Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

business a level > finance > Flashcards

finance Flashcards

1
Q

formula for breakeven

A

fixed costs / (price - variable cost)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

formula for contribution

A

price - variable cost per unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

formula for total contribution

A

total revenue - total variable cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is the margin of safety

A

the difference between the level of output that is actually sold and the level of output needed to make breakeven.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

advantages of using breakeven

A
  • allows a business to know how many products it needs to sell to make a profit
  • find appropriate selling prices
  • allows a business to identify where to change costs
  • highlights margin of safety
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

disadvantages of breakeven

A

-it does not account for costs or prices changing
- if the business sells lots of products it will be difficult to predict the breakeven points if it is averaged out into one graph

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

risks of not using breakeven

A
  • could set the wrong prices and make a loss
  • business costs might be higher than expected
  • business wouldn’t be aware of the margin of safety
  • the business would not know how many to sell to make a profit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

purpose of an income statement

A

shows income and expenditure, whether they are making a profit or a loss during a given period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

trading account

A

up to and including gross profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

revenue

A

price x output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

cost of sales

A

variable cost per unit x output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

gross profit

A

revenue - cost of sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

operating profit

A

gross profit - expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

net profit

A

operating profit - tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

adv of income statements

A

+ shows profit/ loss
+ help fix issues
+ shows where/ how much you’re spending
+ formulate future objectives
+ investors - shows profit or loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

disadv of income statements

A
  • stops future investment if bad
  • not specific expenditures
  • only published once a year so delayed
  • does not look at non- revenue success factors (rep/ brand image)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

cash flow

A

the movement of money in and out of a business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

opening balance

A

closing balance of cash from the previous month

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

closing balance

A

net cash flow + opening balance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

net cash flow

A

represents money produced if lost by a business over a period of time
total inflows - total outflows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

adv of cash flow

A

+ determine how much cash your business makes
+ insight into short-term financial viability
+ positive cash flow = strong chance of success

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

disadv of cash flow

A
  • positive cf is not always good (loan) will have to pay it back
  • neg cf is not always bad (investment) boost future rev
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

overcome cf issues

A

short term: overdraft, delayed payments to suppliers

long term: raise price, loan, invoice promptly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

why use cf forecast

A

planning to deal w neg cf
setting prices
evaluate costs
looked at by banks and porte risk investors
suppliers - if they can be payed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

budgets

A

an estimate of income and expenditure for a set period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

variance

A

actual expense - budgeted amount of expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

% of budget

A

actual - budget
ans / original budget x 100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

why budget

A

staff motivation
monitor performance
corrective action is taken if results differ significantly
unaccounted variances are investigated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

zero budgeting

A

setting all budgets at 0 and the manager of each department makes them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

adv of zero budgeting

A

+ justify requirements
+ prevents same money being given each year without consideration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

disadv of zero budgeting

A

short term perspective of long term situation
tiresome
time consuming

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

flexible budgets

A

allows businesses to make adjustments for change in sales so adverse variances are avoided
- cope w change
- taken into account immediately

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

current ratio

A

measures a companies availabilty to pay short term obligations or those due in one year
current assests/ current liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

acid test ratio

A

ability of a company to use its near cash or quick assets to retire its current liabilities immediately
current assets - inventory/ current liabilities
under 1- negative
1-1.5- perfect
over 2- business could be more proactive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

gross profit margin

A

gross profit/ revenue x 100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

net profit margin

A

measure of profitability
net income/ net sales x100

37
Q

return on capital employed

A

comparing the rejective profitability of companies after taking into account the amount of capital used
operating profit/ capital employed x100

38
Q

return on equity

A

measurd of the profitability in realtion to equity. all assets - all liabilities
profit for year/ shareholder equity

39
Q

advantages of ratios

A

year to year comparison
stakeholders can assess if safe to trade w
can see if financial objectives have been met
decision making

40
Q

disadvantages of ratios

A

infaltion may distort figures
external factors
cannog compare between businesses

41
Q

net present value

A

net cashflow x discount factor
+ takes into account inflation
+ view on longterm investment
- time consuming
- your prediction could be wrong

42
Q

average rate of return

A

annual return of investment
1. add up all positive cashflows
2. total cash inflows - cost of investment
3. profit/ years in chart = average annual profit
4. average annual profit/ cost of investment = ARR

43
Q

evaluation of ARR

A

+ cashflow throughout investment
+ measures profitabilty
+ easy to calculate
- changes in inflation

44
Q

payback period

A

amount of time it will take to repay the initial capital cost
longer payback period = greater risk
cummulative cf/ net cf x 365

45
Q

qualitative factors of investment appraisal

A

resources available - enough resources for success
economy - level of inflation may impact discount factor
data sources - market research
decisions - who is making them, own agendas

46
Q

statement of financial position

A

the financial position of a business at a given time
includes: current assets, current liabilities, working capital

47
Q

working capital

A

current assets - current liabilties

48
Q

stakeholder interest of statement of finacial position

A

bank - see if the business has ability to pay off a loan
potential shareholders - if business could/ would give good dividends

49
Q

evaluation of SOFP

A

+ compare between statements
+ how much bus is worth
+ ability to pay short term liabilities
+ securing a loan
- no profit or trading
- assets could be over valued

50
Q

net current assets

A

currents assets - current liabilities

51
Q

net assets

A

non current assets + net current assets - long term liabilities

52
Q

current assets

A

the ones you can liquidate to make a profit within a year

53
Q

non current assets

A

assets needed to generate income

54
Q

current liabilities

A

liabilities to be payed off in the next year

55
Q

non current liabilities

A

long term paybacks like a loan

56
Q

depreciation

A

a reduction in the value of assets overtime. business must estimate the residual value of assets

57
Q

straight line method of depreciation

A

purchase price - residual value/ number of years

assets will reduce by same amount each year

58
Q

cash flow statement

A

what has actually came in and out of the business

59
Q

profit centres

A

separating profits by different types of sections
e.g products, location etc

60
Q

advantages of profit centres

A

provides insight into where profit is earned
comparisons can be made between similar centres
finance solvated more efficiently
supports budget controls and sets targets
can motivate those in control of profit centres

61
Q

disadvantages of profit centres

A

time consuming
may lead to conflict between different sections of the business
difficulties attributing costs and revenues
profit centres may persue own objectives over wider business

62
Q

standard costing

A

the cost a business would normally get for the production of a product.
standard is expected

63
Q

advantages of standard costing

A

good idea of target costs
employees have targets to aim for

64
Q

disadvantages of standard costing

A

time consuming
quality down
i’m a irate measure if don’t done all the time

65
Q

reducing balance

A

taking into account that assets don’t depreciate by the same amount each year

66
Q

reducing balance calculation

A

if it depreciates by 20% and machinery is worth £100000 then you do £100000 x 0.2
then £80,000 x 0.2

67
Q

positive straight line method

A

expenses lower first few years
higher valuation of fixed assets first few years
higher valuation of share price for rat few years
value of business will be inflated(can get more loans etc)
depreciation lower first few years

68
Q

negative straight line method

A

estimation of residual value must be made
assets may last longer when first considered
value of bus will be inflated - may not be able to pay off loans

69
Q

net realisable value

A

stock should always be valued at lowest stock

70
Q

stepped fixed costs

A

if a business continues to increase production they may need to purchase additional machinery to increase capacity. this is therefore increasing their fixed costs

71
Q

standard costing

A

cost a business would normally expect for the production of a product

72
Q

absorption costing

A

allocating costs to the department it comes from

73
Q

gearing

A

how much the bus is funded my loans
non current liabilities/ capital employed x100
capital employed = equity + NCL

74
Q

low gearing

A

this is bad as you are missing out on potential to grow.

adv low gear - keeps costs down, easier for future borrowing.
better for smaller business

75
Q

high gearing

A

business may struggle to repay debts. bad if variable rate.
adv high gear - cheap, fewer shareholders to worry about, buying back shares is easy
better for bigger business

76
Q

interest cover

A

ability a business has to pay back its debts
operating profit/ interest payable
how many times a business can repay its debts
if below one business can’t pay debts

77
Q

creditor days

A

is business taking full advantage of trade credit available? average time it takes bus to settle debts
trade payables/ cost of sales x365

78
Q

creditor turnover

A

how many times business pays its creditors in one year
cost of sales/ trade payables.
higher figure is better as improve CF in business. can suggest liquidity problems

79
Q

debtor days

A

how long it takes debtors to settle bills w ur business
trade receivables/ revenue
should be lower then creditor days

80
Q

debtor turnover

A

revenue/ trade receivables

81
Q

non current assets turnover

A

relationship between NCA and revenue, everyone £1 of nca it will generate x amount of sales
revenue/ non current assets. obvs depends if capital or labour intensive.
higher figure means assets are more productive

82
Q

inventory turnover

A

how quick a bus can sell the amount of stock it holds.
cost of sales/ average stock
average stock = opening stock + closing stock / 2
higher turnover is better for the business

83
Q

inventory days

A

how quick they sell through stock they hold
average stock/ cost of sales x365

84
Q

dividend per share

A

amount of return payed to shareholder per share
total dividend payed/ number of shares issued

85
Q

dividend yield

A

annual percentage return on share
dividend per share/ market price per share x100

86
Q

earnings per share

A

amount of profit/loss earned by each individual share after tax
profit for year/ number of issued ordinary shares

87
Q

price earnings

A

comparison between market share and earnings for share. how much does investor pay?
current market price/ earnings per share

88
Q

accounting - accruals

A

revenue and expenses are recorded when they occur and not when cash is received or payed out

89
Q

accounting - consistency

A

once a method has been chosen it should always be used unless agreed otherwise

business a level (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions