Summary
Summary Section 5: Financial decisions
- Course
- Institution
AQA business A level, section 5, financial decisions A summary of key concepts, ranging from cash flow forecasting and profit, to analysing budgets and break even.
[Show more]
Seller
Follow
katieg1500
Content preview
FINANCE External influences Budgets1) Political – expectation to serve all stakeholders - Forecasts income + expenditure over year
Objectives 2) Economic – recession, sales + profit fall, sell cheap - Influenced by objectives, market research, negotiate
- Yardstick – measure success + failure 3) Social – constantly changing, 24/7 - Stretch abilities but achievable, low budgets demotiv
- Improve coordination + efficiency 4) Technology – communication, targets monitored - Budget holders check performance = variance analys
- Shareholders see if worthwhile investment 5) Legal – requirements influence objectives
- External changes beyond control, misleading 6) Environmental – ethical consumers, pressure groups Updating budgets
- Objectives difficult to measure accurately 7) Competition – prices, costs - Zero based budgets for start-ups, long, plan year
- Conflict with other objectives - Historical budgets quick, simple, assumes conditions
Internal influences unchanged (product not at same stage of lifecycle)
Revenue objectives 1) HR – training needs, cost minimalization - Fixed budgets = predict cash flow, certainty, not reac
> Sales maximisation – volume + value 2) Operational – efficiency, cost, lean production - Flexible = response to change (zero based budgeting)
> Specific increase in revenue 3) Resources – quality, value added
> Exceeding sales of competitor Budget types
Management accounting (info for internal users) 1) Income budget = revenue (price, cost, market resear
Cost objectives Financial accounting (info for external users) need to research + predict
> Lower cost raw materials 2) Expenditure budget = costs (materials, labour, marke
> Reduce wage cost per unit Profitability 3) Profit budgets = income – expenditure (viable)
> Lower wastage levels P=R–C
> Relocating business to low-cost site GP = R – VC (cost of sales) Advantages
> Reducing promotion cost (CPT) OP = GP – FC (expenses) - Control cash flow, predictions, ensure not overspend
> Improve efficiency by reducing VC PFTY = OP – taxes - Dept head delegate authority to budget holders = mo
- Assign responsibility – budgeters success/fail
Profit objectives Showing profitability - Establish priorities – large budgets indicate imp
> Maximisation - GP margin = GP / revenue x 100 - Coordinate spending + encourage investors
> Target specific increase in profit - OP margin = OP / revenue x 100
> Exceed profit of close competitors - Profit for the year margin = PFTY / revenue x 100 Problems of budgeting
- Compare to comp, over time, standard - Resentment between dept
Cash flow objectives - Restrictive – stop response to market changes
> Maintain min cash balance Improving profitability - Time consuming, less time understanding customer
> Reduce bank overdraft by x amount 1) Changing the price – profit margin, PED, comp - Unforeseen change, inaccurate budgets (inflation)
> Less sales on credit 2) Decreasing costs – EoS, profit margin, efficient - Managers not know enough about department
> Spread costs and income more evenly 3) Invest in fixed assets – expand scale, efficient, quality
> Set contingency fund levels (emergency source) 4) Increasing sales volume – demand by marketing, NPD Variance = budget figure – actual figure
- Important ST, profit important LT 5) Product development – attract customers, higher price - Performing worse/better than expected, know why
6) Marketing – attract customers, ↑ value, higher prices > Favourable = ↑ profit (rev > budget, costs < budget)
Investment objectives 7) HR – selection, recruitment, training, motiv, productivity > Adverse = ↓ profit (rev < budget, costs > budget)
> Replacement capital – replace depreciated asset 8) Improving quality – machinery, training - Adverse decisions = market, prices, promo, train, sup
> New investment – new capital goods ↑ capacity - Cumulative variance of revenue + costs
- Depends on expected return, interest rates, future Internal difficulties - External – comp, demand, economy, cost of material
demand, technological change, attitude to risk, spare - Changing the price – difficult to predict effect - Internal – efficiency, underest cost, price, comms
capacity, nature of production, competitors - Decreasing costs - ↓ wages ↓ morale, productivity, ↑ - Small variances = motiv (keep up), large = demotiv
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller katieg1500. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $6.53. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
75759 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now