Returning to Profitability Flashcards
1
Q
What does making a loss mean?
A
Total revenues don’t cover total costs
2
Q
Give 3 reasons why AFL made a loss last year
A
Falling sales volumes
Falling prices
Rising costs
3
Q
Why would sales volumes fall?
A
Competitors are gaining a larger market share, so they have more competition, so customers buy from competitors
4
Q
Why could prices fall?
A
Increased competition putting pressure on AFL to lower prices
5
Q
Why do costs rise?
A
Increased interest payments Increased competition (invest in improvements) Diseconomies of scale
6
Q
Which 2 ways can AFL become profitable again?
A
Increasing revenues without costs rising
Decrease costs without revenues falling
7
Q
Why do AFL need to make a profit?
A
To pay dividends
To repay lenders
8
Q
What may happen if AFL can’t make a profit by the end of the financial year?
A
They’ll have to close and sell off their assets
