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business a-level > financial performance definitions > Flashcards

financial performance definitions Flashcards

1
Q

adverse variance

A

actual profit turns out to be lower than the budgeted profit (due to costs higher than target or revenue lower than target)

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2
Q

assets

A

items of value eg. land machinery, cash

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3
Q

balance sheet

A

statement of an organisations assets and liabilities at one point in time, shows the value of the company.
- net assets must balance with total equity

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4
Q

break-even output

A

the quantity of output at which total revenue just equals total costs

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5
Q

budget

A

financial plan which states future expected costs and revenue.
budgets = targets rather than forecasts

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6
Q

budgeting

A

try to keep within or below a certain level of spending

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7
Q

capital expenditure

A

spending on new non-current assets typically machinery

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8
Q

capital structure

A

the way in which a business raises finance to purchase assets, how much from shares an how much from loans
(gearing show proportion)

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9
Q

contribution definition

A

how much money is left over from the sale of a product, after variable costs have been deducted, that can be used to pay off the fixed costs

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10
Q

contribution per unit

definition

A

the amount each unit sold contributes towards covering the fixed costs

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11
Q

contribution per unit equation

A

contribution per unit = price - variable cost per unit

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12
Q

current assets

A

items of value owned by a business that are likely to be turned into cash within one year. eg cash, inventories and recievables

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13
Q

current liability

A

debts scheduled for repayment within one year eg oak overdraft

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14
Q

current ratio definition

A

measurement of the level of liquidity

wether there are enough liquid assets to pay for imminent bills. should be 1.5:1

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15
Q

current ratio equation

A

current assets (cash + inventories + receivables) / current liabilities (trade payables and other current liabilities)

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16
Q

debt factoring

A

a business sells its receivables (invoices) to a third party at a discount. may solve cash flow issues

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17
Q

direct costs

A

includes raw materials direct labour and all expenses directly involved with production

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18
Q

external source of finance

A

funding that comes from outside the business eg new share issue, bank loan / overdraft and venture capital

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19
Q

favourable variance

A

when the actual profit is higher than the budgeted profit. due to lower costs than budgeted or more revenue than budget

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20
Q

financial decision making

A

strategies chosen to help improve cash flow, gearing, profitability or profits

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21
Q

financial efficiency ratios

A

way of measuring how well an organisation manages its working capital

  • inventory turnover
  • payables days
  • receivables days
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22
Q

financial objectives

A

monetary goals that a business sets itself usually a set target in a certain time

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23
Q

gearing definition

A

measure of the extent to which a firms capital is financed using long term loans. 25% - 50% is best

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24
Q

gearing equation

A

gearing (%) = non current liabilities / total equity + non current liabilities (or capital employed)
X100

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25
Q

going into administration

A

court appoints accountants to run a business after being declared insolvent + unable to pay its liabilities

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26
Q

gross profit definition & equation

A

excess of revenue over the cost of sales, expenses have not yet been deducted
gross profit = revenue - direct costs

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27
Q

gross profit margin definition & equation

A

shows gross profit as a percentage of turnover

gross profit margin = gross profit / turnover X100

28
Q

income statement

A

an account that shows the income and expenditure (profit and loss) of a firm over a set time span, usually 1 year

29
Q

insolvent

A

a company with little hope of being able to pay its debts, will be taken over by an official receiver who’s purpose is to pay as many of the creditors as possible

30
Q

internal source of finance

A

funding that comes from the business owners eg personal funds, retained profit or sales of company assets

31
Q

inventory

A

stocks of raw materials, work in progress and finished goods

32
Q

inventory turnover definition

A

a ratio that shows how many times a business sells its stock in a year. higher number = better, stock sold quicker

33
Q

inventory turnover equation

A

inventory turnover = cost of goods sold / average inventory held

34
Q

liabilities

A

debts owed eg trade credit, long term loans

35
Q

liquidation

A

turning all the business assets into cash and usually paying off all liabilities when a business closes down

36
Q

liquidity

A

ability of a firm to meet its short term debts, cash or assets that can be quickly turned into cash needed

37
Q

loan

A

sum of money that is borrowed and payed back with interest

38
Q

long term funding

A

finance raised the does not have to be paid within the next year

39
Q

margin of safety definition & equation

A

the quantity by which sales may fall before a firm incurs losses
safety margin = demand - break even output

40
Q

net assets definition

A

shows the value of a company, also amount of money that belongs to shareholders after all the debts are paid
- remaining value in a company after all debts are paid

41
Q

net assets equation

A

net assets = total assets - total liabilities

42
Q

net current assets definition

A

amount of spare liquid assets once current liabilities have been taken into account

43
Q

net current assets equation

A

net current assets = current assets - current liabilities

44
Q

operating profit definition

A

profit generated by the ongoing business

45
Q

operation profit equation

A

operating profit = gross profit - indirect costs

46
Q

operating profit margin definition & equation

A

percentage of sales revenue that is operating profit

= operating profit / sales X100

47
Q

overdraft

A

borrowing facility in which any amount up to an agreed limit can be used
bank allow individual / business to spend more than is in there account up to an agreed limit for a set time, often a fee and high interest rates

48
Q

overhead

A

aka direct costs, costs not generated by the production process eg rent, heating

49
Q

overtrading

A

expanding beyond the level at which here is a safe level of cash. tends to cause cash outflow before cash from revenue returns
risk that this will lead to liquidation despite strong sales

50
Q

payables

A

debts owed to a business, usually current liabilities eg suppliers

51
Q

payables (creditors) days definition & equation

A

measure of the average number of days taken to pay suppliers

= payables / cost of sales X365

52
Q

profit for the year definition and equation

A

total profit that the firms owners can do what they like with
= operating profit + interest received - interest paid - tax on profits

53
Q

profit for the year definition & equation

A

the percentage of revenue tat is profit for the year

= profit for the year / turnover X100

54
Q

profitability

A

measure of financial performance that compares a businesses profits to other factors eg revenue or capital employed
- more helpful measure than profit, measures against rivals

55
Q

receivables

A

the amount owing to a firm from debtors (a current asset)

56
Q

receivables (debtor) days definition & equation

A

number of days it takes to convert receivables into cash, ie get debtors to pay. lower number = better
receivables / revenue X365

57
Q

retained profits

A

value of all the profit over all the years that has been kept for use by the company and not given as dividends

58
Q

return on capital employed definition & equation

A

shows the return on investment and how efficiently management uses capital to generate profits
higher the better
= operating profit / total equity + non current liabilities X100

59
Q

return on investment definition & equation

A

a measure f how profitable a particular project may be as a percentage of the individual investment
= return on investment / cost of investment X100

60
Q

share capital

A

amount of money invested into the business by the shareholders

61
Q

total contribution definition & equation

A

the difference between total revenue and total variable costs
= total revenue - total variable costs

62
Q

total equity (total shareholders funds) definition & equation

A

the money belonging to hr shareholders which comes from the original share purchase plus retained profit occurring as a result of the firms activities
= share capital + retained profit

63
Q

variance definition & equation

A

compares the actual outcome with the budgeted one

= actual figure - budgeted figure

64
Q

venture capital

A

investment funding for small or medium sized businesses taking risks often in the form of loans / share investment from institutions or business angels

65
Q

window dressing

A

presenting accounts in a way that makes the accounts look healthier than they actually are

66
Q

working capital (net current assets) definition & equation

A

day to day finance used in a business

= current assets - current liabilities

business a-level (10 decks)

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