Finance

Question 1

What are fixed costs

Answer 1

Costs that don’t change with output

Question 2

What are variable costs

Answer 2

Costs that increase with output

Question 3

Examples of fixed costs

Answer 3

Rent
Salary
Insurance

Question 4

Examples of variable costs

Answer 4

Raw materials

Wage

Question 5

What is break-even output

Answer 5

Where a firm doesnt make a loss or a profit. It is the point at which costs are covered

Question 6

Fixed cost line

Answer 6

Always horizontal as it does not change

Question 7

Total revenue line

Answer 7

Begins at 0 and is the line with the highest gradient

Question 8

Total costs line

Answer 8

Starts at the fixed costs and rises with variable cost

Question 9

Variable cost line

Answer 9

Starts at 0 and rises when every unit is sold

Question 10

Margin of safety

Answer 10

The difference between current level output and break even output

Question 11

Advantages of break even analysis

Answer 11

Its easy to work out

Can help to persuade bank to give it a loan

It allows a business to predict how changes in sale affect cost and profits

Question 12

Disadvantages of break even analysis

Answer 12

Assumes all products are sold without any waste

It can be complicated if more than one product is involved

Question 13

Order of increasing liquidity

Answer 13

Stock
Debtors
Cash

Question 14

Current Assests

Answer 14

Are assets a business is expected to be sold and used in the next year

Question 15

Current Liabilities

Answer 15

Are costs that a business has to pay in a one year window

Question 16

Net current assets equation

Answer 16

Current Assets - Current Liabilities

Question 17

Share Capital

Answer 17

Momey put into the business when shares were originally issued. Firms can raise capital by issuing new shares

Question 18

Retained Profits and Reserves

Answer 18

Are all the profit that the firm has mader over the years and decided to keep instead of paying dividends

Question 19

What are retained profits and reserves used for

Answer 19

To finance future investments

To protect the firm against future problems

Question 20

Long-Term Liabilities

Answer 20

Are payments that will take more than a year to repay

Question 21

Capital Employed Equation

Answer 21

Shareholder’s Funds + Long-Term Liabilities. Is equal to net assets

Question 22

What Stakeholders would be interested in financial analysis

Answer 22

Existing Shareholders
Potential Stakeholders
Employees
The Government 
Suppliers

Question 23

What can statements of financial positions be used for

Answer 23

Making Business decisions

How to improve profit and reduce costs

Question 24

Gross Profit Margin Formula

Answer 24

Gross Profit/Revenue x 100

Question 25

Net Profit Margin Formula

Answer 25

Net Profit/Revenue x 100