Analysing Finacial and Non-Financial Performance Flashcards

1
Q

What is a budget?

A

A budget is a financial plan for the future.

Without a budget business’s can run into financial problems.

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2
Q

Why is a budget important ?

A

So a business does not go into bankruptcy.

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3
Q

Advantages of budgets

A

-Promotes coordination and communication among subunits within the company.

-Provides a framework for judging performance and facilitating learning.

-Motivates managers and other employees.

-Financial Planning: They help individuals and organisations plan how they will allocate their resources to meet their financial targets

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4
Q

Limitations of Budgets

A

-Lack of flexibility, can’t react to changes in the market

-Focused on the short-term.

-has to be based on good quality info

-if managers and employees are excluded from budgeting process might feel demotivated

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5
Q

Budget Variances

A

Budget Variances is to check actual outcomes against predicted outcomes.
AKA Variances analysis

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6
Q

Variance analysis

A

Favourable is when the results are better than the predicted out come so positive

Unfavourable / Adverse this is when the results are worse than budgeted. So negative

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7
Q

Reasons for Budget Variances

A

Sales Variances
-Favourable
*Successful advertising campaign
*Demise of competitor
*Bonus scheme for sales team
-Adverse
*Successful activities of competitors
*Ineffective advertising
*logistical problems
*Bad weather

Cost Variances
-Favourable
*Improved labour productivity
*Reduced cost of imported components
*Cheaper supplier
-Adverse
*waste of production
*strike by dockers
*bad weather
*devaluation of the pound
*price rise from suppliers

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8
Q

Income statement

A

An income statement a historical record of a business over a specific period. It typically shows profit or loss made by the business

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9
Q

Why is an income statement important ?

A
  • Allows shareholders to see how the business has performed.
    -Allows for comparison with other similar businesses
  • Providers of finance can see if the business can make sufficient funds
    -It is a legal requirement for businesses to provide a financial record of the business
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10
Q

key components of the income statement

A

-sales revenue (sales made to customers)

-cost of sales ( cost of generating revenue e.g raw materials)

-gross profit ( difference between revenue and cost of sales)

-expenses ( expenses not related to producing goods e.g wages)

-net profit ( all business’s revenue and expenses)

-corporation tax
-profit after tax
-dividends

-retained profits (amount of profit kept by business and can be used next year)

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11
Q

When analysing Income statement the following should be considered

A

-comparing performance over time

-comparing performance against competitors or the industry in which the business operates

-benchmarking - comparison against other businesses who are not direct competitors can also be useful if they help set the standard that the business aims to achieve

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12
Q

Areas to target when analysing trading, profit or loss accounts.

A

Sales Revenue

Cost of sales

Gross profit

Net profit

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13
Q
A
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