M2- topic 3 process of financial managment Flashcards
how are the businesses financial needs determined (4)
size of the business
phase of the business cycle
future plans for growth and development
capacity to source finance
what are operating budgets
budgets relating to the main activities of a business
what are financial budgets
Budgets that relate to the financial data of the business
what types of record keeping are there (2)
manual record keeping
Electric record keeping
advantages of using a manual record keeping (2)
less expensive
less chance of data loss
disadvantages of using manual record keeping (2)
manually enter data
time consuming
advantages of using electric record keeping (2)
more efficient
more organised
disadvantages of using electrical record keeping (2)
data loss risk
expensive
what is financial control
financial policies and procedures that ensure the plan of the business is achieved
what ways can you finance a business (2)
debt
equity
what is an example of debt (2)
overdraft
mortgage
what is an example of equity (2)
retained profits
owners equity
advantages of debt (2)
funds can be acquired on short notice
doesn’t require selling share
disadvantages of debt (2)
Regular payments must be made and cause stress
debt is expensive (intrest)
advantages of equity (2)
no pressure from banks and lenders
low gearing
disadvantages of equity (2)
slow growth
ownership can be diluted
what the rule with debt
use long term debt for long term assets and short term debt for short term assets
what do cash flow statements indicate (2)
The movement of cash into and out of the business
Firms ability to pay its debts
how are the businesses activities split up (3)
operating activities
investing activities
financing activities
what are operating activities and list examples(3)
The main cash inflows and outflows relating to the Business. e.g.
- bills
- rent
- stock
what are investing activities and list examples (2)
The cash inflow and outflows relating to the purchase of non current assets. e.g.
- new equipment
- renovation
what are financing activities and list examples (3)
the cash inflows and outflows relating to borrowing activities of the business e.g.
- debt
- mortgage
- overdraft
what do income statements indicate
the profitability of the business
what is gross profit
the amount earned from production
what is net profit
the take home profit
how to calculate COGS
opening stock + purchases - closing stock
how to calculate gross profit
sales revenue - COGS
how to calculate net profit
gross profit- expenses
what do balance sheets do (2)
Give a snapshot of what the business owns at a specific time
Shows the businesses financial stability (gearing)
what is owners equity
funds contributed by the owner
what does owners equity represent
the net worth of the business
how to calculate assets on a balence sheet
liabilities + owners equity
