unit 5

Question 1

how do you calculate return on investment?

Answer 1

(profit from investment / investment cost) x 100

Question 2

examples of financial objectives

Answer 2

revenue, cashflow, return on investment

Question 3

what is gross profit?

Answer 3

sales revenue - cost of sales

Question 4

how do you calculate operating / net profit

Answer 4

gross profit - operating expenses

Question 5

examples of operating expenses

Answer 5

rent, equipment, inventory costs, payroll

Question 6

what is cash flow

Answer 6

the movement of money into and out of the business which is required to meet the short term objective of survival

Question 7

what is return on investment

Answer 7

the profit you make as a result of your investments

Question 8

what is operating profit and how is it calculated?

Answer 8

the money left after paying all business costs, but before paying tax - operating profit/capital invested x 100

Question 9

what is capital structure?

Answer 9

the way the business raises capital to purchase assets.

Question 10

what is long term funding?

Answer 10

the amount of capital invested in a business that will stay for over a year

Question 11

what are internal influences on financial objectives?

Answer 11

the size of the business-eg small business may focus on survival whereas a larger business focuses on profit
Business ownership

Question 12

what are external factors on financial objectives?

Answer 12

competitors - the business will keep an eye on competitors when establishing financial objectives
technological environment - tech changes rapidly and can influence financial objectives

Question 13

advantages of budgeting?

Answer 13

allows you to monitor performance
improves decision making

Question 14

disadvantages of budgeting?

Answer 14

doesn’t take into account unforeseen circumstances
time consuming

Question 15

disadvantages of budgeting?

Answer 15

doesn’t take into account unforeseen circumstances
time consuming

Question 16

advantages and disadvantages of dept factoring

Answer 16

ad-recieves a large amount of the debt immediately
disad- may damage the business reputations they are seen to need short term finance

Question 17

advantages and disadvantages of overdraft

Answer 17

ad-only pay for the money borrowed
disad-the bank can callout in anytime

Question 18

advantage and disadvantage of retained profit

Answer 18

ad-avoids interest payments
disad-only available if sufficient retained profits exists within the business

Question 19

advantages and disadvantages of share capital

Answer 19

ad-only need to pay dividends if a profit is being made and its not a fixed price
disad- loss of ownership as shareholders are part owners

Question 20

advantages and disadvantages of loans

Answer 20

ad-quick and easy to set up
disad-interest must be paid

Question 21

advantages and disadvantages of venture capital

Answer 21

ad-expertise to help the business
disad- long and complex process

Question 22

what is venture capital?

Answer 22

investment from an established business into another business for a percentage equity in the business

Question 23

what is retained profit?

Answer 23

profit kept within a business from profit for the year to help finance future activities

Question 24

what are receivables?

Answer 24

money owed to the business by customers

Question 25

what are payables?

Answer 25

money owed to the business by suppliers & others

Question 26

what can happen to a business with cashflow problems?

Answer 26

they may go bankrupt as they are not able to pay short term debts for example toys r us had a decline in sales due to competitors giving them cash flow problems

Question 27

how can a business improve cash flow problems?

Answer 27

they can ask for a longer trade credit to reduce how quickly they have to pay their payables

Question 28

how do you calculate net cash flow?

Answer 28

total inflow-total outflow

Question 29

what is an expenditure budget?

Answer 29

forecasted costs of a business, a higher cost than this is an adverse and something below is favourable

Question 30

how do you calculate contribution per unit?

Answer 30

selling price per unit - variable cost per unit

Question 31

how do you calculate total contribution?

Answer 31

total revenue - total variable costs

Question 32

how do you calculate gross profit margin?

Answer 32

gross profit / sales revenue x 100

Question 33

how do you calculate operating profit margin?

Answer 33

operating profit / sales revenue x 100

Question 34

how do you calculate profit of the year?

Answer 34

profit of the year / sales revenue x 100

Question 35

ways to improve profit

Answer 35

increase selling price reducing expenditure - for example Morrisons delayered their business in 2015 which reduced costs

Question 36

problems of improving profit

Answer 36

increasing selling prices may lead customers to go to competitors with cheaper prices reducing sales revenue trying to reduce expenditure may reduce quality which may reduce sales