Understanding Business Performance Flashcards
All 12 cards in this deck
What does gross profit margin show a business?
How much gross profit is made for every £1 of sales revenue. A higher margin suggests the business adds significant value.
What is average rate of return used for?
Comparing the profitability of different investment choices over the expected life of each investment, and against the interest rate from a bank.
Give one limitation of average rate of return as a way of judging an investment.
Any one of: it ignores inflation reducing the value of future cash; it ignores when returns are received (sooner is better); it relies on forecast profits that may be wrong.
Give one limitation of using financial information to judge business performance.
Any one of: it is historical, so it may be out of date; businesses use different accounting periods and policies, so comparison is difficult; the same data can be interpreted in different ways.
True or false? Financial data is the only indicator of whether a business is successful.
False. Some businesses judge success by other aims, such as environmental impact or ethical aims.
Why must one set of financial data be compared with something else before a decision is made?
On its own it is meaningless — it needs context from historical data for the same business or from similar businesses.
When reading a graph or chart of business data, what should you check before interpreting it?
The title and labels, the scales on the axes, and whether values are units, percentages or percentage changes.
What is the formula for percentage change?
Percentage change = ((new value − original value) ÷ original value) × 100
What is the formula for an average (mean) of a set of business figures?
Average = sum of the values ÷ number of values
What does net profit margin show a business?
How many pence of net profit it keeps from each £1 of sales revenue once all its costs, including overheads and interest, have been paid.
Give two examples of marketing data.
Any two of: customer satisfaction scores; customer feedback and opinions; the number of visitors to a shop or website; how sales responded to a promotion.
Give two examples of market data.
Any two of: market share; market size; how fast the market is growing; the number of competitors; changes in competitors' prices or costs; the demographics of the market's customers.