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Business > Chapter 19: financial performance > Flashcards

Chapter 19: financial performance Flashcards

1
Q

Adverse variance

A

Actual profit is lower than budgeted profit

Due to costs being higher than targeted

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2
Q

Assets

A

Items of value

Eg. Land / machinery /. Cash

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3
Q

Balance sheet

A

Statement of an organisation assets and liabilities at one point

Shows value of the company

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4
Q

Break even output

A

Quantity of output where total revenue = total costs

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5
Q

Budget

A

Financial plan

States futures expected costs and revenue

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6
Q

Budgeting

A

Making a budget

Or trying to keep below a certain level of spending

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7
Q

Capital expenditure

A

Spending on new non-current assets

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8
Q

Capital structure

A

Way a business raises finance to purchase assets

How much from shares vs loans

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9
Q

Capital structure objectives

A

Raising finance in a cheap way

Provides sufficient funds for survival / expansion

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10
Q

Contribution

A

Money left over from sale of product after variable costs are deducted

Used to pay of fixed costs

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11
Q

Contribution per unit

A

Price - variable cost per unit

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12
Q

Current assets

A

Items of value owned by a business. That will be turned to cash within 1 year

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13
Q

Current liability

A

Debts scheduled for repayment within 1 year

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14
Q

Current ratio

A

Measurement of the level of liquidity

Should be 1;5;1

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15
Q

Current ratio formula

A

Current asset/current liabilities

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16
Q

Debt factoring

A

Business sells its receivables to a third party at a discount

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17
Q

Direct cost s

A

Cost of sales

Includes raw materials. Direct labour

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18
Q

External source of finance

A

Funding from outside of the business

Eg. Bank loan

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19
Q

Favorable variance

A

Situation where the financial outcome is better than budgeted for

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20
Q

Financial decision making

A

Strategies chosen to help improve cash flow

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21
Q

Financial efficiency ratio

A

Measuring how well an organisation mangers its working capital

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22
Q

Financial objectives

A

Monetary goals that a business sets itself usually set target in Caltrain time

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23
Q

Gearing

A

Measure of the extent to which a firms capital is financed using long term loans

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24
Q

Gearing formula

A

Non-current liabilities / total equity + non current liabilities X100

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25
Q

Going into administration

A

Court appoints accountants to run a business after its declared insolvent

26
Q

Gross profit

A

Excess of revenue over cost of sales

= revenue - direct costs

27
Q

Income statement

A

Account that shows income and expenditure of a firm over a set Time span

28
Q

Insolvent

A

Company with little hope of ever being able to pay debts

29
Q

Internal source of finance

A

Funding that comes from the business owners

30
Q

Inventory

A

Stocks of raw materials

31
Q

Inventory turnover

A

Ratio that shows how many times a business sell its stock in a year

32
Q

Inventory turnover formula

A

Cost of goods sold / average inventories held

33
Q

Liabilities

A

Debts owed

Eg. Trade credit

34
Q

Liquidation

A

Turning all assets into cash and paying off liabilities

35
Q

Liquidity

A

Ability of a firm to meet it short term debts

36
Q

Loan

A

Sum of money that are borrowed an paid back with interest

37
Q

Long term funding

A

Finance raised that does not have to be repaid within 1 year

38
Q

Margin of safety

A

Quantity by which sales may fall before a form incurs a loss

= demand - break even output

39
Q

Net assets

A

Shows value of company

= total assets - total liabilities

40
Q

Net current assets

A

Amount of spare liquid assets once current liabilities have been taken into account

= current assets - current liabilities

41
Q

Operating profit

A

Profit generated by the ongoing business

= gross profit - indirect costs

42
Q

Operating profit margin

A

% of sales revenue that is operating profit

= operating profit x 100 / sales

43
Q

Overdraft

A

Borrowing facility in which any amount of money to a agreed limit can be used

44
Q

Over head

A

Costs not generated by production process

45
Q

Over trading

A

Beyond level at which there is a safe level of cash

Risk of liquidation despite strong sales

46
Q

Payables

A

Debts owed by a business

47
Q

Payables days

A

= payables / cost of sales X 365

48
Q

Profit for the year

A

Total profit

= operating profit + interest received - interest paid - tax on profits

49
Q

Profit for the year margin

A

% of revenue that is profit for the year

= profit for year / turnover x 100

50
Q

Profitability

A

Compares business profit to other factors like revenue or capital employed

51
Q

Receivables

A

Amount owing to a firm from debtors

Current asset

52
Q

Receivables days

A

Number of days till convert receivables to cash

= receivables/revenue x 365

53
Q

Retained profits

A

Value of all profits not given to shareholders and kept for company use

54
Q

Return on capital employed

A

= operating profit / total equity + non current liabilities. X 100

55
Q

Return on investment %

A

Return on investment / cost of investment x100

56
Q

Share capital

A

Amount of money invested into the business by shareholders

57
Q

Total contribution

A

Total revenue - total variable costs

58
Q

Total equity

A

Money belonging to the shareholders

= share capital + retained profit

59
Q

Variance

A

= actual figue - budgeted figure

60
Q

Venture capital

A

Investment funding for small businesses which is taking risks

61
Q

Window dressing

A

Presenting the accounts in a way that make the accounts look better

62
Q

Working capital

A

= current assets — current liabilities

Business (25 decks)

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