Investment
Gross Profit?
Revenue - Variable Costs
Operating profit?
Gross profit - Fixed costs
Net profit?
Operating profit - remaining costs
How do you calculate return of investment?
operating profit / capital invested x 100
What are budgets?
Financial plans that forecast revenue from sales and expected costs over a period of time
Types of budget?
Revenue Budget
Expenditure Budget
Profit Budget
What research may budgets require?
- Analysing the market to predict trends in price/sales can predict revenue
- Researching costs (labour etc)
- Estimating government plans (wage rises)
What sources can businesses use for budgets?
- Previous trading records
- Market research
- Suppliers
- Government agencies
Difficulties in budgeting?
- Difficult to accurately forecast sales
- Risk of unexpected change
- Decisions by government
Advantages of budgeting?
- Control finance effectively
- Managers can make informed decisions
- Ensure businesses don’t overspend
- Allocate finances
- Motivate staff
- Revenue budget used as a target
Disadvantages of budgeting?
- Employees may need training if delegated responsibility
- Errors or delays as employees adjust to positions
- Allocating budgets can be very difficult
- May not be long term
Reasons for cash flow?
- Support loan applications
- Avoid unexpected cash issues
What are payables?
Amount of time taken by a business to pay back its suppliers (or other creditors)
