Business Studies Finance

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What is the formula for total revenue?
Total revenue = price per unit x quantity of products sold
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What is the formula for profit?
Profit = total revenue - total costs
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What is income also known as?
Sales, sales revenue, total revenue or turnover.
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What are 6 sources of finance for a large business?
Retained profits (profit after dividends are paid), re-invested savings (bank savings or stocks & shares from previous profit), sell fixed assets, issue more shares, debentures (long term loans to public-interest), loans/ mortgages (more collateral).
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What is a 'balance sheet'?
A document describing the financial position of a company at a point in time. It compares assets (items owned) with liabilities (items owed). OR 'A snapshot on one day of what the business owns (assets) and owes (liabilities)'.
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What is a 'profit and loss account'?
A record of a business' past revenue and costs over a period of time (usually a year). It can be used to help a business make decisions about the future.
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What is a 'profit and loss account' also known as?
Income statement.
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What are the 5 components of an 'Income Statement'?
Revenue & Cost of Sales & Gross Profit & Expenses & Net Profit.
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What are the elements listed on the Balance Sheet?
Current assets. Non Current assets (fixed assets). Current liabilities. Non Current liabilities (long term liabilities).
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What is the definition of 'Current Liabilities'?
'Debts scheduled for repayment within 1 year' e.g. overdraft, bills (electricity/gas/water), business rates, creditors (suppliers).
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What is the definition of 'Non Current Liabilities'?
'Debts due for repayment for more than 1 year' e.g. mortgage, debentures, bank loan.
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What is the definition of 'Current Assets'?
'Owned for less than a year' e.g. stock, cash, debtors.
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What is the definition of 'Non Current Assets'?
'Owned by the firm for more than a year' e.g. van. Used to be called fixed assets.
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What is the formula for 'Net Current Assets'?
New current assets = current assets - current liabilities
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What is the definition of 'cost of sales'?
'Direct costs that cary directly with the level of production' e.g. raw materials.
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What does the 'trading account' record and include?
The trading account records the firm's gross profit or loss. This section includes 'turnover', 'cost of sales' and 'gross profit'
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What does the appropriation account show and who does it apply to?
It applies to limited company accounts and records where the profit has gone e.g. to the government as tax, to shareholders as dividends or to the business as retained profit.
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What are the two profitability ratios?
'Gross Profit Margin' and 'Net Profit Margin'.
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What is the formula for 'Gross Profit Margin'?
(Gross profit ÷ sales revenue) x 100 = GPM
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What does a GPM answer of 60% mean?
For every £100 worth of sales the firm makes £60 Gross Profit.
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What is the formula for 'Net Profit Margin'?
(Net profit ÷ sales revenue) x 100 = NPM
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What does a NPM answer of 35% mean?
For every £100 worth of sales the firm makes £35 Net Profit.
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What are the two liquidity ratios?
'Current Ratio' and 'Acid Test Ratio'.
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What is the formula for 'Current Ratio'?
Current ratio = current assets ÷ current liabilities
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What is the formula for 'Acid Test Ratio'?
Acid test ratio = (current assets - stock) ÷ current liabilities
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What is the accountant recommended benchmark figure for the current ratio?
2:1 (for every £2 the business owns, it owes £1). Greater than 2:1 means too much cash, should be spent elsewhere.
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What is the accountant recommended benchmark figure for the acid test ratio?
1:1
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What is stock also known as?
Inventories.
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What is the definition of 'overheads'?
Indirect costs that do not alter when the level of production changes. (expenses).
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What is the formula for 'gross profit'?
Gross profit = revenue - cost of sales
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What is the formula for 'net profit'?
Net profit = gross profit - overheads
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What is the definition of 'expenses'?
'Indirect costs that do not vary when the level of production changes'. e.g. manager's salaries.
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What does the liquidity of an asset show?
How easy it is to convert it into money. Cash is the most liquid.
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How is a profit and loss account useful for a firm's stakeholders?
Potential shareholders decide if the business is worth investing in. Shareholders can assess performance of the directors. Employees: profit= potential pay rise, loss= possible redundancy. Government calculates how much tax they are owed.
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How is a balance sheet useful for a firm's stakeholders?
Shareholders can assess financial health of a business. Growing net assets= healthy. Low or negative net assets = unhealthy.
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Card 2

Front

What is the formula for profit?

Back

Profit = total revenue - total costs

Card 3

Front

What is income also known as?

Back

Preview of the front of card 3

Card 4

Front

What are 6 sources of finance for a large business?

Back

Preview of the front of card 4

Card 5

Front

What is a 'balance sheet'?

Back

Preview of the front of card 5
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