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Business > Finance > Flashcards

Finance Flashcards

1
Q

What is meant by break even?

A

Where the level of output is defined by total revenue = total costs

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2
Q

What is the formula for net assets?

A

Total assets - current liabilities

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3
Q

What is budgeting?

A

Setting future revenue and expenditure targets with the aim or ensuring that a profit is made

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4
Q

What is budgetary control?

A

Checking performance against the plan and taking action if necessary

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5
Q

What is the formula for break even?

A

Fixed costs
————————————–
Selling price - variable price
per unit per unit

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6
Q

What is the formula for total costs?

A

Fixed costs + variable costs

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7
Q

What is the formula for working capital?

A

Current assets - current liabilities

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8
Q

What is the formula for revenue?

A

Number of sales x price per unit

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9
Q

What is the formula for profit/loss?

A

Revenue - expenditure

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10
Q

What is the formula for gross profit?

A

Revenue - cost of sales

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11
Q

What is the formula for net profit?

A

Gross profit - expenses

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12
Q

What is meant by the term operating costs?

A

Expenses that a business has in its day-to-day operations

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13
Q

What is meant by the term start-up costs?

A

The expenses paid before trading begins

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14
Q

What are some of the main types of expenditure?

A
  • rent and business rates
  • staff wages
  • raw materials
  • utility bills
  • line rental and Internet access
  • vehicles, insurance and petrol
  • advertising and printing costs
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15
Q

What is the income statement also known as?

A

Profit and loss account

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16
Q

What is an alternative name for the balance sheet?

A

Statement of financial position

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17
Q

What does the income statement show?

A

It shows the profit or loss made by the business over a period of time (usually one year)

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18
Q

What does the balance sheet show?

A

How much money is invested into the business and what it is spent on, on a particular day.

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19
Q

What is an asset?

A

Something owned by the business

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20
Q

What is a liability?

A

Something that the business owes

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21
Q

What is an overhead?

A

An everyday running cost of the business

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22
Q

When is profit made?

A

When revenue is greater than expenditure

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23
Q

When does loss occur?

A

When expenditure is more than revenue

24
Q

What is an inflow?

A

Money coming into the business

25
Q

What is an outflow?

A

Money going out of the business

26
Q

What are cost of sales?

A

Costs that are directly linked to the production of a product

27
Q

On a balance sheet, the shareholder’s funds are equal to…

A

Total assets - current liabilities

28
Q

What is the likely effect on break even is there is an increase in sales?

A

The break even point decreases

29
Q

What is the likely effect on break even is there is a decrease in cost of sales?

A

The break even point decreases

30
Q

What is the likely effect on break even is there is an increase in costs?

A

The number of sales required to break even increases so the profit level will fall or become a loss

31
Q

What is the likely effect on break even if there is a decrease in sales?

A

The break even point is higher

32
Q

What is a break even analysis?

A

One of several financial planning tools that businesses use to help make the right decisions and increase their chance of success

33
Q

What are some of the benefit to break even analysis?

A
  • both fixed and variable costs are known
  • projected sales revenue is calculated
  • the business owner knows how many products must be sold to make a profit
  • the owner can make adjustments to make profit sooner e.g. reduce costs by obtaining cheaper materials or increase selling price
  • the margin of safety is known
  • the best goods are stocked and sold at the optimum price so the business is successful
34
Q

When is break even analysis used?

A
  • a new business is set up
  • a new product is launched
  • realistic production targets need to be set
  • realistic sales targets need to be set
  • past performance needs to be reviewed and analysed
35
Q

What are the risks of not completing a break even analysis?

A
  • costs are unknown and/or too high
  • the selling price is too high or too low
  • the owner has no idea how many items must be sold to make a profit
  • the business makes a loss over a long period of time without any action being taken
  • the margin of safety is unknown
  • stock costs too much, sold at the wrong price and the business fails
36
Q

What is another word for receipts?

A

Inflows

37
Q

What is another word for payments?

A

Outflows

38
Q

What THREE things are included in the trading account?

A

Sales income, cost of sales and gross profit

39
Q

What is net cash flow?

A

The difference between the cash inflow and outflow figures over a particular time period

40
Q

What are some types of inflows for a business?

A
  • bank loans
  • sales revenue
  • rents from properties owned by the business
  • share capital invested by the owners
41
Q

What is cash flow?

A

The money flowing in and out of a business on a daily basis

42
Q

What is the purpose of cash flow forecasting?

A

To predict the money that should be coming into and out off the business’s bank account over a period of time. To avoid the risk of serious money problems and to plan for success.

43
Q

What is cash balance?

A

The amount of money forecast to be on the bank after the net cash flow figure has been added or subtracted from the existing bank balance.

44
Q

What is an overdraft?

A

This occurs if a business pays more out of its bank account that it has in credit. The bank may allow this but will make an extra charge.

45
Q

What two financial documents are used to assess success?

A
  • the income statement (profit and loss account)

- the statement of financial position (balance sheet)

46
Q

What is a current asset?

A

Items that change with every transaction. E.g. Stock, debtors and cash in the bank.

47
Q

What is a fixed asset?

A

Items that the business must keep in order to trade. E.g. A van or computer.

48
Q

What is a current liability?

A

Money that must be paid back within a year. E.g. Money to suppliers or a bank overdraft.

49
Q

What is a long-term liability?

A

These include loans as they can be repaid over a long period of time.

50
Q

What is a financial year?

A

The trading period over which a business collects information for their annual income statement.

51
Q

What is share capital?

A

The amount of money invested into a business by the shareholders.

52
Q

What is another name for debtors?

A

Trade receivables

53
Q

What is another name for creditors?

A

Trade payables

54
Q

What is a a debtor?

A

A person who owes money to the business.

55
Q

What is a creditor?

A

Someone who is owed money by the business.

Business (8 decks)

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