financial decisions Flashcards
what is a fincial objective
a financial goal that a business wants to atchive
what objective are financial goals based around
revenue objective
profit objective
cost objective
cashflow objective
return on investment
how is return on investment calculated
return on investsment / cost of investment x 100
what internal factors could affect financial objectives
-the overall objectives of the company
-other areas of the business e.g hr needs funding
what external factors could affect finanical objectives
-competions finanical data
-state of the economy e.g inflation
-shareholder needs
what is the calculation for percentage change in profit
current years profit - previous years profit/ previous years profit x 100
what is gross profit
amount left over when cost of sales is subtracted from sales rev
gross profit = sales rev - cost of sales
what is operating profit
opersting profit = sales revenue - cost of sales - operating expenses
how is profit for the year calculated
profit for the year = operating profit + other profits - net finance costs - tax
why is finding the profit margins important
finds the amount of profit relative to revenue
what is cash flow
cash flow is money flowing into and out of a business
what is cash inflow
sums of money brought in by a business
what is cash outflow
cash outflow is sums of money paid out by a business
why is cash flow forecasting important
Cash flow forcasting is important because cash flow is often dynamic and unpredictable and as a result many business’s fail due to cashflow problems. Regular cash flow forcasting can help prevent these problems.
how might a business improve their cash flow
a business can improve their cashflow through
debt factoring - selling debts owed to the business to a debt factoring company to obtain a short term increase in cash inflow
getting rid of too much stock as cash outflows can get tied up in maintaining to much stock.
how is th net cash flow calculated
net cash flow is calculated by taking away totol cash outflow from total cash inflow
how is the opening balance found
the opening balance is simply just the closing balance of the previous month / year
how is the closing balance found
closing balance is usually found throughnet cash flow + opening balance.
However if the net cash flow is a minus number it becomes net cash flow - opening balance
what is a budget
a budget is a financial plan for the business’s future concerning factors such as revenue profit or costs
what a budgets used for
budgets can be compared alongside the business’s actual preformance to establish any difference between the figures that the firm predicted and there actual results
give some advantages of setting a budget
a business might set a budget as it :
-provides direction for the company
-good for monorting preformance
-movitvate staff
-communicates targets
what are some disadvantages of setting a budget
some disadvantages of setting a budget include:
- there are many external, unpredictable factors that can affect a business’s finacial results (infation)
- setting a budget can also be time consuming
what is historical budgeting
historical budgeting is where this years budget is based upon a percentage increase or decrease from last years budget.
what is zero base budgeting
this is where budget holders start with £0 and have to request for each expenses
