Theme 2.3 Managing finance Flashcards
Gross profit margin?
gross profit/revenue x 100
Operating profit margin?
operating profit/revenue x 100
Profit for the year margin?
profit for the year/revenue x 100
What is meant by gross profit?
The amount of profit that a business makes purely from selling goods and services
Definition of assets?
Resources owned by a business
Definition of non current assets?
Something that the business owns that will be used repeatedly over a period of time e.g. delivery vans, Fridges, Tills, Trolleys, Shelves
Definition of current assets?
Something that the business owns downs that will be turned into cash within a year if not so already e.g. inventory, trade receivables
Definition of liability?
Anything that the business owes
Definition of non-current liabilities?
They do not have to be repaid for at least a year e.g. loans, mortgage
Definition of current liabilities?
Must be paid within a year e.g. Bank overdraft, tax, dividends, suppliers who allow credit
What is the statement of financial position?
provides a summary of its assets, liabilities and capital. It shows the net worth of a business so it can show the value of a business.
Definition of capital?
Total resources supplied by the owner of a business
What is return on capital employed?
A measure of of how efficiently a business is using capital employed to generate profit, compares the profit with the amount of money invested
Formula for return on capital employed?
Operating profit/capital employed X 100
or
Operating profit/total equity+non-current-liabilities X100
What is capital employed?
A good measure of the total resources that a business has available to it, although it is not perfect e.g. a business may lease machinery, which would not be included as assets in the balance sheet
What are start up costs?
One off costs you have to pay when you start a business, incurred before any income is received
What are running/operating costs?
Day to day costs incurred by a business. Have to pay over and over again, e.g. every month,week,year
Definition of output?
The number of units they are producing
What is a fixed (indirect) costs?
A cost that does not change with output e.g. rent, wages, travel expenses, business rates
What is a variable (direct) cost?
A cost that changes with output e.g. raw materials, direct labour, electricity to power machines
What does gearing measure?
The proportion of assets invested in a business that are financed by long-term borrowing. It measures what proportion of a businesses capital if funded through long term loans
What percentage of gearing ratios are good/bad for a business?
A business with a gearing ratio of more than 50% is said to be “highly geared” (at more risk of interest rate charges).
A business with a gearing of less than 25% is “low gearing”.
25-50% is considered normal
Gearing % formula?
Non current liabilities/Capital employed X 100
2 formulas for capital employed?
Share capital + retained earning + non current liabilities
Total equity + non current liabilities
Total equity formula?
Share capital + retained earnings
What is total equity?
the difference between the company’s assets and its liabilities
