2.3 managing finance

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  • profit
    • managing finance 2.3
      • liquidity
        • no current assets e.g property or equipment
          • non-current liabilities; long term borrowings not expected to be paid back within the next year, money set aside for future expenditures
        • current assets e.g trade inventories, cash, stock, raw materials
          • current liabilities:expected to be paid in the trading year, short term loans and overdrafts
        • means the ability for a business to turn their assets into cash
          • indicates the ability to pay off debts, see what resources they have, measured by current ratio and acid tests(harsher)
            • ways to improve liquidity; reduce the stock they hold,pay suppliers later on agreed terms, increase long term borrowing
      • business failure
        • financial reasons
          • poor cash flow, lack of funds to pay tax bills, lack of capital leading to excessive borrowing
            • poor working capital management;measure of efficiency comparing a businesses liabilities to its assets
        • non financial factors
          • poor marketing, failure to innovate, lack of efficiency, intense competition, government policies, natural disasters
            • strong pound; heavily exporting means goods are more expensive abroad,
    • gross profit
      • sales revenue- direct or variable costs-known costs of sales
    • ways to improve profitability
      • increase revenue
        • raise profits
        • demand may fall if the product is price elastic
      • lower costs
        • outsource
        • redundancies
        • upgrade machinery
        • buy cheaper raw materials
    • distinction between profit and cash
      • profit is recorded straight away, can trade for years without profit, to improve a business can increase revenue or reduce their costs
      • cash is not recorded until payed out/received, business will go bust if they run out of cash to pay wages, doesn't affect profit figure
  • operating profit
    • sales revenue- other operating expenses(rent,wages)
    • profit
      • managing finance 2.3
        • liquidity
          • no current assets e.g property or equipment
            • non-current liabilities; long term borrowings not expected to be paid back within the next year, money set aside for future expenditures
          • current assets e.g trade inventories, cash, stock, raw materials
            • current liabilities:expected to be paid in the trading year, short term loans and overdrafts
          • means the ability for a business to turn their assets into cash
            • indicates the ability to pay off debts, see what resources they have, measured by current ratio and acid tests(harsher)
              • ways to improve liquidity; reduce the stock they hold,pay suppliers later on agreed terms, increase long term borrowing
        • business failure
          • financial reasons
            • poor cash flow, lack of funds to pay tax bills, lack of capital leading to excessive borrowing
              • poor working capital management;measure of efficiency comparing a businesses liabilities to its assets
          • non financial factors
            • poor marketing, failure to innovate, lack of efficiency, intense competition, government policies, natural disasters
              • strong pound; heavily exporting means goods are more expensive abroad,
      • gross profit
        • sales revenue- direct or variable costs-known costs of sales
      • ways to improve profitability
        • increase revenue
          • raise profits
          • demand may fall if the product is price elastic
        • lower costs
          • outsource
          • redundancies
          • upgrade machinery
          • buy cheaper raw materials
      • distinction between profit and cash
        • profit is recorded straight away, can trade for years without profit, to improve a business can increase revenue or reduce their costs
        • cash is not recorded until payed out/received, business will go bust if they run out of cash to pay wages, doesn't affect profit figure
  • net profit (year profit)
    • whole business-interest on loans/taxes
  • balance sheets
    • documents showing what a business owns (assets) and what it owes (liabilities)
    • shows what the business is worth in that moment in time and shareholders use this to judge the performance
    • shows how they sourced their funds and by law has to be published
    • cons;value of assets won't be what they sell for, values change quickly in a dynamic market
    • pros;summary of business value, evaluates performance, helps investors
  • equity-money owed to shareholders
    • Ordinary shares; money paid by shareholders when originally issued     Share premium;difference between share price and normal value               Accumulated losses;losses from previous years and decreased equity
  • working capital- funds the business has to pay off day-to-day expenses

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