Unit 6 Flashcards
What are the benefits of having a positive cash flow?
Don’t need to borrow money so no interest
Able to have long term loan arrangements
Reduce risk of failure
What is a cash forecast
Plan of the expected inflows and outflows over time
What is a cash statement
Record of the previous inflows and outflows of the business (helps with further management of cash)
What are some causes of cash flow problems
Poor management (Not planning + spending to much)
Business is making a loss ( run out of cash)
Offering customers to long to pay (Unable to pay bills)
What are some soloutions to cash flow problems
Reschedule payments ( delay outflow)
Cut costs (Reduce outflow)
Use overdrafts (loans=money)
Find new sources of inflow (inc inflow)
How does someone analyse cash flow
Revenue - is it growing? How to change?
Payments - Increasing? Which is biggest? Reduce? Consequence?
Net cash flow - Is inflow>outflow?
Closing balance- what? why?
How to calculate % change
difference or change/
original x100
How to calculate Revenue
Price x units sold
How to calculate Total costs
Variable costs + fixed costs
How to calculate market share
Sales value of business /
Sale value of whole market x100
External sources of finance
Friends, Loans
Internal sources of finance
Retained profits, sale of stock, owner investment
Gross profit
Revenue - Cost of sales
Net profit
Operating profit - tax - finance costs
Closing balance
Opening balance + net cashflow
Net cash flow
Inflows - Outflows
What is Ratio analysis
Method of assessing a firms financial situation by comparing two sets of linked data
What is Gross Profit margin
Gross profit/sales revenue
What is Net profit margin
Net profit margin before tax/ sales revenue
What is return on capital employed
Net profit before tax/
capital employed
What is a Liquidity ratio
Analyses of debt, Can you pay off debt with cash
What is Current ratio
Current asset/ Current liability
Acid test
Current assets -stock/ current liability
What are some examples of non current assets
Land
Building
Vehicles
What are some examples of current assets
Stock
Debtors
Cash
What is Inter-firm
Between companies
Intra Firm
Within company to measure relative efficiency
Comparison too a standard
Certain levels of performance are recognised
Comparisons over time
To register trends in % and allow for exceptional circumstances
Average rate of return
A simple method of calculating whether a project is worthwhile.
What is the calculation for ARR
(total profit from investment/ number of years)/
initial cost of investment
