financial performance Flashcards
UNIT 5
define cashflow
the timing of payments and receipts, important on the short term to keep a business afloat
what is profit
revenue greater than its expenditure
what are income statements
a record of a businesses sales rev and costs over a trading period as well as recording profits and losses
calculate gross profit:
rev - cost of goods sold/direct costs/cost of sales
cost of good sold =
direct costs or cost of sales or variable costs
calculate operating profit:
gross profit - indirect costs
calculate profit for the year:
operating profit - interest
what are revenue objectives
when aiming for growth, also often specific to an aspect of the business
what are cost objectives
reducing costs in aims to increase profits
OR
cost minimisation to keep prices low
what are profit objectives
an objective for the entire business
expressed as:
a simple figure
a % increase
% comparison to sales
define capital expenditure
spending to purchase non-current assets
internal influences on financial objectives
nature of product sold
overall strategy
objectives of senior managers
external influences on financial objectives
P TLE - C
name the 3 types of budgets
revenue/earnings
expenditure
profit
another name for revenue budgets
earnings budgets
what are budgets for
to organise planned profits or losses
difficulties in constructing budgets
unexpected changes unaccounted for
difficult to forecast due to poor market data
decisions made by governments/ financial institutions
variance analysis:
actual figure difference from budgeted figure
variance is either….
adverse or favourable
advantages of budgeting
effectively control finances
ability divert funds easily
can motivate staff/targets for employees
disadvantages of budgeting
allocating funds fairly is hard
normally only relate to the current financial year
why are cash flow forcasts used
to support applications for loans
to help avoid unexpected crises
format of a cashflow forcast
cash in
cash out
_________
net monthly cashflow
closing balance on a cashflow forecast
opening balance + net cash flow
payables =
creditors (in credit to)
receivables =
debtors (they are in debt of you)
what is Break Even
sales of products to cover costs of production
break even formula :
fixed costs
_______________________________________
selling price per unit - variable cost per unit
contribution per unit formula:
selling price per unit - variable cost per unit
what does the margin of safety measure
the amount which a businesses current level exceeds break-even output
define profitability
a measure of financial performance comparing revenue to other factors
what is a profit margin
ratio expressing profit over a % of its revenue
how to calculate a profit margin
type of profit
——————— x 100
rev
two main sources of finance
internal
external
short term internal sources of finances
retained profits
sale and lease back of assets
short term external sources of finances
debt factoring
overdrafts
long term internal sources of finances
retained profits
long term external sources of finances
venture capital
share capital
long term loans/mortgages
what influences decisions on sources of finance
businesses legal structure
cost incurred with the of the source of finance
flexibility
level of control passed over
purpose of finance
causes of cash flow problems
overtrading
allowing too much trade credit
poor credit control
inaccurate cashflow forecasts
methods of improving cashflow
improved control of working capital
negotiate trade credit terms
offer less trade credit
debt factoring
short term borrowing
sale and leaseback of assets
what is working capital
CA-CL, day to day cash
how to improve profits/profitability
Reduce costs
increase prices
improve efficiency
increase capacity utilisation
remove substandard products
Kaizen/JIT techniques
