2.3 - Cash Flow and Profit

View mindmap
  • Theme 2.3.1 & 2.3.2
    • 2.3.1 - Profit
      • Before you know it, Your Profit is GON.
        • Gross Profit = Sales Revenue - Cost of sales
        • Gross Profit is the profit made after sales.
        • Gross Profit Margin-(%) = (Gross Profit / Sales Revenue) X100
        • Operating Profit = Gross Profit - Operating Expenses
        • Operating Profit is the profit left after operating costs are paid for.
        • Operating Profit Margin (%) = (Operating profit / Sales Revenue) X100
        • Net Profit = Operating Profit - Interest
        • Net Profit is the profit left after interest is paid off (also called profit for the year.)
        • Net Profit Margin (%) = (Net Profit / Sales Revenue) X100
      • Profit & Loss Accounts
        • Also known as Statement of Comprehensive Income
        • This document is created at the end of a financial year, and contains information about the profit or loss made by a business.
        • One way to increase profitability is to raise prices, which is risky as it could increase the elasticity of a product or service, this could lead to a loss of revenue and a decrease in sales.
        • Another way to increase profitability is to lower costs by either changing to cheaper suppliers or making staff redundant.
        • Profit is the amount of cash a business has left over after costs. Businesses can live a long time without profit.
        • Cash is the amount of money a business has before profits, a business may go bust if it runs out of cash.
      • Key Terms
        • An income statement measures a businesses financial performance over a period of time.
        • A balance sheet shows a businesses assets and liabilities at a set moment in time.
        • A cash flow statement is a document that shows how much money flows in and out of a business.
      • Cost of sales can include costs of raw material and rent of premesis
      • Operating costs can include utility bills and cost of advertising ,and also marketing.
    • 2.3.2 - Cash Flow
      • Cash flow shows the amount of money that flows in and out of a business.
      • Cash outflows are basically costs that a business pays out for.
      • Cash inflows is basically the money that a business receives or generates.
      • Net Cash Flow = Cash Inflows - Cash Outflows
      • Net cash flow shows the difference between cash inflows and outflows over a specific period of time.
      • Types of Inflows and Outflows
        • Cash inflows include: Sales revenue, sales of assets, share capital investment, bank loans and government grants and other sources of finance
      • Liquidity is the ability of a business to pay its costs on time.
      • Ways to improve cash flow could include reducing the chain of command (delayering), changing to cheaper suppliers, changing ethics, reducing costs, increasing prices, leasing or selling assets and raising finance
        • Ways to raise finance are: Factoring, selling shares, loans, overdrafts, business angels etc.
      • The Balance Sheet
        • Assets are what a business owns or is owed, and liabilities are what it owes.
        • Non- current assets and liabilities are long term, and current assets and liabilities are short term.
        • Assets and Liabilities
          • Non-current assets include land, buildings, and machinery.
          • Current assets include cash, trade debtors and receivables, and stocks.
          • Current liabilities include trade creditors, short-term borrowing and utilities.
          • Non-current liabilities include long term borrowing options such as dividends for shares.

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all T2.3 resources »