businss finacne equations Flashcards
5 purposes of accounting
-recording transactions
-management of business
-compliance
-measuring performance
-control
how can businesses improve cash flow with short term financing?
-trade credit
-debit factoring
-overdraft
what is cash flow forecasting
predicting cash flow, helps predict whether the business will have a profit/loss at the end of the year
disadvantages of cash flow forecasting
-irrecoverable debts
-corporation tax change
-asset could break
3 reasons for cash flow forecasting
-identifies potential shortfalls in cash balances
-see whether trading performance of the business turns into cash
-analyse whether the business is achieving the financial objectives set out in a business plan
what is net cash flow
money left over after doing total receipts - total expenditure
costs definition
the amount a business incurs in order to make goods and/or provide services
3 types of costs
variable, fixed, semi-variable
variable costs definition
costs that change in relation to output e.g raw materials, wages
fixed costs definition
stay the same regardless of output
total costs equation
fixed + variable costs
total revenue = variable costs
what does breaking even mean
a business does not make a profit or a loss
how can u show breaking even
individual units, complete a chart, sales revenue
breaking even equation
total fixed costs / contribution per unit
contribution per unit equation
sales price - variable cost per unit
break even revenue equation
break even units X sales price
margin of safety equation (in units)
actual sales - break even units
margin of safety (in revenue)
sales price X margin of safety units
cost of sales equation
opening inventory + purchases - closing inventory
total revenue equation
selling price X quantity sold
gross profit margin equation
gross profit/revenue X 100
profit margin equation
profit/revenue X 100
cost of sales
opening inventory + purchases - closing inventory
