Managing Finance Flashcards
What is the calculation for gross profit?
Revenue - cost of sales
What is the calculation for operating profit?
gross profit - expenses
What is the calculation for profit of the year?
operating profit - intrest - dividends - corporation tax
What is the calculation for gross profit margin?
gross profit / sales revenue X 100
What is the calculation for operating profit margin?
operating profit / sales revenue X 100
What is the calculation for profit of the year margin?
profit of the year / sales revenue X 100
Ways of improving profit? (3)
buy in bulk, economies of scale
Make workforce redundant
cut advertising costs
What are non current assets?
Assets owed in LT (fixed)
What are current assets?
Assets owed in ST
What are total assets?
non current + current assets
What are current liabilities?
money owed in ST
What are non current liabilities?
money owed in LT
What are total liabilities?
current + non current liabilities
What are net assets?
total assets - total liabilities
What is the calculation for current ratio?
current assets / current liabilities
What is the acid test ration?
current assets - stock / current liabilities
What is liquidity?
The ability of a business to meet it ST liabilities using cash, working capital or assets that can quickly be turned into cash
What does current ratio indicate?
Below 1 cash flow issues
high too much working capital
What does the acid test ratio indicate?
significantly less than 1, bankrupt
What is working capital?
The mount of money needed for a business to pay for its day to day operations
What are fixed non current costs?
equipment premises
What are current fixed costs?
stock
cash
debtors
What are variable non current costs?
loans
What are variable current costs?
overdraft
wages
suppliers
How does overdraft improve working capital?
+increase cash, flexible payments
-creates current liability
How does bank loans improve working capital?
+increase cash (current asset)
-creates non current liability
How does reducing customer credit improve working capital?
+ speeds up cash coming in business
- loss of customers / USP
How does selling assets improve working capital?
+ large cash addition to current assets
-loss of fixed assets, current liabilities created eg rent
How does extending customer trade improve working capital?
+delays payments
-unethical
Ways of improve working capital? (5)
Overdraft bank loan reducing customer credit sell assets extending trade credit
