Unit 5 Flashcards
What is the return on investment?
The % of profit made based on the original investment.
What is the formula for return on investment?
(Net profit/Capital invested) x 100
What is long-term funding?
Financial aid in order to achieve/sustain long term goals.
What is the profit formula?
Total revenue - total costs
What is the gross profit formula?
Total revenue - cost of sales
What is the operating profit formula?
Gross profit - expenses
What is the profit for year profit formula?
Operating profit - tax
What does cash flow measure?
The finances leaving and entering a business.
What is the cash flow formula?
Cash inflows - cash outflows
What are 3 cash flow objectives?
Minimise invoice time, build buffer balance, minimise interest charges
What are payables?
Money owed to a 3rd party.
What are receivables?
Money someone owes to the business.
What is the capital structure?
The balance of a business’s finance in terms of equity and debt.
What is the targeted gearing ratio?
25-50%
What is the targeted debt to equity ratio?
Between 1 - 1.5
What is a budget?
Financial plans that forecast revenue, costs and profits.
What is historical budgeting?
Using previous figures to assess how much to budget
What is zero budgeting?
All expenses must be justified + approved by management.
What do cash flow forecasts identify and prevent?
Where additional injections are needed, delayed payments.
What is a variance?
Difference between a budgeted figure and an actual figure.
What is considered favourable?
Costs lower than budgeted, revenue higher than budgeted.
What is considered adverse?
Costs higher than budgeted, revenues lower than budgeted.
What is the contribution per unit formula?
Selling Price - Variable cost
What is the break-even formula?
Fixed costs / contribution per unit
What is debt factoring? Long term or short term?
Sale of invoices to a 3rd party at a discounted price. Short term.
Are bank overdrafts long term or short term?
Short term
Are bank loans long term or short term?
Long term
What is share capital? Long term or short term?
Equity raised through the sale of shares. Short term.
What is venture capital? Long term or short term?
Capital invested into a business by a 3rd party to aid expansion. Long term.
