Finance Equations Topic 5

Question 1

Net cash flow formula

Answer 1

Total inflow-total outflow

Question 2

Opening balance definition

Answer 2

The cash left in the business at the end of the last time period

Question 3

Closing balance formula

Answer 3

Net cash flow +opening balance

Question 4

Total Sales revenue

Answer 4

Price times quantity

Question 5

Total variable costs

Answer 5

Variable costs per unit times quantity

Question 6

Profit/loss

Answer 6

Total revenue-total costs

Question 7

Gross profit

Answer 7

Total revenue- cost of sales

Question 8

Net profit

Answer 8

Gross profit-expenses

Question 9

Net profit margin

Answer 9

Net profit/total revenue times 100

Question 10

BEP

Answer 10

Fixed costs/-sales revenue- variable costs

Question 11

Percentage Change

Answer 11

Actual change/original amount times 100

Question 12

How to calculate Gross profit margin

Answer 12

Gross profit / Revenue x 100

Question 13

Average rate of return formula

Answer 13

dividing the average annual profit by the cost of investment and multiplying by 100 percent.

Question 14

What is finance

Answer 14

Finance is the management of money in a business

Question 15

The 2 purposes of the finance function

Answer 15

1. Provide financial information
2. Support business planning and decision making

Question 16

What financial information does the finance department provide (3 main ones)

Answer 16

1. They will work with banks and other lenders to attract finance for the business -LOANS from banks
2. calculate the BREAK-EVEN of the business. This is important information to help the business plan and attract funding.
   3.make sure all the business TAX IS PAID and that the business complies with any relevant financial laws

Question 17

What information will the Finance department provide to help with business planning (2main ones)

Answer 17

1. may provide the CASH FLOW FORECAST
   The finance function may also calculate any potential PROFIT and LOSS for the year
2. advise the business owners on any project progress and therefore reduce the risk of decisions costing too much money

Question 18

How does the finance department have an impact on operations and what they budget on? (5 things)

Answer 18

raw materials
components
new machinery
new premises
machine parts

Question 19

What is the finance departments impact on marketing (5 things they help budget on)

Answer 19

advertising
• promotions
• market research
• social media
• new product development

Question 20

What is the finance departments impact on HR? (5 things they budget on)

Answer 20

• Recruitment
• Interviews
• Job adverts
• Training staff
• Pay rises

Question 21

Sources of raising finance internally: own___ cap___

Answer 21

Owners capital
money that has been saved up by an
entrepreneur

Question 22

Sources of raising finance internally: re_____ pr____

Answer 22

Retained profit
When a business makes a profit it can leave some or all of this money in the business and reinvest it in order to expand.

Question 23

Raising finance internally: sa___ of as____

Answer 23

Sale of assets
A business can sell a fixed
asset in order to generate finance.

Question 24

Ways to raise finance externally: over_____

Answer 24

Overdrafts

An agreement with the bank to overspend on an account.

used carefully and only in emergencies as they can become expensive due to the high interest rates charged by banks.

Question 25

Ways of raising finance externally: tr___ cr____

Answer 25

Trade credit
The ability to buy stock now and pay for it at a later date

must be agreed with a supplier

Question 26

Source of finance externally: loans

Answer 26

A loan is money lent to an individual or business that is paid off with interest over an agreed period of time

Question 27

Ways of raising finance externally: sh___ iss__

Answer 27

Share issue

The money raised when a business becomes a public limited company by offering shares in the business in return for capital.

money raised by shareholders through the sale of
ordinary shares