Business Studies Scottish Highers (1)

Finance department

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Reasons to use Cash Budgets

To highlight periods when cash flow will be a problem.

This will allow corrective action to be put in place.

Can be used to secure loans or to show investors.

Is used to make comparisons between actual expenditure and targeted.

Used to monitor spending throughout the organisation.

Planning and measure Performance.

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Distinguish the following.

Gross Profit shows your turnover and sales where as Net profit shows the profit after the firm's expenses have been deducted from the gross profit.

Fixed assets are items which the business owns and will be kept for longer than a year eg machinery, Vans where as Current assets are items which the business owns and will be kept for less than a year. eg stock.

Debentures are  loans where there fixed interest is paid over the stated period of the loan and then the full amount is paid back where as shares are investments in a company that receives a divident each year if profits allow.

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Ratio analysis

 Why Ratio analyses is used to analyse performance.

Used to compare performance with previous years and with competitors of similar size.

To Highlight Trends.

Show areas where corrective action can be taken.

Limitations of ratio analysis.

Information is immediately historical.

Findings do not take into accountexternal factors.

new products or product development are not taken into account.

Staff morale or turnover is not taken into account.

Recession.

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