Financial Objectives Flashcards
Why are cost objectives set?
To minimise costs &increase profits
What is cash flow?
All the money flowing into and out of the business over a period of time
What’s cash inflow?
Receipts of cash into the business
What’s cash outflow?
Payments of cash leaving the business e.g to purchase raw materials
How do you calculate return on investment?
Return On Investment divided by Cost Of Investment X 100
What does return on investment measure?
Measures how efficient an investment is
What is capital expenditure?
The money spent to buy fixed assets e.g factories & vehicles
What’s capital structure?
- This refers the way a business raises capital to purchase assets
- A businesses capital structure is a combination of its debt capital (borrowed funds) and it’s money raised by selling shares
How do you calculate percentage change in profit?
The current years profit-previous years profit DIVIDED BY previous years profit X 100
What are the different methods of increasing profit?
- increasing their prices
- reduce cost of production
- advertisement to increase demand
Why are revenue objectives set?
To increase the value or volume of sales
What is gross profit?
The profit made once the firm’s direct costs have been paid
What is operating profit?
Profit made directly from trading
How do you find out the total profit for one year?
Operating profit+other profit-net finance costs-tax
What do profit margins measure?
The relationship between profit mad and sales revenue & tells you what % of the selling price is actually profit
How do you calculate gross profit margin?
Gross Profit Divided by Sales Revenue X100
How do you calculate operating profit margin?
Operating Profit Divided by Sales revenue X 100
How do you calculate Profit for the year margin?
Profit for the year Divided by Sales revenue x100
What is a cash flow cycle?
THE DELAY BETWEEN MONEY GOING IN AND COMING OUT
When businesses have to pay for the cost of producing the product before they get paid
What does the length of the cash flow cycle depend on?
The type of product-determines how long the product takes to be made
Credit payments-buying on credit means the goods are received but buyer has a agree period if time before payment
What can a business do to improve cash flow?
- Arrange overdrafts to allows a business to borrow money according to its needs
- hold less stock so less cash is tied up in stock
- sale and leaseback equipment
What is the break even output?
The level of sales a business need to cover its costs
How do you calculate break even output?
Fixed costs DIVIDED by contribution per unit
How do you calculate the margin of safety?
Actual output - break even output
