Managing finance Flashcards
Topics 34-36
Formula for gross profit.
Gross Profit = Revenue - Cost of Sales
Formula for operating profit.
Operating Profit = Gross Profit - Operating Expenses
Formula for net profit.
Net Profit = Operating Profit - Interest
Formula for gross profit margin.
GPM = Gross Profit / Revenue X 100
Formula for operating profit margin
OPM = Operating Profit / Revenue X 100
Formula for net profit margin
NPM = Net Profit / Revenue X 100
What are the two general methods of improving profitability?
1= Raising Prices
2= Lowering Costs
What are current assets?
Current assets are assets that will be changed into cash within 12 months.
What are non-current assets?
Non-current assets are long term resources that will be used repeatedly by the business over a period of time.
What are current liabilities?
Current liabilities is any money owed by a business that must be repaid within the next year.
What are non-current liabilities?
Non-current liabilities are long term loans and any other money owed by the business that does not have to be repaid for at least one year.
Net assets formula.
Current Assets - Current Liabilities
What does liquidity mean?
Liquidity refers to the ease at which a business can interchange their assets into cash.
Current ratio formula.
Current Ratio = Current Assets / Current Liabilities
What is generally regarded as being an acceptable liquidity level.
A business is usually regarded as having sufficient liquid resources if the ratio is between 1.5:1 and 2:1.
Acid test formula.
Acid Test Ratio = Current Assets - Inventories / Current Liabilities
What is working capital?
Working capital is the amount of cash and other current assets a business has available after all its current liabilities are accounted for.
What is the formula for working capital?
Working capital = Current assets - Current liabilities
What is a debtor?
A debtor is someone / a business who owes money.
What is a creditor?
A creditor is someone / a business who is owed money.
What are some of the problems which could be encountered if a business holds too little or too high levels of working capital?
1= Production delays
2= Cannot pay off bills
3= Keeping stocks is expensive
4= Cash is not earning high interest
What are some ways which businesses can improve their liquidity levels?
1= Use of overdraft facilities
2= Negotitating additional loans
3= Encourage sales / sell off stocks
4= Only make essential purchases
Many start up businesses overlook the importance of __________. It will provide a roadmap for where the business will go, and is crucial to avoid going into unwanted _____.
planning
debt
Causes of cash flow problems:
1= O____________
2= Allowing too much _______
3= Over-__________
4= Unforseen ____________
5= E__________ F________
6= Lack of ______________
Overtrading
Allowing too much credit
Over-borrowing
Unforseen expenditure
External factors
Lack of investment
