2.4 Making Financial Decisions (Edexcel GCSE Business): Flashcards
Exam code: 1BS0
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What is the formula for gross profit?
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Cards in this collection (28)
What is the formula for gross profit?
Gross profit = sales revenue − cost of sales.
What is the formula for net profit?
Net profit = gross profit − (operating expenses + interest).
Profit is the reward for the that entrepreneurs take.
Profit is the reward for the risk that entrepreneurs take.
True or False?
Gross profit takes into account all of a business's expenses.
False.
Gross profit only deducts the cost of sales; net profit deducts all expenses.
What is the formula for gross profit margin?
Gross profit margin = (gross profit ÷ sales revenue) × 100.
What is the formula for net profit margin?
Net profit margin = (profit for the year ÷ sales revenue) × 100.
Higher and increasing profit margins are preferable, as more revenue is converted into .
Higher and increasing profit margins are preferable, as more revenue is converted into profit.
True or False?
A high net profit margin always means a business has high total profits.
False.
A business with a high margin may have low total profits if sales are low.
Define the average rate of return (ARR).
The ARR measures the profit from a proposed capital project, expressed as a percentage.
What is the formula for the average rate of return (ARR)?
ARR = (average annual profit ÷ initial outlay) × 100, where average annual profit = total profit ÷ number of years.
Give one advantage of using ARR.
It considers all the net cash flows over time and is easy to understand and compare.
Give one disadvantage of using ARR.
It ignores the timing of cash flows and the opportunity cost of the investment.
What is the formula for sales revenue?
Sales revenue = price × quantity sold.
Market share is a business's sales revenue as a proportion of the sales revenue in the market, × 100.
Market share is a business's sales revenue as a proportion of the total sales revenue in the market, × 100.
What is the formula for percentage change?
Percentage change = ((new value − old value) ÷ old value) × 100.
Define quantitative data.
Quantitative data is statistical numeric data used to support decision making.
What is the difference between primary and secondary data?
Primary data is collected first hand for a specific purpose; secondary data was collected by someone else.
Define positive correlation.
A positive correlation is when an increase in one variable leads to an increase in another.
Define negative correlation.
A negative correlation is when an increase in one variable leads to a decrease in another.
What is a scatter graph used to show?
The relationship (correlation) between two variables.
A chart is useful for showing how sales break down between different product models.
A pie chart is useful for showing how sales break down between different product models.
True or False?
Sole traders and partnerships must send their financial data to Companies House each year.
False.
Companies must send data to Companies House; sole traders and partnerships may keep it private.
Give two ways a business can use financial information.
To identify trends, support a loan application, attract investors, or support spending decisions.
Financial data can be dressed to present a more positive impression of performance.
Financial data can be window dressed to present a more positive impression of performance.
True or False?
Financial data about sales and profit is out of date as soon as it is generated.
True.
It becomes out of date as soon as generated, so it relies on the future being similar to the past.
Why can qualitative factors be a limitation of financial data?
Aims like being ethical or socially responsible are hard to measure in statistical terms.
Give two sources of quantitative data.
Graphs and charts, financial data, marketing data, and tables or infographics.
Define market data.
Market data describes the characteristics and performance of the market, such as demographics, market size and competitor shares.
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