Decision making to improve financial performance Flashcards
Financial Objectives
A financial objective is a specific goal or target of relating to the financial performance, resources and structure of a business
Profitability
Profitability ratios:
- Gross Profit Margin
- Net Profit Margin
- Return on Capital Employed
Gross Profit Margin
Gross Profit / Revenue x 100
Gross Profit
Revenue - Cost of sales
Return on investment
Net Profit (before tax) / Capital invested x 100
Cash Flow
Cash flow describes the movements of cash into and out of a business
Net Cash Flow
The difference between the cash inflows and cash outflows during a specific period (e.g. a week, month) is known as the “net cash flow”
Break even
The point at which total costs and total revenue are equal
Margin of safety
The difference between the actual level of output and the break even output.
Contribution per unit
Contribution per unit = selling price per unit - variable costs per unit
Total Contribution
Total Contribution is the difference between Total Sales and Total Variable Costs
Budgeting
A financial plan for the future concerning the revenues and costs of a business
Variance analysis
The difference between the budgeted amount and the actual amount
Historic Budgeting
Based upon last years performance
Zero based budgets
Zero-based budgeting is a method of budgeting in which all expenses must be justified and approved for each new period
