Unit 5 Finance Flashcards
Why do we set financial objectives?
-help making decisions
-gives a clear direction
-a means of measuring performance
-a common goal within the company
-help with survival
-profit and loss
Another word for revenue
Turnover
Why may a companies financial objective be cost minimisation?
As they want to minimise costs to maximise profit
Shops like primark, Poundland, Aldi and Lidl may want to do this
What are profit objectives?
-profit maximisation
-achieving high profitability compared to competitors
-capital employed is all the capital used in the business
What is capital employed?
Shareholders funds, reserves (retained profit), long term liabilities (loans over 1 year)
What does subordinate mean?
Secondary to
What is profitability?
Profit generated compared to money put into the business
What type of business may want cash flow objectives?
-a business that is fast growing as it needs to avoid running short of cash and suffer from over trading
-businesses with seasonal demand as revenue may only come in at one time of year but there are bills that need paying all year long eg ski resorts
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Why may a small, fast growing business want to set cash flow objectives?
Since they are fast growing they may need new machinery, workers etc so that’s a large amount of cash out
Smaller businesses may struggle to raise finance to pay for these
Fast growing implies more expenditure
What is cash flow?
To do with the timings of inflows and outflows of cash
Net cash flow=cash in - cash out
-the business need enough cash to pay the bills at the time they are due
What is the opening balance?
The amount of cash in the business at the start of the month
What is the closing balance?
The amount of cash in the business at the end of the month
Types of profit
Gross profit
Operating profit
What is gross profit
Sales revenue - cost of goods sold (direct costs eg materials)
What is operating profit
Sales revenue - cost of sales - operating expenses
