Accounting and finance clips #6

v. 1. Costs: an introduction. --v. 2. Costs & working capital at Acme Whistles. --v. 3. Profit: what is it? --v. 4. Profits: how do we use them?

Originally produced by TV Choice in 2011

v. 1. Vital to commercial success is how well businesses control their costs. These come in two basic types: direct and indirect. But in the real world classifying costs is rarely clear-cut. Manufacturer Blakeway Ltd divides its company up into cost and profit centres to help it monitor how different parts of its business are performing financially. But there's disagreement inside the company about how to act on the figures. --v. 2. Acme Whistles in Birmingham has been manufacturing products for 130 years. Much has changed at Acme in that time - but covering its costs, both fixed and variable, remains a priority. Making sales doesn't mean cash in hand. They have to wait to be paid and they need money to keep going in the meantime - working capital. There are hidden costs, too - such as depreciation. --v. 3. Successful businesses devote themselves to making profit - but what is profit and how do you calculate it? Why is working out the cost of sales so important and what's meant by matching? What's the difference between gross profit, operating profit and the "bottom line"? This clip clearly explains the calculations and why they're relevant to business. --v. 4. How does a business decide what to do with its profit? Harry and Bee Payne, owners of small computer company Logical Friends, plough their profits back into the business. But Blakeway Ltd, a much bigger operation, has to give part of its profits to its outside shareholders as a return on their investment. Is this in the long-term interests of the business? And what about profit quality? Was Logical Friends' decision to invest its money in houses a good idea?

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