Business Management Flashcards
Gross profit Margin
Profit made on sales turnover
Gross profit/sales revenue x100
Net profit margin
Measure of profitability
(Revenue - Costs) / Revenue
Return on Capital employed (ROCE)
compares investments with profits
Net before tax and insurance/sales rev. x100
Current Ratio
current assets/current liabilities
(aim for 1.5)
Acid test Ratio
more severe test (excludes stock)
current assets - stocks / current liabilities
(aim for 1)
Stock turnover
how quick business uses/sells stock
stock/costs good sold x 100
Creditor days
quickness to pay bills (should be higher than debtor days)
Creditors / cost goods sold x 100
Debtor days
measures efficiency (days to collect debt)
debtors/total sales rev. x 100
Gearing Ratio
reliance on internal + external sources of finance (loan and share capital)
loan capital/capital employed x 100
high -> external
low -> internal
Profit
positive difference between sales revenue and costs of goods sold.
sales rev. - total costs.
Cash flow
continuous movement of cash in/out.
cash inflow - cash outflow
Working capital cycle
time between payment of good and receiving cash from sales.
short time -> ideal situation
Working capital
capital needed for day-to-day costs.
current assets - current liabilities.
Investment appraisal
How business will evaluate an investment project (will be or not be profitable).
Payback period
Estimate when investment will return initial costs.
initial investment cost - annual cash flow from project. (x12 for months)
adv.
-> short term measure
Disadv.
-> ignores overall profitability.
Average rate of return (ARR)
annual net return of an investment as (%)
(Total returns - capital costs)
/ years of usage
/ capital costs x 100
adv.
-> realistic and clear
disadv.
-> forecast errors - long-term
Variance
difference between budgeted and actual figure
Favourable
-> difference = beneficial
Adverse
-> difference = financially costly
Variance analysis
budgeted figure - actual figure
