Basics Flashcards
Gross Profit Margin
Amount of Gross Profit made for the amount of revenue made
Profit Margin
Amount of Profit made for per revenue made
What can cause a decrease in gross profit margin?
- Drop in revenue
- Rise in Cost of Goods
What does cost of goods mean?
It’s how much it costs to produce the product
What can cause an increase in gross profit margin?
- Rise in revenue
- Drop in Cost of Goods
What the difference between economies of scale and diseconomies of scale?
- Economies of Scale is an reduction in a costs
- Diseconomies of Scale is an increase in costs
What can cause an increase in operating profit margin?
- Increase in Gross Profit Margin
- Increase in Revenue
- Decrease in Operating Cost/Expenses
What can cause a decrease in operating profit margin?
- Decrease in Gross Profit Margin
- Decrease in Revenue
- Increase in Operating Cost/Expenses
Net Profit Margin
How much net profit a business can make for the revenue made
What can cause a decrease in net profit margin
- Decrease in Operating Profit Margin
- Decrease in Revenue
- Increase in Tax expenses
- Increase in Interest expenses
What can cause an increase in net profit margin
- Increase in Operating Profit Margin
- Increase Revenue
- Decrease in Interest Expenses
- Decrease in Tax Expenses
Return on Assets (ROA)
The amount of money a business generates from it’s assets (things it owns)
Why is Return on Assets important to know?
- It tells the business how efficiently they used their assets to make a profit
How can a business improve their Return on Assets
- Increasing Net Profit Margin
- Increasing it’s Revenue
- Improving their Assets Turnover Ratio
Financial Statement
Accounting Reports that summarize the financial activities and performance of a business
What are type of financial ratios?
- Liquidity Ratios
- Profitability Ratios
- Efficiency Ratios
- Price Ratios
- Leverage Ratios
What does profitability ratio measure?
How efficiently a business make a profit from revenue, assets, equity and capital employed
Equity
The net fund invested into a business by it’s owners
What is Capital
This is the money made to support/fund the business
Capital Contribution
The money invested in the business from their owners own pockets
Liabilities
Source of 3rd party funding used to buy assets and fund operations which a business had to pay back.
- Example of liability is an account payable
Account Payable
Buying through credit, meaning your agreeing to pay later.
Liquidity Ratios
How well a business can deal with short term debts through assets
Boston Matrix
- Rising Star - High Market Growth, High Market Share
- Cash Cow - High Market Share, Low Market Growth
- Problem Child - High Market Growth, Low Market Share
- Dog - Low Market Share, Low Market Growth
Advantages and Disadvantages of the Boston Matrix?
- Advantages: Easy to Understand, Helps to Identifies Opportunities, Useful for removing weak areas of the business
What are E-commerce with an example?
These are online shops
- e.g. Nike has an online shop
Niche Market
- This is when a business targets 1 market segment.
What are the positives and negative of a niche market?
- It allows the business to become more familiar with their target market
- Specific goods are being produced allow the business to charge at a higher price
- It’s a smaller market
- less potential of growth
- If 1 business becomes successful in that market more business’ could move into that market aswell
Break even level of output
- This is the exact number of product that a firm needs to sell to cover the costs
How to improve Cash Flow
- Reduce Outgoing e.g Trimming Labour Costs, Trimming Marketing cost
- Increase Revenue E.g Boost Sales bro Increasing Price
- Borrowing Money e.g. loans
What is the difference ebetween Hard HR and Soft HR
- Hard HR sees the employees as resource so they are more likely to use zero blue contracts
- Soft Hr sees employees as a firms most valuable they are more likely invest in training and development and use permanent contracts
Margin of Safety
- This is when a firm is selling more products than the amount they need sell to cover all the costs.
Herzbeg’s Two Factor Theory
-Hygiene factors - These are needs that should be met or if not met it could demotivate an employee. However, factor one there own wouldn’t be able to motivate them. E.g How much an employee is getting payed.
- Motivators - These are factors that can increase productivity, morale and motivation.
Pricing Strategies
- Price Skimming - Price starts high and decreases over time
- Price Penetration - Price starts of low to gain a costumers and brand loyalty and then price starts to rise
- Competitive Pricing - Pricing is based on competitors pricing
- Dynamic Pricing - Pricing is dependent on demand
What is a Sole Trader
- These are organisation ran by 1 person
- Gives the person full control of the business
- They get to keep any profit they make for themselves without having to split it
- They have unlimited liability
LTD - Private Limited Company
- Business owned by shareholders which have were invited privately into the business
- Brings extra skill, ideas, finance and experiences into the business
- They have Limited Liabilities
- Potential conflict, power struggle
PLC - Public Limited Company
- This is a company that sells shares publicly on the stock exchange
- Raises huge sums of capital
- Little control over who buys the shares
Stages of the Product Lifecycle
- Research & Development
- Introduction
- Growth
- Maturity
- Decline or Extension Strategy
What is the difference between Quality Assurance and Quality Control
- Quality Control is when a product quality is checked just before it’s sent off
- Quality Assurance is checking a product throughout the production stage
Positives of Quality Assurance
- Each employee is responsible for their section of the product and it’s quality
- Insures a better end product
Budgeting
- Expenditure Budgeting - Setting Targets on how much each branch of a business should be spending
- Sales Revenue Budget - Financial targets on how much a business wants each branch to return in sales revenue
- Profit Budget - Setting different profit targets for a different branches to work towards
Variance Analysis
- This is conducted at the end of the financial period, where a business will compare their actual figures and budgeted figures and calculate the difference
What’s the difference between favourable variances and
- Favourable Variances - When different branches have underspent or made a higher sales revenue or profit then anticipated
- Adverse Variances - When branches have overspent or made less sales revenue or profit then budgeted
Maslow’s Hierarchy of Needs
- Money
- Job Security
- Social and Teamwork
- Self-Esteem
- Self-Actualisation (Hitting your peak)
Porter’s Two Generic Strategies
- Low Cost Producer - Trying to be the cheapest business in the market. This causes rigorous cost reduction
- Differentiated - Selling costumers different aspects that can’t be matched by competitors
Hertz berg theory
Hygiene - working environment stuff that aren’t not too important but still motivate them.
Motivational - really important factors such salary, commission
Taylor
-oldest theory
-labour intensive theory (sees
What are dividends
The money paid to the shareholders by the business out of its profits.
