managing finance Flashcards
profit formula
total revenue - total costs
gross profit formula
revenue - cost of sales
operating profit formula
gross profit - overheads
net profit formula
operating profit - interest
net profit is
what is left after all costs have been taken off revenue `
gross profit margin is
assesses the proportion of money left over from revenue after taking into account costs of goods sold
gross profit margin formula
gross profit / revenue x 100
operating profit margin is
a % of sales revenue
the higher to more control over costs
operating profit margin formula
operating profit / revenue x 100
net profit margin is
profit after tax, as a % of sales revenue
net profit margin formula
net profit / revenue x 100
3 ways to improve profit
change price
decrease costs
increase sales volumes (promotions)
4 difficulties of profit
competition
market conditions
pestle
interest rates
liquidity is
a measure of the extent to which a business has cash to meet immediate and short term obligations
2 liquidity ratios
current ratio
acid test ratio
current ratio/working capital formula
current assets / current liabilities
should be over 1:1
acid test ratio formula
current assets - stock / current liabilities
what does acid test ratio NOT include
stock as they may be perishable
working capital is
the cash needed to pay for day to day operation of the business
capital employéd formula
all assets - current liabilities
or
non current liabilities + equity
3 things that can cause liquidity problems
poor management of stock
delays in production
recession
2 ways to improve liquidity
improve efficiency of production
reduce customers credit period
3 internal causes for business failure
marketing failure e.g. too high prices
financial failure e.g. can’t sell products
system failure e.g. unreliable IT
3 external causes for business failure
market change e.g. competitors
recession e.g. lower disposable income
change in legislation
