Session 2 Funky Finance

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# Session 2 Funky Finance - PowerPoint PPT Presentation

Session 2 Funky Finance. Finance Countdown You will be shown 3 calculation questions on the screen. You need to complete them before the countdown music stops. Get Ready. The difference between -£20,000 and + £140,000 £160,000 adverse.

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## Session 2 Funky Finance

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Session 2

Funky Finance

Finance Countdown

You will be shown 3 calculation questions on the screen.

You need to complete them before the countdown music stops

The difference between -£20,000 and + £140,000

A business has a profit budget in 2010 of £140,000. It made a loss of £20,000. What was the profit variance?

A business achieved a net profit of £220,000. Its sales were £900,000. What was its net profit margin?

£220,000 / £900,000 x 100 = 24.4%

A business achieved a net profit of £90,000. The capital invested was £1.2 million. What was the return on capital?

£90,000 / £1.2 million x 100 = 7.5%

Complete your Bingo sheet with nine key words that you associate with cash flow

Start Bingo

Use space bar (or click mouse)

to scroll through bingo balls

Inflows

Outflows

Forecast

Overdraft

Factoring

Inflows

Forecast

Different from profit

Loans

Factoring

Outflows

Overdraft

Sale and leaseback

Loans

Sale and leaseback

Different from profit

You Choose!!!

Choose ONE method of improving cash flow that you have identified in the previous activity and EXPLAIN ONE drawback of using this method of improving cash flow

One method of improving cash flow is by obtaining an overdraft, however, a problem of using this method of improving cash flow is

the interest payments on an overdraft are very high and this may also be combined with a relatively high overdraft arrangement fee therefore although an overdraft can help manage short term cash flow problems, long term, the high interest rates can increase outflows

£6,470

(£2,200 + £1,800 + £870 + £1000 + £600)

£2,330 F

Budgeted Profit for Jan = (£200) Actual Profit for Jan = £2,150

Budgeted Profit for Feb = £2,200 Actual Profit for Feb = £2,180

Total Budgeted Profit = £2000 Total Actual Profit = £4,330

Point - Delegating budget responsibility to managers could lead to an increase in motivation for the managers.

Exam question

Examine ONE consequence for Calzone’s of delegating budget responsibility to the restaurant managers

Say Why - because of the increased responsibility that they have been given.

What are the effects? - Happier team environment within the restaurants.

This will mean the waiters and other staff in the restaurant giving a much better service to Calzones customers

In turn, allowing them to become more competitive.

Exam question

Examine ONE consequence for Calzone’s of delegating budget responsibility to the restaurant managers

In this question there are TWO key terms, budget and delegation. There is NO need to define BOTH at the start of your answer as key terms only account for knowledge. Just define ONE

Exam Gold.....

Cash Flow and Profit are completely differentyet this is one area that many students struggle to get to grips with.

Many profitable businesses can go under because they run out of cash. It is vital that you have a good understanding of the difference between cash flow and profit.

£36,000 - £18,000 = £18,00 profit

ACT could encounter cash flow problems as the cost of the materials to complete the work is £18,000 and they will only receive £3,600 at the beginning and the remaining £32,400 after 7 months. During the 7 months building period they will need to pay for materials and staff wages therefore although the work is profitable, they could run out of cash during the building period

One method that ACT could use to manage its cash flow is arranging an overdraft. They could purchase the majority of the raw materials using the overdraft facility and then pay the overdraft off when the customer pays the remaining balance

Assessing the Financial Performance of Greggs

(701.1 – 681) / 681 x 100 = 2.95%

(44.5 – 41) / 41 x 100 = 8.5%

Assessing the Financial Performance of Greggs

6.35%

6.02%

Remember, always show your working out when performing calculations

Q2

Explain ONE reason why Greggs has suffered a fall in their return on capital employed

One reason why Greggs has suffered a fall in their return on capital employed is because they have invested heavily in new store openings (100 in 2012) at a time when sales have fallen resulting in a reduced return for the capital that they have invested

1

To what extent do you believe that the best way for Greggs to improve its profitability is to extend the sale of its products through retailers. Justify your view (15 marks)

Exam Style Question

Profitability is the ability of a business to generate profits from its activities

it gives Greggs an additional channel with which to sell its bakery products. Greggs has had a very successful trial campaign with Iceland showing that there is a demand for Greggs products through other retailers. Selling their bakery products through retailers would also allow them to increase revenue without any increase in fixed costs allowing them to increase profitability.

by continuing with its expansion of Greggs Moments Coffee Shops. Although this would lead to an increase in short term costs as well as fixed costs sales of the current 5 coffee shops have been encouraging. Therefore opening up more coffee shops will allow them to increase the amount of customers they serve resulting in more revenue and increased profitability.

that selling through retailers is perhaps the best way that Greggs can currently increase their profitability. This is because at the moment, Greggs sales are falling and therefore increasing fixed costs would not be the most sensible solution as these still need to be paid even when sales are declining. Selling via retailers has proved successful in the past and would therefore allow them to increase revenue without an increase in fixed costs resulting in increased profitability.

Session 3

Awesome Ops

Right first time

Uses inspectors at the end of the process

Takes responsibility away from the workers

Empowers employees

Values

1

10

2

20

Increases a firms labour costs

Quality standards need to be agreed

Workers may not welcome extra responsibility

Everyone responsible for quality

3

30

4

40

5

50

6

60

Quality checked at the end of the process

Can meet workers esteem needs

Need to spend money on staff training

May slow down production when first implemented

7

70

8

80

9

90

Does little to encourage staff to improve quality

Possible staff resistance

Can improve staff motivation

Increases workers responsibility

10

100

11

110

Next

Which are features of Total Quality Management?

Quick Calculations

49,000 ( (48,335 / 98.6428) x 100 )

83.67% (41,000 / 49,000)

Can you Connect?

Labour Productivity

Unit Costs

Price Elasticity of Demand

Price

Making Connections

An increase in labour productivity can lead to a reduction in the unit costs, as the costs are spread over more units of output

In turn, this could allow the business to reduce the price and still retain the same margin

However, the decision to lower the price would depend on the price elasticity of demand`

Exam question

Analyse the benefits to Calzones restaurant of having high capacity utilisation (8 marks)

“One benefit of high capacity utilisation in Calzones restaurant is that it can help increase units costs. Another benefit of high capacity utilisation is that it can help motivate the staff in the business. Also high capacity utilisation can make it hard to do staff training and clean the machinery as the business will be really busy”

Write a ‘prescription’ to make the above answer better

1 Fewer arguments (2 rather than 3) and develop each argument further

2 Check knowledge. High capacity utilisation DECREASES unit costs

3 Read the question carefully. It only asks for benefits, not drawbacks

Analyse TWO factors that may influence the level of customer service offered by the staff at Ryanair (8 marks)

the training budget that Ryanair allocate to each employee.

Ryanair's training budget per cabin crew is £800 compared to £1300. This could lead to poorer quality customer service training which could therefore impact on the level of service given.

that many employees claim that they are overworked. Ryanair is the worlds busiest airline which, combined with increased labour turnover of 18% means there is increase pressure on cabin crew.

cabin crew will not be able to give each passenger the required amount of service and attention as the passenger numbers have increased as has labour turnover. This will therefore result in worsening customer service on the aircraft.

Quick Calculation

(£76m – 5,000) / 5,000 x 100 =

(75,995,000/ 5000) x 100 = 1,519,900 %

Exam Gold.....

Manipulating data and using this to support your arguments can help

contribute towards GOOD application even if you have not been specifically asked to perform a calculation