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A Level Business > Unit 5 > Flashcards

Unit 5 Flashcards

1
Q

what are financial objectives

A

financial steps to remain solvent and create profit

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2
Q

what does solvent mean

A

ability to meet short term debts

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3
Q

what are some examples of financial objectives
name 5

A

make a profit
improve return on investment
break even
reduce costs
high profit margins

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4
Q

what are some examples of cash in

A

revenue
investment
interest earned

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5
Q

what are some examples of cash out

A

pay to suppliers
pay to employees
pay debts

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6
Q

what are liquidity ratios

A

how quickly assets are turned into cash

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7
Q

what is working capital

A

cash flowing through the business day to day to be able to run the business

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8
Q

what are fixed costs

A

costs that dont change with output

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9
Q

what are variable costs

A

costs that change with output

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10
Q

what are some examples of fixed costs
name 5

A

wages/salarys
insurance
taxes
rent
loans

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11
Q

what are some examples of variable costs

A

raw materials
packaging
transport/shipping

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12
Q

what are ways to decrease costs

A

negotiate with suppliers
increase capacity utilisation
reduce fixed and variable costs

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13
Q

what is formula for gross profit

A

revenue - variable costs

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14
Q

what is formula for operating profit

A

gross profit - fixed costs

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15
Q

what is formula for net profit

A

operating profit - tax

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16
Q

what is return on investment

A

percentage you plan to get back after initial investment

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17
Q

what is the formula for ROI

A

profit from investment
——————————— x 100
capital investment
(initial investmen)

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18
Q

what is ARR

A

average expected outcome/prediction

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19
Q

what is the formula for ARR

A

average annual expected profit
——————————————— x 100
initial investment

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20
Q

what does insolvent mean

A

inability to meet short term debts

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21
Q

what is a deficit

A

more cash leaving than coming in

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22
Q

what are reciepts

A

cash coming into the business

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23
Q

what are payments

A

cash going out of business

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24
Q

what is a cash flow forecast

A

prediction of future cash coming in and out of business in form of a table

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25
what is the formula for net cash flow
inflows - outflows
26
how do you find opening balance
previous months closing balance
27
how do you find closing balance
opening balance + net cash flow
28
what are some pros of a cash flow forecast name 4
offers a solution to risk can predict next success or failure can predict surge in demand can identify negative cach flow months
29
what are some cons of cash flow forecast name 4
can be bias time consuming based on estimates doesn't take into account external factors
30
what is a budget
a financial plan for the future to use to compare against the actuals
31
what does adverse mean
actuals where worse than expected e.g higher costs
32
what does favourable mean
actuals where better than predicted e.g lower costs
33
what is the purpose of budgets
forecast, planning, and motivation
34
describe planning
identifying problems beforehand budget must be updated often usually run on monthly basis
35
describe forecasting
combo of business sales history and how effective training will be predict projected profit for next 12 months analyse margins, key ratios, and ROI
36
describe motivation
motivates staff involved with setting of budget so more likely to be cautious
37
what is historical budgeting
basing budget of past historical data (extrapolation) learning lessons from past experiences
38
what is zero based budgeting
starting from scratch managers have to estimate budget they need to use to do their job have to justify this to management
39
what is break even
when total revenue is equal to total costs business dont make a profit or a loss
40
what is break even measured in
units sold always round up as whole unit has to be sold to break even
41
what is the formula for break even
fixed costs/contribution
42
what is contribution
tells you how many products have to be sold to break even
43
what is the formula for contribution
selling price per unit - variable cost per unit
44
what is the formula for margin of safety
actual sales(units) - break even point
45
what are pros of using break even
can know when costs are covered to know minimum for covering costs
46
what are cons of using break even
based on estimates doesnt take into account seasonal demand
47
what are pros of using a break even graph
visual representation that is easy to read can see visual profit
48
what are cons of using a break even graph
straight line are not realistic simplistic approach can lead to wrong decision from basic info still only a prediction
49
what is retained profit
profit that a business keeps after paying taxes and dividends, reinvesting it into the company
50
what is sale of assets
selling business owned resources such as machinery, property or vehicles to raise cash
51
what is owners capital
money that owners invest from their personal savings
52
what is a bank loan
a fixed amount of money borrowed from a bank and repaid over time with interest
53
what is an overdraft
a short term borrowing facility which allows a business to spend more than they have in their bank account
54
what is trade credit
when suppliers allows business do buy now and pay later
55
what is venture capital
investment from venture capitalists who take an equity stake in the business
56
what are business angels
wealthy individuals who invest their money in start-ups for a share of ownership
57
what is leasing
renting equipment, machinery or property instead of buying it outright
58
what is hire purchase
paying for an asset in instalments while using it and gaining ownership at the end
59
what are government grants
non repayable funds given by the government to encourage certain activities
60
what is crowdfunding
raising small amounts of money from a large number of people online
61
what are debentures
a long term loan where investors lend money to a business often with a fixed interest rate

A Level Business (8 decks)

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