Theme 2.3 Managing finance Flashcards

1
Q

Gross profit margin?

A

gross profit/revenue x 100

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2
Q

Operating profit margin?

A

operating profit/revenue x 100

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3
Q

Profit for the year margin?

A

profit for the year/revenue x 100

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4
Q

What is liquidity?

A

A measure of how quickly a company can turn their assets into cash

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5
Q

What is meant by gross profit?

A

The amount of profit that a business makes purely from selling goods and services

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6
Q
A
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7
Q

Definition of assets?

A

Resources owned by a business

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8
Q

Definition of non current assets?

A

Something that the business owns that will be used repeatedly over a period of time e.g. delivery vans, Fridges, Tills, Trolleys, Shelves

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9
Q

Definition of current assets?

A

Something that the business owns downs that will be turned into cash within a year if not so already e.g. inventory, trade receivables

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10
Q

Definition of liability?

A

Anything that the business owes

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11
Q

Definition of non-current liabilities?

A

They do not have to be repaid for at least a year e.g. loans, mortgage

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12
Q

Definition of current liabilities?

A

Must be paid within a year e.g. Bank overdraft, tax, dividends, suppliers who allow credit

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13
Q
A
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14
Q

What is the statement of financial position?

A

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.

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15
Q

Definition of capital?

A

Total resources supplied by the owner of a business

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16
Q

What is return on capital employed?

A

A measure of of how efficiently a business is using capital employed to generate profit, compares the profit with the amount of money invested

17
Q

Formula for return on capital employed?

A

Operating profit/capital employed X 100
or
Operating profit/total equity+non-current-liabilities X100

18
Q

What is capital employed?

A

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

19
Q

What are start up costs?

A

One off costs you have to pay when you start a business, incurred before any income is received

20
Q

What are running/operating costs?

A

Day to day costs incurred by a business. Have to pay over and over again, e.g. every month,week,year

21
Q

Definition of output?

A

The number of units they are producing

22
Q

What is a fixed (indirect) costs?

A

A cost that does not change with output e.g. rent, wages, travel expenses, business rates

23
Q

What is a variable (direct) cost?

A

A cost that changes with output e.g. raw materials, direct labour, electricity to power machines

25
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
26
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
27
Gearing % formula?
Non current liabilities/Capital employed X 100
28
2 formulas for capital employed?
Share capital + retained earning + non current liabilities Total equity + non current liabilities
29
Total equity formula?
Share capital + retained earnings
30
What is total equity?
the difference between the company's assets and its liabilities
31
Current ratio formula?
Current assets/Current liabilities
32
Acid test ratio formula?
(Current assets - inventory)/Current liabilities
33
Net current assets formula?
Current assets - Current liabilities
34
Gross profit?
Revenue - cost of sales
35
Operating profit?
Gross profit - operating expenses
36
Gearing ratio?
Non current liabilities / Non current liabilities + total equity X 100
37
Return on capital employed formula?
Operating profit/Capital employed X 100 OR Operating profit/total equity + non current liabilities X 100
38
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39