Business Studies Unit 3 - Objectives and Financial Strategies

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Business Studies Unit 3 - Objectives and Financial Strategies
2014-04-21 10:16:30

Business Studies Unit 3 - Objectives and Financial Strategies
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  1. SMART Objectives are ...
    • Specific
    • Measurable
    • Agreed
    • Realistic
    • Timely
  2. Corporate Objectives vs Functional Objectives
    • Corporate objectives - refer to the business as a whole
    • Functional objectives - for specific departments
  3. Shareholders vs stakeholders
    • Shareholder - someone who owns a part of the business
    • Stakeholder - someone with a legitimate interest in the business
  4. Definition of profit margin
    The proportion of revenue from each sale that is profit
  5. Ways of increasing profit margin (2)
    • Increase prices
    • Reduce costs
  6. Why does a higher profit margin not always mean higher profit?
    • Increasing prices can reduce demand and cause a fall in revenue
    • Reducing costs can impact on quality and reduce demand
  7. Internal factors influencing financial objectives (3)
    • Overall objectives of the business
    • Status of the business
    • Employees
  8. External factors influencing financial objectives (4)
    • Availability of finance
    • Competitors
    • The economy
    • Shareholders
  9. Main things shown on a balance sheet (2)
    • Assets
    • Liabilities
  10. Net current assets = current assets - ?
    Current liabilities
  11. Current Assets vs Non-Current Assets (3 examples for each)
    • Current assets are things that can be turned into cash quickly, e.g. stock, debtors and cash in the bank
    • Non-current assets have a life span of more than a year, e.g. premises, machinery, vehicles
  12. Which figure on a balance sheet includes depreciation?
    Non-current assets
  13. Definition of liabilities (4 examples)
    Money that the business owes, e.g. overdrafts, bank loans, unpaid taxes, money owed to creditors
  14. What two figures are always equal on a balance sheet?
    Net assets and total equity
  15. Definition and equation for working capital
    • The amount of cash (and assets that can be easily turned into cash) that the business has for its everyday activities.
    • Working capital = current assets - current liabilities
  16. Define capital expenditure
    Money used to buy fixed assets
  17. Why do businesses allow for depreciation on their assets?
    To give a fair and true view of the business current state
  18. Retained profit = net profit - ( ? )
    Tax + dividends
  19. Main ways profit is used (2)
    • Dividends
    • Retained profit
  20. Why can income statements that cover less than 12 months be misleading?
    Seasonal variance
  21. Equation for acid test ratio
    (Current assets - stock) / Current liabilities
  22. Equation for current ratio
    Current assets / current liabilities
  23. Equation for asset turnover ratio
    Sales revenue / assets
  24. Equation for inventory turnover ratio
    Cost of sales / cost of average stock held
  25. Equation for ROCE
    Operating profit / (total equity + non-current liabilities) x 100
  26. What does ROCE tell you?
    How much money a business makes compared to how much money has been put in to it
  27. Equation for gearing
    Gearing = long term loans / (total equity + non current liabilities) x 100
  28. Examples of internal finance (3)
    • Retained profit
    • Rationalisation (selling assets to reorganise the business)
    • Squeezing working capital (reducing stock held, delaying payments to suppliers, speeding up creditors)
  29. Examples of external finance (3)
    • Trade credit with suppliers
    • Overdrafts
    • Debt factoring
  30. Define cost and profit centres
    • Cost centres are any part of the business that directly incur costs
    • Profit centres are any part of the business that generate revenue as well as incurring costs.
  31. Equation for ARR
    Average annual profit / investment x 100