managing finance

Question 1

formula for measuring percentage change in profit

Answer 1

pcp=current years profit -previous years profit divided by pervious years profit times 100

Question 2

gross profit formula

Answer 2

GP=total revenue-cost of sales

Question 3

operating profit formula

Answer 3

OP=gross profit-other operating expenses

Question 4

net profit formula

Answer 4

NP=operating profit-interest

Question 5

what is a statement of comprehensive income

Answer 5

shows how much money has been coming into business (revenue) and how much has been going out (expenses) over period of time

figures can be used in assessing business financial performance

can include previous years data, for easy comparison, to see what’s changed

Question 6

profit margins definition

Answer 6

show how profitable business is

measure relationship between profit made and the revenue

tells you what percentage of selling price of product is actually profit

Question 7

gross profit margin formula

Answer 7

gross profit divided by revenue times 100

Question 8

operating profit margin formula

Answer 8

gross profit divided by revenue times 100

Question 9

net profit margin formula

Answer 9

net profit divided by revenue times 100

Question 10

ways business increase their profit margin

Answer 10

increasing revenue
can be done by increasing prices
reducing their prices to increase demand
improve product quality
reducing costs of sales

Question 11

how are cash and profit different

Answer 11

cash-what a business has now to pay its bills
constantly flowing in and out of business

profit-doesn’t get profit made straight away
customers may not pay for their goods straight away

business that’s making lots of profit, may still run out of cash

business that has lots of cash, might end up not making a profit

Question 12

balance sheets (statements of financial position)

Answer 12

lists of assets and liabilities
snapshot of firms finances at fixed point in time

show value of all businesses assets and liabilities

Question 13

what are assets

Answer 13

things that belong to the business including cash in the bank

Question 14

what are liabilities

Answer 14

things business owes

Question 15

net assets value fomula

Answer 15

NAV=total fixed and current assets minus total and current liabilities

Question 16

current assets definition

Answer 16

assets that business is likely to change for cash within a year, before next statement of financial position (balance sheet) is made

Question 17

non-current assets definition

Answer 17

assets business is likely to keep for more than a year
lose value as get outdated so worth less every year(depreciation)
e.g property

Question 18

current liabilities

Answer 18

debts which need to be paid off within a year
e.g overdrafts, taxes

Question 19

non-current liabilities

Answer 19

debts that business will pay off over several years e.g. mortgages, loans

Question 20

what are bad debts

Answer 20

debts whihc dont get paid by debtors

Question 21

liquidity definition

Answer 21

how easily an asset can be changed into cash and used to buy things

Question 22

examples of things that are liquid

Answer 22

CASH

Question 23

examples of things that are not liquid

Answer 23

non current assets e.g factories and stock

Question 24

what is it called when business doesnt have enough assets to pay its libabilities

Answer 24

insolvent

Question 25

whats liquidisation

Answer 25

sell all assets to pay off debts

Question 26

what does liquidity ratio do

Answer 26

shows how liquid a firm is

Question 27

what are the names of the two liquid ratios

Answer 27

current ratio
acid test ratio

study tip: CAT

Question 28

current ratio formula

Answer 28

CR=current assets divided by current liabilites

Question 29

acid test ratio formula

Answer 29

ATR=current assets-inventory divided by current liabilities

Question 30

working capital

Answer 30

finance avaliable for day to day spending

amount of cash business has avaliable to pay its day to day debts

more working capital, more liquid business is

Question 31

working capital formula

Answer 31

current assets-current liabilities

Question 32

what is the working capital cycle

Answer 32

length of time between buying raw materials and getting cash from the sales of the finished product

usually measured in days

Question 33

what is business failure

Answer 33

business can no longer stay open because not making enough money to cover its costs

business isn’t able to continue trading and shuts down still owing people money

Question 34

finanical factors as to why a business may fail

Answer 34

bad management of working capital
not having enough cash to pay for business day to day running costs

poor effiecieny-business has costs that arent as low as they could be. mean they could charge higher prices then there compeittors, lead to not enough revenue to keep them operating

bad decisions on how firm is financed-man rely too much on overdrafts meaning costs are very high

Question 35

non financial factors as to why business may fail

Answer 35

poor communication-different departments of business aren’t working well together
strategies to fix issues are not communicated better

failure to innovate-business fails to keep up with consumer preferences, lacking innovative new products, more likely to fail

Question 36

finacial external factors that may cause business failure

Answer 36

changes in excahnge rates

Question 37

non finanical external factors which can cause business failure

Answer 37

actions of competitors. if compeitors able to offer simailr products at lower price or develop new products that are more desriable, customers more likely to go for them

change in consumer trends-customers suddenly stop wanting to buy product then revenue suddenly drops

Question 38

what types of businesses are more likely to have business failure

Answer 38

dynamic-lack of innovative as constantly changing
large-poor communication