AQA A level Business unit 5

Cash flow

Cash flow

The flow of cash into and out of the business

External constraints

Something outside the firms control that can prevent it achieving its objectives

Full capacity

When th business is fully utilising all it's assets

Stakeholders

Groups with an interest you know we in the success or failure of a firms decision and actions

Dynamic pricing

Using software that allows changing demand and supply levels to set changing prices

Piece rate labour

Paying workers per unit they make

Profit margin

Profit as a percentage of sales revenue

fixed cost

cost that don’t change in accordance to output

Total cost

All the costs of producing a specific output level

Total variable cost

All the variables costs of productising a specific output level.

Variable cost

The costs of producing one unit

Break even

Fixed cost/contribution per unit

Contribution per unit

Selling price - variable costs per unit

Margin of safety

Sales volume - break even

Cash flow forecast

Estimating future monthly cash inflows and outflows

Debt factoring

Obtaining part payment of the amount owed From a factoring company

Overdraft

Short term borrowing from a bank. The business only borrows as much as it needs to cover

Gross profit margin

(Gross profit/sales revenue) *100

Operating profit margin

(Operating profit/sales)*100

Net profit margin

(Net profit(before tax)/sales)*100

How to calculate Return on capital employed (ROCE)

(Operating profit/capital employed)*100

How to calculate return on investment

((Net return - investment cost)/original investment)*100

How to improve profit

Increase selling price

Increase output

reduce fixed and variable cost (e.g cheaper packaging)

How to improve cash flow

Cut down on cost

delay payments

cut back on expansion plans

How to improve break even

Reduce fixed cos

reduce variable cost

increase price on product

External sources of finance

Leasing \n Hire purchases \n Government finance \n Trade credit

Bank loan - Short-term

Overdraft - Short-term \n Debt factoring - Short-term \n Crowdfunding - Short term \n Venture capital - Long-term \n Share capital/equity - Long-term \n Mortgages - Long-term \n Debentures - Long-term

Internal sources of finance

Personal sources \n Retained profits \n Share capital

Cash flow

The cash being transferred into and out of the business

Define budgeting

An estimate of income and expenditure for a set period of time

Define variance

The difference between an actual amount and a pre-determined standard amount or the amount budgeted.

What is a budget?

a spending plan based on income and expenses

3 types of budgets

profit, income, expenditure

Expenditure budget

predict how much business will spend over a period of time

Income budgets

predicts how much money will come in from sales

Profit budget

Income budget - expenditure budget

What is a contingency cost?

An amount included in a budget to cover any unexpected issues

Benefit of budgets

makes sure businesses doesn’t spend money they don’t have

Drawbacks of budgets

hard for a new business as they have no past data