unit 5 - decision making to improve financial performance

Question 1

Benefits Of Financial Objectives

Answer 1

provide direction, measure financial performance, support decision making and motivate employees

Question 2

Return On Investment (ROI)

Answer 2

allows a business to calculate the efficiency and profitability of a project

Question 3

Cash-Flow

Answer 3

the movement of money into and out of a business

Question 4

Influence On Financial Objectives

Answer 4

overall business objectives, department objectives, shareholder actions, competitors

Question 5

Cash-Flow Forecast

Answer 5

estimate total inflows and outflows for a future period of time

Question 6

Net Cash-Flow

Answer 6

different between inflows and outflows

Question 7

Improving Cash-Flow

Answer 7

ask for longer trade credit, increase period for payables, reduce trade credit for receivables

Question 8

Budgets

Answer 8

used to forecast revenue, expenditure and profit during a period

Question 9

Favourable Variance

Answer 9

when actual revenue/profit is higher than the forecast revenue or when actual costs are lower than the forecast cost

Question 10

Adverse Variance

Answer 10

when actual revenue /profit is lower than the forecast revenue or actual costs are higher than the forecast costs

Question 11

Variance Analysis

Answer 11

process of investigating any differences between forecast data and actual figures

Question 12

Advantages Of Budgetting

Answer 12

helps achieve targets, helps focus on cost control, provide spending authority which increases motivation

Question 13

Income Statements

Answer 13

records a business sales revenue over a trading period and all relevant costs incurred along with profit or loss

Question 14

Direct Costs

Answer 14

expenditure that can be allocated clearly to a particular product or area of the business

Question 15

Indirect Costs

Answer 15

expenditure that relates to all aspects of a business activities

Question 16

Contribution

Answer 16

difference between revenue and variable costs

Question 17

Contribution Per Unit

Answer 17

amount of revenue which contributes to covering a business fixed costs for one unit

Question 18

Total Contribution

Answer 18

amount of revenue from sale of all products which contributes to fixed costs for all units sold

Question 19

Break-Even Output

Answer 19

the level of output at which total costs equal exactly revenue from sales

Question 20

Margin Of Safety

Answer 20

measures the amount by which a business current level of output exceeds break-even output

Question 21

Profit Margin

Answer 21

ratio that expresses a business profit as a percentage of its revenue

Question 22

Profitability

Answer 22

measures the financial performance compares a business profits to other factors

Question 23

Financing

Answer 23

how a business gets the money it needs

Question 24

Short-Term Finance

Answer 24

finance needed for a limited period of time, less than a year

Question 25

Long-Term Finance

Answer 25

finance needed for a longer period of time, more than a year

Question 26

Internal Sources Of Finance

Answer 26

selling assets, personal savings, retained profit

Question 27

External Sources Of Finance

Answer 27

trade credit, government grants, bank loans or mortgages, share capital, instalment purchases, loans from other people, debt factoring, overdrafts, venture capital, crowdfunding

Question 28

Crowdfunding

Answer 28

funding a project by raising many small amounts of money from a large number of people

Question 29

Debt Factoring

Answer 29

selling debts to a third party company for immediate cash, the third party collects the debt from the customers and keeps some as payment

Question 30

Trade Credit

Answer 30

offered when purchasers are allowed a period of time to pray for products they have bought

Question 31

Bank Loans And Mortgages

Answer 31

borrowing money from the bank and then paying interest on the money borrowed

Question 32

Bank Overdraft

Answer 32

borrowing an amount of money up to a limit which has been agreed in advance and then paying it back with higher interest rate

Question 33

Factors For Financing

Answer 33

cost, business size, long-term or short-term, financial situation

Question 34

Investment

Answer 34

the purchase of assets that will be used for a considerable time (vehicles, machinery, property)

Question 35

Capital Expenditure

Answer 35

spending undertaken by businesses to purchase non-current assets, another term for investment

Question 36

Capital Structure

Answer 36

refers to the way in which a business has raised capital required to purchase assets

Question 37

Causes Of Cash-Flow Problems

Answer 37

overtrading, allowing too much trade credit, poor credit control, inaccurate cash-flow forecasting

Question 38

Economies Of Scale

Answer 38

business produces more output its average cost per unit falls

Question 39

Diseconomies Of Scale

Answer 39

business grows too large causing its average costs per unit to rise instead of fall

Question 40

Economies Of Scope

Answer 40

when unit costs are lower when a business produces a wider range of products rather than specialise in just one

Question 41

Depreciation

Answer 41

the reduction of value of an asset over a period of time