Part 1

• Financial objectives of a business are profit maximisation revenue maximisation cost reduction positive cashflow return on investment(strong capital management) % of long term funding
• Formula for return on investment is ROI/Cost of I *100
• What are the two types of capital structure?

  debt capital- loans, bonds

  equity capital- share capital retained profits
• Budgeting is used to compare against actual figures and is a component of variance analysis
• pros of budgeting

  spending guidance

  helps a business acquire finance
• Cons of budgeting

  who sets budget

  historical budget

  budget review frequency-slack
• what is variance analysis?

  reality vs budgeted
• adverse variance is where profits and revenue are lower than forecasted and costs are higher than forecasted
• Favourable variance is where profits are more than forecasted and costs are lower than what was forecasted
• gross profit= rev- cost of sales
• operating profit= gross profit - operating expenses
• profit for year = operating profit + other profit - net finance cost -tax
• income statement is

  the record of revenue + costs over a period of time

  sole traders, Ltd, plc

  gross profit and net profit
• statement of financial position

  what a company owns, owes and is owned at a point in time

  total net asset = total equity

  plc , Ltd
• Cash flow statement

  cash flowing in and out of a business over a period of time

  sole trader, plc, Ltd

  short term liquidity + sources of finance
• Equity is non debt cash in the form of share capital
• Debt is long term borrowing
• cons of debt are interest payments and changes in interest rates
• cons of equity is lose control and paying dividends
• pros of positive cashflow

  pay employees + suppliers on time

  handle unexpected events

  take advantage of opportunities

  provides to expand business
• Goals for ratio analysis are to increase GPM inform management in decision making and measure productive efficiency
• Current assets + liabilities are:

  short term finance you own or owe
• Causes of poor cashflow

  poor sales

  over trading

  bad debtor/creditor management- bad credit

  no cash flow forecasting
• solutions to poor cash flow are rescheduling payments

  increase cash inflows- increasing marketing
• Debt factoring

  Debt factoring is an external, short-term source of finance for a business

  can raise cash by selling their outstanding sales invoices (receivables) to a third party (a factoring company) at a discount.