Decision Making to Improve Financial Performance (3.5)

Financial Objectives

The concept of a return on investment
Revenue, costs and profit objectives
Cash flow objectives

Cash Flow VS Profit

Cash flow shows money in and out, profit shows money left over after expenses paid.

Gross Profit

Money your goods or services earned after subtracting the total costs to produce and sell them. (Not including taxes + other expenses)

Operating Profit

Income a company generates from sales after paying off all operating expenses, includes rent, employee payroll, equipment and inventory costs. (Not including interest, taxes, investments)

Profit for the year

The profit made that year.

Cash Flow Forcast

Budget

A plan for making and spending money. Can be compared with actual performance to find variances.

Variances

The differences between planned amounts and actual amounts.
Favourable variances - Good for business spent less then expected.
Adverse variances - Bad for business spent more then expected.

Break-even Chart

Break-even Output

The point where the business is producing x amount of products that they make neither a loss or a gain.

Margin of Safety

The difference between actual output and the break-even output.

Contribution Per Unit

Profit left on the sale of one unit, after all variable expenses have been subtracted from the related revenue. Can be used to find minimum price to sell a product.

Contribution

The amount of earnings remaining after all direct costs have been subtracted from revenue.

Gross Profit Margin

Money it made after accounting for the cost of doing business.

Operating Profit Margin

Proportion of a company's revenue is left over after paying for variable costs of production.

Payables

Money business owes.

Receiveables

Money owed to a business.

Sources of Finance

Debt factoring - Chasing debt.
Overdrafts - Short term while bank goes below £0.
Retained profits - Money from year before.
Share capital - Money made from selling shares.
Loans - Long term money from bank with interest.
Venture capital - Getting money from investors but high return.
Crowd funding - Large num of people invest.