Finance

Cards (20)

  • Budgeting
    Financial plans for the future over a given period of time
  • Budgets
    Describe the expected revenue and costs
  • Sales revenue budgets
    Planned revenue from selling products
  • Expenditure budgets
    A business's planned expenditure on labour, raw materials and other items essential for production
  • Purpose of a budget
    • Helps a business meet its financial objectives
    • To plan for the future
    • To motivate staff (bonuses)
    • To control business expenditure
  • Variances
    Unplanned changes from the budgeted figure
  • Favourable variances
    The difference between actual and budgeted figures results in the business enjoying higher profits than expected
  • Favourable variances

    • Less expenditure than expected
    • Higher revenues than expected
  • Adverse variances

    The difference between actual and budgeted figures results in the business profits being lower than planned
  • Adverse variances

    • Higher expenditure than expected
    • Lower revenue than expected
  • Reasons for changes in variances

    • Economy is in a recession
    • A competitor brought out a new product
    • Raw material costs may have fallen
    • New/cheaper suppliers may have been found
    • Employees may be better trained/motivated
  • Sources of finance
    Ways a business can obtain money to fund its operations and investments
  • Gross Profit

    revenue - cost of sales
  • Net Profit

    Gross profit - expenses
  • Gross Profit Margin

    gross profit / sales revenue x100
  • Net Profit Margin

    net profit / sales revenue x100
  • Cash flow formulas
    • Net cash flow = total inflows - total outflows
    • Closing balance = net cash flow + opening balance
    • Closing balance is next month's opening balance
  • Net cash flow = total inflows - total outflows
  • Closing balance = net cash flow + opening balance
  • Closing balance is next month's opening balance