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A-Level Business > (Unit 5) Decision making to improve financial peformance > Flashcards

(Unit 5) Decision making to improve financial peformance Flashcards

1
Q

What is a financial target?

A

A goal or objective to be pursued by the finance department.

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2
Q

What is a financial aim?

A

Broad goals for the finance department.

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3
Q

What is an financial objective?

A

Specific SMART targets for the departments to achieve their aims.

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4
Q

What are financial tactics?

A

Short-term financial measures adapted to meet needs of a short-term threat or opportunity.

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5
Q

What is a cash flow?

A

The total amount of cash flowing into the business (inflows) minus all the cash leaving the business (outflows) over a period of time.

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6
Q

What are inflows?

A

Receipts of cash into the business (e.g. selling of assets).

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7
Q

What are outflows?

A

Payments of cash leaving the business (e.g. purchasing goods or equipment, repaying loans and interest).

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8
Q

What is cash?

A

The actual money held within a business in the short-term that is available to use to pay debts (liquidity).

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9
Q

What is profit?

A

The final result at the end of a financial period where the revenue is greater than the total costs.

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10
Q

What does insolvent mean?

A

This is when a business is unable to pay its debts.

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11
Q

What are targets that link to profit?

A
  • sales growth and maximization
  • profit growth and maximization
  • cost minimization
  • cost leadership
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12
Q

What does TIM-WOOD stand for (reduce waste)?

A

Transport, Inventory, Movement, Waiting, Over-Processing, Overproduction, Defects

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13
Q

What does ROCE stand for?

A

Return of Capital Employed

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14
Q

What are targets of ROCE?

A
  • Improvement on previous year
  • To be better than the average in the industry
  • To be better than rivals
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15
Q

How do you calculate ROCE?

A

(operating profit / capital employed) x100

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16
Q

What is Capital Employed?

A

The value of resources used by a business (excellent guide to a firms size).

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17
Q

Why is ROCE important?

A

Profit is the ultimate measure of success and needs to be compared with the size of the business.

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18
Q

What is gearing?

A

The % of capital raised through loans.

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19
Q

What is cash flow?

A

The amount of money flowing into and out of a business over a period of time.

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20
Q

What factors affect cash flow?

A
  • amount of cash invested into the firm
  • amount of stock held by a firm
  • seasonality
  • amount of credit given by suppliers
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21
Q

What is liquidity?

A

The ability of a firm to pay its short-term debts.

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22
Q

What are budgets?

A

They are agreed financial plans with targets over a given period of time.

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23
Q

What is a budget holder?

A

The person responsible for the budget set.

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24
Q

What are some reasons for setting budgets?

A
  • helps to gain investment or finance
  • financial control
  • monitoring and reviewing a firms progress
  • allows firms to establish their priorities
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25
Q

What are some of the problems with setting budgets?

A
  • unforeseen changes
  • time taken in setting budgets
  • research problems + accuracy
26
Q

How do you calculate profit budget?

A

Income budget - expenditure budget

27
Q

What is zero budgeting (method of setting objectives)?

A

This is the process of when a budget starts at zero and then every expenditure must be JUSTIFIED before it is approved, then budgets are based on the strength of the justification linked to company objectives.

28
Q

What are the advantages of zero-budgeting?

A
  • more thorough planning
  • helps to identify changes
    -helps to save money by cutting costs
29
Q

What are the disadvantages of zero-budgeting?

A
  • time consuming
  • managers who are better at negotiating may acquire a bigger budget despite the needs of other departments.
30
Q

What is variance?

A

The difference between the budget figure and actual figure.

31
Q

How do you calculate variance?

A

Budget figure - Actual figure

32
Q

What is favourable variance?

A

This is when costs are lower than expected or revenue is higher (e.g. more profit is made than expected).

33
Q

What is adverse variance?

A

This is when costs are higher than expected or revenue is lower (e.g. less profit is made than expected).

34
Q

What is break-even?

A

The point at which total costs= total revenue and neither a profit or a loss is made.

35
Q

How do you calculate break-even?

A

Fixed costs / contribution

36
Q

How do you calculate contribution per unit?

A

Selling price - Variable cost per unit

37
Q

What is fixed costs?

A

Costs that do not change directly with output.

38
Q

What are variable costs?

A

Costs that do change directly with output.

39
Q

What are the benefits of using break-even charts?

A
  • simple and quick to complete
  • help a firm plan
  • little training is needed (useful for new/inexperienced businesses)
  • shows changes in all cases
  • forecasting and planning for the future
40
Q

What are the limitations of break-even charts?

A
  • very simple overall
  • assumes all units are sold at the set price
  • assumes fixed and variable costs stay the same
41
Q

What is profitability?

A

The efficiency of a business at generating profit in relation to the size of the business.

42
Q

What is gross profit?

A

The profit made once the firms direct costs have been paid.

43
Q

What is operating profit?

A

The profit made directly from trading (its main activities).

44
Q

What is net profit?

A

The profit from all activities once all costs and income of the business have been paid and revenue received from the firms main and additional activities.

45
Q

What does GPM stand for?

A

Gross profit margin

46
Q

How do you calculate GPM?

A

(Gross profit / Sales) X100

47
Q

What is GPM?

A

How much of the profit from a product you keep when selling a product (margin).
Only takes into account the direct costs of making a product.

48
Q

What is OPM?

A

How much of the profit from a product you keep when selling a product.
Takes into account raw materials + wages etc, but before interest or tax.

49
Q

What does PEYM stand for?

A

Profit for the year margin

50
Q

How do you calculate PEYM?

A

(Profit for the year / Sales) X100

51
Q

What are the internal sources of finance?

A
  • Retained profits (ST + LT)
  • Sale of assets (LT)
52
Q

What are the external sources of finance?

A
  • Debt factoring (ST)
  • Overdrafts (ST)
  • Share capital (LT)
  • Loans (LT)
  • Mortgage
  • Venture capital (LT)
  • Crowdfunding (LT)
53
Q

What is debt factoring?

A

A business will sell its debt/invoices (which have not been collected) to a third party at a discount, in exchange for immediate cash (small loss, e.g. 15%).

54
Q

What is share capital?

A

A business can raise money by issuing shares to shareholders, usually for cash.

55
Q

What is a loan?

A

A sum provided to an individual or business for an agreed purpose.

56
Q

What is mortgage?

A

A very long-term loan taken out on a property, lower interest rates as secured against the property being bought and deposit is required.

57
Q

What is a venture capital?

A

Finance provided to SME’s that seek growth or initial investment in exchange for equity of the business.

58
Q

What is crowdfunding?

A

A method of raising finance by asking a large number of people each for a small amount of money, often via the internet.

59
Q

What is revenue expenditure?

A

Spending on day-to-day costs (e.g. paying wages)

60
Q

What does capital expenditure?

A

Spending on assets that will be used repeatedly for longer than a year.

A-Level Business (10 decks)

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