Theme 2 key terms Flashcards
Extrapolation
The use of trends established by historical data to make predictions on future values
Cash flow forecast
An analysis of estimated cash inflows and outflows over a future period
Correlation
Method of forecasting that looks at the strength of a relationship between two variables
Confidence intervals
The percentage probability that an estimated range of possible values
Revenue
Quantity X Selling price
Costs
Fixed costs + Variable costs
Profit
TR - TC
Contribution
The difference between the total revenues and total variable Costs
Contribution per unit
The difference between the selling price per unit and variable cost per unit
Margin of Safety
The difference between actual output and break even output
Break even
The output at which TC = TR
Budget
Financial plan for the future concerning the revenues and costs of a business
Variance analysis
Calculating and investigating the differences between actual results and the budget
Historical budget
Budget initially based on the figures from the previous period (year)
Zero based budget
Budget built entirely from the bottom up with completely new assumptions.
Positive variance
Actual result is better than budget
Adverse variance
Actual result is worse than budget
Gross profit
TR - cost of sales
Operating profit
Gross profit - overheads
Profit for the year
Operating profit - finance cost and taxation
Current ratio
A liquidity ratio calculated by dividing current assets/current liabilities
Acid test ratio
(Current assets - stock)/current liabilities
Working capital
a measure of a company’s liquidity, or its ability to pay its short-term liabilities and finance its day-to-day operations
Credit control
The management of amounts owed on credit by the customers of a business
Debt factoring
Selling the rights to collect amounts owed by customers in order to release cash flow
Management control
Systems and processes that enable a business to be effectively managed
External shock
A change in the external business environment that significantly impacts a business.
Economy of scale (EOS)
The effect of unit costs falling as output rises
Unit cost
The average cost per unit produces
Capacity
The potential output of a business
Capacity utilisation
The proportion of a businesses capacity that is being used
Spare capacity
Where actual output is less then capacity
Excess demand
Where demand is higher then capacity.
UP TO 2.4
