Theme 2: Section 8 Managing Finance Flashcards
Percentage Increase/Decrease
Profits from year to year, compare if doing well or not.
Percentage change in Profit
Current year profit - Previous year Profit/Previous year profit x 100
Gross Profit and Formula
Amount left over when the Cost of Sales (cost of product) subtracted from Total Revenue.
Total Revenue - Cost of sales
Operating profit and Formula
Cost of Sales and operating expenses.
Gross Profit - Other Operating expenses.
Net Profit (Profit for the year) and Formula
Interest the business has to pay for borrowing money.
Operating Profit - Interest.
Comprehensive Income statement ( Profit/Loss account)
Shows money coming in (Revenue) and out (Expenses).
Previous years, useful trends overtime.
Profit Margins
Measure relationship between profit made and revenue, percentage of selling price of product is profit.
Gross Profit Margin and Formula
Percentage of Revenue.
Gross Profit/Revenue x 100.
Operating Profit Margin and formula
Costs of regular trading.
Operating Profit/Revenue x 100.
Net Profit Margin (Profit of the year) and Formula
Measures Profit for the year as percentage of Revenue.
Profit for the year/Revenue x 100.
Increasing Profit Margins
Reducing Cost of Sales, cheaper supplier. May lead to lower quality, reduce sales volume and Revenue.
Interpret Profit Margins
Compare with previous years
Profit
money left from Revenue once costs paid.
Cash
Constantly flowing in and out, bills.
Financial Position Statement/ Balance Sheet
Value of Assets (own), liabilities (owe), Capital (retained profit).
Total Equity
Total of money ever put into the business.
Non-Current Assets
keep for more than a year, property, technology.
Total Non-Current Assets
Financial Position combined of all businesses Non-Current Assets.
Current Assets
Exchange for cash before next financial position made, money owed, products.
Total Current Assets
All Current Assets added together
Net Assets
Current and Non-Current Assets added together, Current and Non-Current liabilities deducted.
Current liability Debts
Debts paid off within a year, overdrafts, taxes.
Non-Curent liability Debts
Debts paid over several years, mortgages, loans.
Liquidity of an Asset
How easily it an be turned into cash, for new things.
Improved by speeding up collection of debts to business.
Current Ratio (Working Capital Ratio) and Formula
Compares Current Assets to Current Liabilities.
Current Assets/Current Liabilities.
Acid Test Ratio (Liquid Capital Ratio) and Formula
Tougher measure of liquidity than the current ratio as it accounts for inventory.
Current Assets - Inventory/Current liabilities.
Inventory
Takes long time to sell or may not at all, removing from Current Assets, Acid Test Ratio, more accurate measure of the ability of a firm to pay Current Liabilities.
Working Capital and Formula
Amount of cash, pay day-to-day debts.
Current Assets - Current Liabilities.
Working Capital Cycle
Cash, Production Costs (Wages,Raw Materials), Finished Stock ,Sales (Receivables).
Business Failure
No longer open, not making enough money to cover Costs.
Not enough Cash to pay Current Liabilities.
Business Failure Internal Financial Factors
Bad Management, not enough Cash
Poor Efficiency, Costs aren’t as low as they can be.
Bad Decisions, expensive finance, overdrafts high costs.
Business Failure Internal Non-Financial Factors
Poor Communication, departments not working well.
Inadequate MR and Analysis, fails to monitor change.
Failure to Innovate, consumer preferences, lack new products.
Business Failure External Financial Factors
Economic Recession, consumers have less money to spend.
Exchange Rates, close if lost too many overseas customers.
Business Failure External Non-Financial Factors
Competitors, similar products at lower price, sales fall.
Consumer Trends, stop wanting a product, drop revenue.
Poor Communication, lose suppliers, lose production.
Dynamic Market
Technology, lack of innovation declines sales.
