Finance Flashcards
Break even point formula
fixed costs/ (sales revenue- variable costs)
Revenue formula
Quantity x selling price per unit
Total costs formula
Fixed costs + variable costs
Total variable costs formula
Quantity x variable cost per unit
Gross profit formula
Revenue - Cost of sales
Net profit formula
Gross profit - Expenses
Gross profit margin
(gross profit / revenue) x 100
Net profit margin formula
(Net profit / revenue) x100
Average rate of return (ARR%) formula
(Average annual profit / cost of investment) x100
Net cash flow formula
Total cash inflow - total cash outflow
Margin of safety formula
Actual sales - break even point
What is cash?
all money that comes into a business
What is profit?
the money the business retains
What are examples of internal sources of finance?
- personal or business savings
- retained profits
- selling fixed assets
What are examples of external sources of finance?
- bank loans
- overdraft
- new partners
- owners’ capital
- trade credit
- government grants
- crowd funding
- retained profits
What do cash flow forecasts do?
- helps firms to anticipate problems
What are the 3 main reasons for poor cash flow?
- poor sales
- overtrading
- poor business decisions
Average rate of return
Way of comparing the profitability of different choices over the expected life of an investment
formula: (average annual profit/ initial investment) x100
What is a break even forecast
Helps businesses work out the point at which their revenues should match their costs
Advantages of breakeven
- Shows how many products they need to sell to ensure a profit
- shows whether a product is worth selling or too risky
- shows the amount of revenue the business will make at each level of output
Disadvantages of breakeven
- Breakeven Assumes a business will sell all of the stock (of a particular product) at the same price
- businesses can be unrealistic in their calculations
- they can be time consuming to create
What is a cash flow forecast?
- involves predicting the future flow of cash in to and out of a businesses bank account
Advantages of a cash flow forecast?
- Enables the business owners to spot and plan for potential cash gaps before they hit
- can allocate budget properly
Disadvantages of cash flow forecast
- Mostly based on secondary data
- can’t predict the future with absolute certainty
- time consuming
What is net cash flow?
-The difference between all the companies cash inflows and cash outflows in a given period
what is crowd funding?
- involves a large number of people investing small amounts of money in a business, usually online
What is expenditure?
- Purchases that benefit the business
What does the finance function do?
- manages a business’ finances + helps with decision-making
- monitors change happening internally and externally and observes the impact these have on the businesses finances
What is interest?
- money that is paid regularly at a particular percentage, usually when money has been lent or borrowed
