5.2 Analysing Financial Performance Flashcards
What is a budget?
Agreed financial plans with a target set for a given period of time.
How to calculate profit budget:
Income budget - expenditure budget.
Why are budgets often calculated for a whole year?
To remove any affects seasonal demand may have.
How to calculate variance?
Budget figure - actual figure.
What is the difference between an adverse and favourable variance?
Favourable - costs are lower/revenue is higher than expected.
Adverse - costs are higher/revenue is lower than expected.
What is the opening balance of a cash flow forecast?
Cash available at the start of the month.
What are cash inflows?
Cash received into the business.
What are cash outflows?
Cash leaving the business.
What is net cash flow?
Cash inflow - cash outflow.
What is the closing balance?
Money available at the end of the month.
Define breakeven.
The volume of sales needed to cover all costs.
Neither a profit or loss is made.
Why is a breakeven figure useful?
Can help guide decision making.
To know the level of output needed to make a profit.
Easier obtaining of profit.
What is the margin of safety?
The amount by which demand can fall before the business starts making a loss.
How would you calculate break even?
Fixed costs/Contribution.
How would you calculate margin of safety?
Actual sales - break even sales.
