decision making to improve financial performance

revenue objectives

Sales maximisation
Targeting a specific increase in sales revenue
Exceeding the sales of a competitor

cost objectives

achieving the lowest possible costs

profit objectives

profit maximisation
targeting specific increase in profit
exceeding the profits of close competitors

gross profit

Sales revenue - cost of sales

operating profit

gross profit - operating expenses

profit for year (net profit)

Operating profit + profit from other activities - net finance costs - tax

gross profit margin

Gross profit/sales revenue x 100

operating profit margin

Operating profit / sales revenue x 100

profit for the year margin

Profit for the year / sales revenue x 100

break even point

no profits or losses

break even output

Fixed costs / contribution per unit

contribution per unit

Selling price - variable cost per unit

total contribution

Contribution per unit x number of units sold

margin of safety

Actual level of output - Breakeven level of output

cash flow

the movement of cash into and out of a business

cash flow forecasts

helps predict cash in flows and outflows of a business over a period of time

cash inflows

The flow of money into a business

cash outflows

payments in cash made by a business, such as those to suppliers and workers

net cashflow

cash inflow - cash outflow

closing balance

Opening balance + net cash flow

opening balance

Closing balance from previous month

payables

People who are owed money by business (creditors)

receivables

People who owe the business money (debtors)

working capital

cash needed to pay the day to day operation of the business

working capital formula

current assets - current liabilities

working capital cycle

the period of time between payment for goods supplied to a business and the business receiving cash from their sale

trade credit

the practice of buying goods and services now and paying for them later

invoice

A form describing the goods or services sold, the quantity, and the price

causes of cash flow problems

too much stock
over trading
seasonal demand
unexpected events
low profits or losses

debt factoring

A financial service such as a bank collects debts on behalf of other businesses, in return for a fee.

overdraft

Money a bank lends you if you spend more than you have

short term loan

Borrowed money that must be repaid within one year

sale of assets

when a business sells off its unwanted or unused assets to raise funds

sale and leaseback

The practice of selling assets, such as property or machinery, and leasing them back from the buyer

ways of decreasing cash outflows

delay payements to suppliers
use leasing instead of purchasing equipment
cut overhead spending

income budget

The sales revenue target for a department or the whole business

expenditure budget

shows the costs expected to be paid out over a period of time.

profit budget

Income budget - expenditure budget

Zero-Based Budget

assumes there will be no money available, managers need to justify why they need a budget

variances

the differences between planned amounts and actual amounts

favourable variance

actual figure is better than budgeted figure

adverse variance

actual figures are worse than budgeted figure

Replacement investment

replacing assets that have depreciated

new investment

expenditure on new capital goods that enables a business to increase its capacity to produce

return on investment

financial gain from investment-cost of investment/ cost x100

capital structure

the way in which a business has raised capital required to buy assets for its operations and growth

debt capital

borrowed funds that must be repaid

equity capital

funds provided by shareholders

Debts as a proportion of long term funding

debts / long term funding x 100

retained profits

Profit kept by firms to finance investment

Mortgages

long-term loans on real estate

debentures

long term loan to be repaid within 15 years, fixed interest

venture capital

money invested to finance a new firm

Crowdfunding

using social networking to appeal to potential investors