Session 2 Funky Finance

1. Session 2 Funky Finance

2. Finance Countdown You will be shown 3 calculation questions on the screen. You need to complete them before the countdown music stops Get Ready.....

3. The difference between -£20,000 and + £140,000 £160,000 adverse 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%

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

5. Use space bar (or click mouse) to scroll through bingo balls Inflows Outflows Forecast Overdraft Factoring Inflows Forecast Key cause of business failure Different from profit Loans Factoring Outflows Overdraft Sale and leaseback Loans Sale and leaseback Different from profit Key cause of business failure

6. 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

7. 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

8. Variance Analysis

9. £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

10. 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.

11. 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

12. Cash Flow and Profit

13. 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.

14. Applying Cash Flow and Profit to ACT Construction

15. £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

16. Getting into the financials at Greggs

17. Assessing the Financial Performance of Greggs (701.1 – 681) / 681 x 100 = 2.95% (44.5 – 41) / 41 x 100 = 8.5%

18. Calculating the net profit margin

19. Assessing the Financial Performance of Greggs 6.35% 6.02% Remember, always show your working out when performing calculations

20. 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

21. Improving Profitability

22. 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

23. 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. Good Answer

24. Time for a Coffee Break

25. Session 3 Awesome Ops

26. 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?

27. Quick Calculations 49,000 ( (48,335 / 98.6428) x 100 ) 83.67% (41,000 / 49,000)

28. Can you Connect? Labour Productivity Unit Costs Price Elasticity of Demand Price

29. 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`

30. The Answer Doctor! Exam question Student Answer 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

31. The Answer Doctor! 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

32. Please read the case study on page 17 which is all about Ryanair

33. 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.

34. Quick Calculation (£76m – 5,000) / 5,000 x 100 = (75,995,000/ 5000) x 100 = 1,519,900 %

35. 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