Business Finance and Operations: A Comprehensive Guide
1. What Does a Production Plan Contain?
A production plan includes:
- Expense management plan
- Warehouse description
- Investment plan
- Production phase plan
- Personnel contracts
- Required time
- Cost calculation
- Profitability maturity threshold
- Period
2. Difference Between Investment and Expense
An investment is something that provides future benefit. Its use allows for the creation of value (e.g., a machine that lasts for over a year).
An expense is something that is consumed or used up (e.g., energy, salaries).
3. Difference Between Fixed and Variable Costs (with Examples)
Fixed costs do not depend on the level of activity (e.g., water, electricity, rent).
Variable costs depend on the level of activity. Greater activity results in higher variable costs (e.g., raw materials, worker committees).
4. What is Break-Even Point?
The break-even point is the number of units that must be produced to have neither profit nor loss. It is calculated as:
Break-Even Point = Fixed Costs / (Price – Variable Cost)
5. What Does Productivity Mean?
Productivity measures the efficiency of production factors and operations. It is the ratio between the value produced and one of the factors used (e.g., labor productivity).
6. Stages of the Buying Process
The stages of the buying process are:
- Purchase requirements
- Search, evaluation, and selection of suppliers
- Supplier certification
- Negotiation and order
- Receipt of the purchase
- Invoice and payment
7. Reasons for Inventory Management
Inventory management ensures that all necessary materials are available to begin the production process, whether it involves providing services or manufacturing products.
8. Stock Rupture and its Consequences
A stock rupture occurs when a particular product runs out of stock. Consequences include:
- Lost sales and revenue
- Interrupted production process
- Customer dissatisfaction
- Increased direct costs
9. Safety Stock
Safety stock is the portion of total stock kept above the working stock to address potential delays in supplier deliveries and unusually high demand on certain days or seasons.
10. Reorder Point
The reorder point is the stock level at which it becomes necessary to request a supply. It depends on the supply time, consumption rate, and safety stock.
11. Methods of Stock Valuation
Common methods of stock valuation include:
- Weighted Average Price: An average that considers the purchase price of each purchase.
- FIFO (First In, First Out): Assumes that the first units entering the store are the first ones sold.
- LIFO (Last In, First Out): Assumes that the last units entering the store are the first ones sold.
12. Documents in a Financial Plan
A financial plan typically includes:
- Treasury plan
- Income statement
- Balance sheet
13. Uses of an Income Statement
An income statement is used to:
- Secure loans from banks by demonstrating reliability
- Track the accuracy of forecasts and make corrections as needed
14. Calculating and Increasing Company Profit
A company’s total profit is calculated as the difference between total revenues and total costs. Profit can be maximized in the short term by finding the point with the largest positive difference between total revenues and total expenditures.
15. Treasury Plan and its Information
A treasury plan provides information about liquidity, which is equal to cash receipts minus cash payments. It indicates whether a company can meet its payment obligations.
16. Business Assets and Balance Sheet
A company’s assets consist of its possessions (buildings, machinery, vehicles), rights (customer invoices), and obligations (bank loans). The balance sheet is an accounting representation of the company’s assets.
17. Asset Amortization
Amortization represents the loss of value in machinery due to wear and tear.
18. Cash Flow
Cash flow is the result of profit plus depreciation. It represents a business’s ability to generate profit regardless of amortization costs.
19. Credit Policy and its Uses
A credit policy allows access to funds up to a granted limit, potentially resulting in a negative balance. It requires repayment of the used amount plus interest and commission, even for unused portions. The repayment period is less than or equal to the period of use. The purpose is to ensure cash availability for materials.
20. Bank Loans and their Uses
A bank loan provides a certain amount of money with the obligation to repay it with interest over an agreed-upon period. It is typically used for investments with a maturity of more than one year.
21. Difference Between Renting and Leasing
Both renting and leasing involve the use of an asset for a fee. Leasing offers the option to purchase the asset at the end of the lease term. It is used when the purchase is likely. Renting does not typically include a purchase option and involves a larger initial fee and higher final installment, but no ongoing payments.
22. Social Capital and Capital Expansion
Social capital is the value of the assets contributed by the members of a company, representing the initial capital investment. Capital expansion refers to increasing a company’s social capital.