Monitoring Operations (Chapter 15)

Question 1

What is the purpose of a Budget?

Answer 1

A budget forecasts the financial position and performance of a business. It can project the capital needs, income, expenses, or cash flows for a period of time into the future. They are used for planning, monitoring and controlling.

Question 2

What is the purpose of a Balance Sheet?

Answer 2

To display a business’s total assets, liabilities and equities at a point in time. The report gives important information about the financial stability of the organisation and shows the financial position.

Question 3

What is the purpose of a Profit and Loss Statement?

Answer 3

To display the business’s income, expenses and resulting profit or loss at a specific period in time. The statement shows the financial performance of the business and its overall profitability.

Question 4

What is the function of Key Performance Indicators (KPIs)?

Answer 4

KPIs allow businesses to determine the progress they have made towards its goals and are used to measure success.

Question 5

What is the purpose of Liquidity Ratios?

Answer 5

To help identify how easy it is for assets to be turned into cash as part of normal business operations as well as the capacity of a business to pay its debts when they fall due.

Question 6

What is the purpose of Leverage Ratios?

Answer 6

To help identify the way in which a business has financed its assets - whether it has used the owner’s resources (equity) or borrowed funds (debts).

Question 7

What is the purpose of Profitability Ratios?

Answer 7

To help identify the business’s ability to use its expenses and earn an adequate return.

Question 8

What is the purpose of a Profit (or Profit Margin) Ratio?

Answer 8

It shows the percentage of profit (after tax) that is contained in each dollar of sales.

Question 9

What is the purpose of a Gross Profit Ratio?

Answer 9

It shows the percentage of profit the business has earned from the sale of stock or inventory.

Question 10

What is the purpose of an Expense Ratio?

Answer 10

It indicates the amount of sales dollars required to cover expenses (selling and distribution, general and administrative and financial).

Question 11

What is purpose of a Current Ratio?

Answer 11

The ability of a business to pay its short-term debts (specifically those being those debts that are payable in 12 months of less) using its current assets

Question 12

What is the purpose of a Rate of Return on Assets Ratio?

Answer 12

It measures how efficiently a business has used its assets to generate a profit.

Question 13

What are some characteristics of the non-financial indicator Quality?

Answer 13

• Indicates the competitiveness of the business and whether it meets industry and customer standards
• Using high quality ingredients: no or low number of complaints
• Repeat customers, meets industry standards and regulations

Question 14

What are some characteristics of the non-financial indicator Customer Satisfaction?

Answer 14

• Relates to increased or steady sales figures and repeat businesses and even referral businesses e.g. coffee vans
• Repeat customers, increased number of sales, positive reviews from customers, few or low number of returns/complaints

Question 15

What is the definition of the financial indicator Profitability?

Answer 15

Theability of a business to produce a return on an investment based on its resources. It relates to the Financial Performance of a business.

Question 16

What is the definition of the financial indicator Stability?

Answer 16

The ability of a business to withstand short-term or temporary problems such as a decrease in sales, lack of capital or loss of a key employee or customer.It relates to the Financial Position of a business

Question 17

What is the definition of the financial indicator Liquidity?

Answer 17

The ability of a business to cover its immediate and short-term (i.e., due within one year) debtsand obligations. It relates to the Cash Flow of a business.