Revision Flashcards
What is standard costing?
Rather than assigning the actual costs of direct material, direct labor, and manufacturing overhead to a product, many manufacturers assign the expected or standard cost
- Direct material
- Direct labor
- Manufacturing overhead
~ Variable manufacturing overhead
~ Fixed manufacturing overheadWhat is a perpetual inventory system?
A perpetual inventory system is a method of inventory management that records real-time transactions of received or sold stock through the use of technology – generally considered a more efficient method than a periodic inventory system
What is the weighted average costing system for COGS?
The weighted average cost method divides the cost of goods available for sale by the number of units available for sale (have to keep track of dates in and out)
What is absorption costing?
a method of calculating the cost of a product or enterprise by taking into account indirect expenses (overheads) as well as direct costs.
What is SWOT analysis?
Strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning
What is PESTEL analysis?
P – Political E – Economic S – Social T – Technological E – Environmental L – Legal E - Ethical (NEW) This is best used with SWOT analysis
What is acid-test (quick) ratio?
A type of liquidity ratio, which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.
(Current Assets - Inventory) / Current Liabilties
What is financial benchmarking?
Either comparing internal departments or external similar companies to analysis performance and practices
What are KPI’s?
Key performance indicators can be recorded and assessed in either financial or non-financial terms. They do not involve setting minimum and maximum (targets) figures, nor are they targeted at micro issues like employees’ daily tasks
What is EPS (earnings per share)?
The portion of a company’s profit that is allocated to each outstanding share of common stock and serves as a proxy of the company’s financial health.
(Net Income - Preferred dividends paid) / Ordinary Shares = EPS
What is ROI?
Return on investment is a ratio between net profit and cost of investment. A high ROI means the investment’s gains compare favourably to its cost.
Net Profit / Total Investment (assets) * 100 = ROI
What is Asset Turnover Ratio?
Asset turnover is the ratio of total sales or revenue to average assets. This metric helps investors understand how effectively companies are using their assets to generate sales
Net Sales / Total Assets = Asset Turnover %
What is the payback method/period?
The amount of time it takes to recover the cost of an investment. Simply put, the payback period is the length of time an investment reaches a break-even point.
What is the quantitative decision rule for the NPV method?
Net present value is greater than zero (results in a positive investment)
How is NPV calculated?
NPV = F / [ (1 + i) ^n] NPV - Net Present Value F - Future payment (cash flow) i - Discount rate (interest rate) n - number of periods of F
What is RoR?
Rate of return is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment’s initial cost. When calculating the rate of return, you are determining the percentage change from the beginning of the period until the end. Time value of money is not considered, that’s in IRR
RoR = [ (Current Value - Initial Value) / Initial Value ] * 100
What is IRR?
Internal rate of return is like RoR but considers time value of money. Manually can only be calculated by making NPV $0
What is variable costing?
Under this method, manufacturing overhead is incurred in the period that a product is produced.
Absorption vs Variable costing?
- Absorption costing includes all costs, including fixed costs, related to production, while variable costing only includes the variable costs directly incurred in production.
- Absorption costing, also known as full costing, entails allocating fixed overhead costs across all units produced for the period, resulting in a per-unit cost.
- Variable costing can make it more difficult to determine ideal pricing for its goods and services since it does not directly consider all of the costs.
What is PE ratio? (Price earning ratio)
Equity
the price of shares to the EPS
PE = Share price / EPS
What is Current Ratio?
To work out the liquidity of the organisation (pay debts short term)
Current Assets / Current Liabilities = Current Ratio
What is Interest Coverage Ratio?
Investment
A ratio used to determine how easily a company can pay interest on outstanding debt. This is calculated by dividing a company’s earnings before interest and tax (EBITDA) of one period by the company’s interest expense of the same period
