A293 - Finance Flashcards
How can you increase sales revenue?
Higher retail price
Decrease price
Stimulate demands - adverts, USP
What is the difference between a price elastic and inelastic product?
Price elastic -demand will be affected by change in price, inelastic - demand not affected
What does price elasticity depend on?
Number of competitors
What competitors do in price
Necessity or luxury product
What is the equation for SR?
SR = sold * selling price
What are fixed costs?
Costs that stay the same no mater how much a business sells e.g. rent, insurance, interest rates
What are variable costs?
Money spent on items directly linked to products e.g. materials
What is total cost?
Fixed + variable
What is average cost?
Total / units
Why do average costs fall with increasing output?
Fixed costs spread over more units
Using fixed assets efficiently
What does competition mean in terms of production costs?
Have to be low
How could Holden reduce material costs? (4)
1) Compare supplier prices
2) Bulk buying
3) Reduce stock held - JIT
4) Cheaper alternative to latex
How could Holden reduce wage costs? (5)
1) Cutting hours / staffing levels
2) Minimise overtime pay
3) Training - less supervision
4) Relocate
5) Automation
How could Holden reduce energy bills? (4)
1) Use at night - off peak
2) Turn off unused machines
3) More efficient equipment
4) Alternative sources e.g. solar panels
What is profit?
Money left over from sales when all costs paid (SR-TC)
What is gross profit?
Profit made without paying for day to day expenditure (only buying + selling goods) (SR- cost of sales)
What is profit margin?
What % of sales is profit
(gross/buying price * 100)
Buying price = all variable costs (cost of sales)
What is net profit?
Takes into account all expenditures (gross-expenses or SR-TC)
What is an opportunity cost?
Cost of having to miss out on an alternative use for money
What is break even?
Where SR = TC - no profit or loss, units sold required to cover costs (FC/contribution (contribution = selling price - variable cost))
What are the advantages of break even analysis? (3)
1) Assess profitability
2) Makes decisions about prices
3) Calculates production levels
What are the disadvantages of break even analysis? (3)
1) Assumes all output sold
2) Assumes all sold at one price
3) Assumes variable costs constant - ignores economies of scale + exchange rates
What is cash flow?
Analysing money coming into a business (inflows) and money going out of a business (outflows)
What are advantages of a cash flow forecast? (4)
1) Help bank loaners decide
2) Plan for short-comings
3) Business decisions e.g. new products
4) Help set targets
What are limitations of a cash flow forecast? (3)
1) Based on sales assumptions
2) Doesn’t include external factors
3) Mistakes - incorrect action
Why could Bromley Furnishings’ sales be lower than expected? (4)
1) New competitor
2) Lack of advertising
3) Recession
4) Rise in interest rates
How could Sunil overcome the cash short-fall in March?
Overdraft - may not solve problems of falling sales, high interest rates
Increase advertising - expensive
Lower costs - less short-fall, not solve problem
Ask for trade credit
What is share issue?
Selling part of a business
+ Quick
- Dividends + control
What is hire purchase?
Not owned until final payment
+ Don’t need all cash at once
- May include interest
What is trade credit?
No immediate payment, can sell
+ Interest free
- Paid back even if not sold
What is retained profit?
Money a business already has
+ Used when/where ever needed
- Opportunity cost
What sources of finance could Holden use for £1 million machinery?
Hire purchase
Bank loan
What sources of finance could Holden use for factory?
Grant Loan (mortgage) Retained profit Shares Sale of assets
What costs could Holden have when relocating?
Land Maintenance Business rates Transport Redundancy
Should Holden lease a factory?
Annual payments of £68,000 \+ £12,000 cheaper annually - invest \+ Can move whenever - external influence - More maintenance - always pay - Never own - asset as security not possible
Should Holden use a mortgage to build a new factory?
Annual repayments of £80,000 \+ Own property - modify freely \+ Exactly what they need, lower maintenance - Time consuming - Short term expenses
What should Holden do about their factory if they move to Bowton?
Mortgage
- Asset - secure loans
- Construction - local community
