Finance

Question 1

Budget

Answer 1

A budget is a financial plan for the future aimed at controlling expenditure and/or revenues.

Question 2

Variance analysis

Answer 2

Variance analysis is checking actual outcomes against predicted outcomes.

Question 3

Adverse variance

Answer 3

less overall profit being made than was budgeted.
This could either be that actual costs were higher than budgeted or actual revenue was lower than budgeted.

Question 4

Favourable variance

Answer 4

more overall profit being made than was budgeted.
This could either be that actual costs were lower than budgeted or actual revenue was higher than budgeted.

Question 5

Internal sources of finance

Answer 5

Internal sources of finance are generated from within the business.
E.g owner’s capital, sale of assets, and reinvested profit.

Question 6

External sources of finance

Answer 6

External sources of finance are raised from outside of the business.

E.g bank loan, trade credit and overdraft.

Question 7

What is share capital

Answer 7

Money invested in a company by the shareholders. Shareholders gain a share of the ownership of the company in return. Long-term.

Question 8

Venture capital

Answer 8

invests in small-medium high risk growing businesses in return for a high stake in the business and have a direct say in how the business is run.

Question 9

Cash flow forecast

Answer 9

A cash flow forecast is a projection/prediction of the likely cash inflows and outflows in a business.

Question 10

Income statement show

Answer 10

An income statement shows the business’ financial performance over a given time period. It shows gross profit and net profit.

Question 11

Gross profit

Answer 11

Gross profit calculates a company’s revenues minus its cost of goods sold (direct costs).

Question 12

Cost of sales

Answer 12

Cost of sales are the direct costs (variable costs) related to the supply of a product/service.

Question 13

Net profit

Answer 13

Net profit measures the revenue minus all of the expenses.

gross profit - expenses (indirect costs)

Question 14

Gross Profit Margin

Answer 14

Gross profit/sales revenue x 100.
It shows how well a business controls its production costs e.g. raw materials. It is an indicator of how efficient the business is at making and selling its product.

Question 15

Net Profit Margin

Answer 15

Net profit/sales revenue x 100. It shows how efficiently a business controls all its expenses.
It shows how well it manages its expenses.