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41 Cards in this Set
- Front
- Back
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What is a Budget? |
A plan showing how much money a business expects to spend/receive in a specific period |
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What is a Sales Budget? |
The amount of money received by business in Specific time frame |
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What is a Marketing Budget? |
Budget the business expects to spend on marketing & advertising in the future |
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Advantages of Budgets? |
Gives staff & employees something to work towards for motivation & it can stop overspending & control spending by business as you can see how much you've spent |
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Disadvantages of Budgets? |
Stressful & overwhelming if set too high & inflexible method |
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What is Cash Flow? |
Money coming in & out a business |
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Reasons for Cash Flow problems? |
Allowing long repayment period of customer, High stock levels & Purchasing too many fixed assets at once |
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Typical cash Outflows? |
Loans, Advertising, Utilities, Bills, Wages, Stock & Rent |
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Typical Cash Inflows? |
Sales, Selling assets, Shares, Overdraft & Fresh capital Injection |
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What is a Cash Flor Forecast? |
A document displaying plans & estimations of the amount of money you expect to flow in & out of your business including all projected incomes & expenses |
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Why are Cash Flow Forecasts Important? |
Identify periods of cash shortage, Helps businesses when applying for funding with banks/Investors & Help plan for future |
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How to Overcome cash flow Problems? |
Generate more sources of income, Delay & reduce planned expenditures, Avoid purchasing too much stock/fixed assets, More sales & bank overdrafts |
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What are Fixed costs? |
Unvarying costs with output (Rent) |
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What are Variable costs? |
Costs that RISE as output Increases (Materials) |
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How to Calculate Total costs? |
Fixed Costs + Variable Costs |
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How to Calculate Total revenue? |
Price X Output |
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How to Calculate Profit? |
Total Revenue - Total Costs |
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When does Break-Even occur? |
When Total revenue (TR) = Total cost (TC) |
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How to calculate Break-Even Point? |
Fixed Costs/Contribution per unit (Cont per unit = Price - Variable cost per unit) |
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What is the Margin of Safety? |
Difference between the level of output above the break-even point where the business is currently producing at, and the break-even level of production |
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What is a Profit & Loss account? |
A financial statement displaying a company's net profit & how it is calculated by subtracting expenses from gross profit |
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How to calculate Gross profit? |
Sales revenue - Cost of sales |
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How to calculate Net profit? |
Gross Profit - Expenses |
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Differences between Cash & Profit? |
Physicality |
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What is Net profit? |
Companies total earnings/profit |
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What is a Balance sheet? |
A statement of the assets, liabilities, & Capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period |
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What does a Balance Sheet show? |
Value of what the business OWNS (Assets) & the value of what the business OWES (Liabilities) |
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What does a Balance sheet not show us? |
Business making profit or not |
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Balance sheet, How to calculate Capital? |
Assets - Liabilities (Net assets) |
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What do Profitability Ratios measure? |
The Performance of the business & focus on profit, turnover & capital employed (amount invested) |
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What are the 3 types of Profitability Ratios? |
Gross Profit Margin (GPM), Net Profit Margin (NPM), Return on Capital employed (ROCE) |
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How to calculate Net profit margin (NPM) as a percentage of turnover? |
(Net Profit/Turnover) X 100 |
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How to calculate Gross profit margin (GPM) as a percentage of turnover? |
(Gross Profit/Turnover) X 100 |
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How to calculate Return on capital employed (ROCE) as a percentage of total amount of capital invested in business? |
(Net Profit/Capital Employed) X 100 |
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What is Gross profit? |
A Company's residual profit after selling a product or service & deducting the cost associated with its production & sale |
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What do Liquidity Ratios measure? |
How easily a business can pay it's debts |
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What are the 2 Liquidity ratios? |
Current ration & Acid test ratio |
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What is Current Ratio? |
Assesses the firm's liquidity by dividing current assets into current liabilities |
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How to calculate Current Ration? |
Current assets/Current liabilities |
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What is the Acid test Ratio? |
Similar to the Current Ration (Current assets/Current liabilities) but subtracts stocks from current assets |
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How to calculate Acid test ratio? |
Current assets - (Stocks/Current liabilities) |
