Three Flashcards
Operational Gearing what is it?
Analysis of fixed costs High operating (fixed) costs is described as having high operational gearing. Low operating (fixed) costs is described as having low operational gearing.
Operational Gearing results from increased Turnover?
High Gearing = Increase in Operating profit margin
Low Gearing = Decrease in Operating Profit margin
Operating profit/ turnover = Operating profit margin
What is the Breakeven point?
Selling Price - Variable Costs
When total costs are exactly the same as total sales neither a profit or loss
Limits of using ratios for business analysis?
Limited if used in isolation as they have a limited perspective
No such thing as a good or bad ratio as it is highly subjective
Reliability as it is from a single point in time - such as year end
What is the margin of safety
The extent to which the planned volume of output or sales lies above the breakeven point.
What is CFADS and how is it calculated?
Cash flow available for debt service
EBITDA as a baseline
less dividends tax paid and net capital expenditure.
Plus or minus working capital (i.e. net changes in stock, debtors and creditors).
This end figure is then compared with the repayments required for a decision or annual debt service cost to see if it is a surplus or deficit
Funder benefit of autoapprovals?
Improved customer service levels
Customer retention better
Reduced credit staff costs
Ability to quickly amend credit policy rules (respond to economic environment changes or requirement to change asset or industry mix of their portfolio)
What are the FCA authorisations for risk responsibility of broker and funder relationships?
Verification of appropriate Broker Consumer Credit Act licensing approvals
Verification of broker compliance with GDPR requirements
What are are the checks by the funder during a broker relationship?
- Broker agreement: FCA regulations Event of early termination or default GDPR extended - Regular Monitoring via Management information: Introducer volume Asset types Bad Debt write off Customer account conduct - Regular internal reviews
What does internal reviews achieve for the broker relationship?
Better credit quality
Grow lending in line with funders strategic goals
Ensures business conducted in a professional and compliant manner
What is FV?
Future value is the value of an asset at a specific date. It measures the nominal future sum of money that a given sum of money is “worth” at a specified time in the future assuming a certain interest rate, or more generally, rate of return; it is the present value multiplied by the accumulation function.
What is nominal rate
It is the interest rate applied to loan amount without taking into account of any fees and interest compounding (does not take into account inflation)
What is the APR and calculation?
Annual percentage Rate
Represents the compound rate of interest plus all charges that customer is obliged to pay
Amount financed + Term/Payment Frequency +
Underlying rate of interest + Additional document, admin, arrangement or option to purchase fees
What is the draw back of Flat Rate of interest?
Failed to calculate the way a funder calculated yield and margin
Can be manipulated to understate true cost of borrowing or the reducing balance like a nominal rate
Used to be used in motor industry
What is variable rate?
Interest is set in reference to the base rate but actual payable amount can vary for each payment period
