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Business Studies-Zoe Brown > 2.3.2 Financial information and decisions making > Flashcards

2.3.2 Financial information and decisions making Flashcards

1
Q

why might a business need to raise finance

A
  • to start up business
  • to invest in business growth
  • to buy new equipment
  • to solve cashflow problems
  • to move to new premises
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2
Q

define bank loan

A

amount of money borrowed from bank usually for stated purpose. loan for fixed period of time

  • external
  • medium term
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3
Q

cost of bank loan

A

money tat’s been borrowed has to be repaid, together with interest

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4
Q

define leasing

A

method of obtaining items for a stated period of tie. at end of lease items usually returned to owner

  • external
  • medium term
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5
Q

cost of leasing

A

monthly or annual payments made for right to use equipment. payment will include amount for cost of obtaining finance to fund purchase of leased equipment

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6
Q

define hire purchase

A

system of obtaining items in return for a monthly payment over a given period of time. items don’t become property of user until final payment has been made

  • external
  • medium term
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7
Q

cost of hire purchase

A

deposit has to be made, followed by monthly payments which may include and interest payment

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8
Q

define taking a new partner

A

selling off part of business to new partner

  • external
  • long term
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9
Q

cost of taking a new partner

A

new partner will have a say in running of business and will be entitled to share of any profits

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10
Q

define trade credit

A

when business sells goods it sometimes allows other business to take goods away without paying for them immediately. goods will have to be paid for within an agreed time period usually 30,60 or 90 days

  • external
  • short term
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11
Q

cost of trade credit

A

period of credit is usually interest free

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12
Q

define retained profit

A

profit made by business that’s kept back for its own use. may be used to help finance purchase of things

  • internal
  • medium term
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13
Q

cost of retained profit

A

no costs however, there is opportunity cost involved as once profit has been used it can’t be used for something else

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14
Q

define sale of assets

A

selling off,and turning into cash something that business owns ,as they may no longer need it, may fund purchase of equipment and/or buildings

  • internal
  • medium term
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15
Q

cost of sale of assets

A

no cost involved other than opportunity cost f not being able to use asset again

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16
Q

define mortgage

A

borrowing money which requires some form of security. used to help fund purchase of property. at end you own property

  • external
  • long term
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17
Q

cost of mortgage

A

money that has bee borrowed has to be repaid, together with interest , and need to deposit 10% of original property price

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18
Q

define overdraft

A

arrangement with bank where business will be able to withdraw more money from its bank account than it actually has

  • external
  • short term
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19
Q

cost of overdraft

A

interest is charged on daily amount of money that business owes to bank

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20
Q

define grants

A

amount of money usually made available for specific purpose by government and/or local councils

  • external
  • medium term
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21
Q

cost of grants

A

don’t usually need repaying, finance obtained from grant usually has to be used for specific purpose

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22
Q

define owner investment

A

when existing owners of business invests more money in it
-internal
long term

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23
Q

cost of owner investment

A

no cost involved

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24
Q

define cash in bank

A

money owned by business and built up overtime following successful trading.

  • internal
  • short term
25
Q

cost of cash in bank

A

no costs other than opportunity cost

26
Q

define share issue

A

source of finance used by limited companies to raise finance in return for a ‘share’ in business. may be used to fund major business development

  • external
  • long term
27
Q

cost of share issue

A

dividends may have to be paid on shares, and each share represents part-ownership of business. shareholders are entitled to have say in running of business

28
Q

advantages of grants

A
  • free of interest

- no need to repay, doesn’t raise debts for business

29
Q

disadvantages of grants

A
  • may not be available, may not get full amount required and so need to raise money in another way
  • may be conditions attached
30
Q

advantages of a lease

A
  • no need to find deposit, so easier in short run
  • asset readily available, so can start production quickly
  • maintenance may be covered as part of lease agreements, means reduce costs and means less hassle
31
Q

advantages of retained profit

A
  • no interest has to be paid
  • no need to repay money
  • no cost to raise finance
32
Q

disadvantages of retained profit

A
  • only available to businesses that make a profit
33
Q

advantages of a loan

A
  • repayment spread over time

- business knows amount to be paid in instalments which helps budgeting

34
Q

disadvantages of a loan

A
  • interest has to be paid

- business may need to risk an asset as security

35
Q

advantages of cash in bank

A
  • no interest has to be paid

- debt not added

36
Q

disadvantages of cash in bank

A
  • only available to businesses that have profit

- opportunity cost and no money for urgent matters

37
Q

define cash flow

A

movement of money into and out of a business bank account

38
Q

define inflows/income

A

money received by business

39
Q

define outflows/expenditure

A

money paid out by business

40
Q

define net cash flow

A

difference between inflows and outflows (inflows-outflows)

41
Q

define positive net cash flow

A

inflows are greater than outflows

42
Q

define negative net cash flow

A

inflows are not enough to cover outflows

43
Q

define opening/closing balance

A

amount of money in business’ account at any particular time (beginning and end of month)

44
Q

how could tom’s toys solve their cash flow problem

A
  • increase income by investigating own money or applying for bigger loan
  • reduce expenditure by cutting down staff hours or finding cheaper supplier of stock
  • ask suppliers for trade credit
45
Q

benefits of a cash flow forecast

A
  • enable business to assess business’s ability to meet debts as they fall due
  • identify imminent cash flow problems + enable business to plan and seek ways, well in advance, to prevent potential cashshortage
  • can help control business by setting targets relating to cash flow
  • helps business make key decisions
46
Q

limitations of a cash flow forecast

A
  • figures might be different to actual, as forecast figures might be based on inadequate research/info
  • very difficult to forecast accurately, even with best research because there are factors affecting forecast figures that are outside a business’s control, some of which difficult to predict
47
Q

why do business’s seek to make a profit

A
  • as reward for risk taken by shareholders or owners

- to re-invest in business for growth

48
Q

define gross profit

A

amount of profit made by business as result of buying and selling goods or services but without paying for any of day-to-day running of business

49
Q

calculation for gross profit

A

revenue - cost of buying goods

50
Q

define net profit

A

profit made as result of buying and selling goods, but also makes an allowance for cost involved in running business

51
Q

calculation for net profit

A

gross profit - expenses

52
Q

why is keeping financial records important

A
  • to know whether or not the business is making profit
  • to be prepared for external organisations, such as auditors and the inland revenue
  • to be able to use records to plan for future
53
Q

define expenses

A

cost of running business that occurs as part of a company’s operating activities during a specified accounting period

54
Q

define profit margin

A

ratio of profit over revenue, expressed as a percentage, mainly an indication of ability of a company to control costs

55
Q

gross profit margin calculation

A

gross profit/revenue x100

56
Q

net profit margin calculation

A

net profit margin/revenue x100

57
Q

why is it important to calculate net and gross profit at different points

A
  • profit can be compared over time

- profit can be compared with competitors

58
Q

options for decreasing expenditure

A
  • cut wages, as sales decrease won’t need as many staff
  • cut stock prices, go to cheaper supplier
  • cut expenses
  • ask supplier if payment can be delayed
59
Q

options for increasing income

A
  • increase revenue, increase price however less people may buy product so quantity sold goes down or lower prices to increase quantity sold, not guarranteed
  • invest own money, may not have own money
  • apply for bigger loan, bank may be reluctant yo give bigger loan as isn’t certain that Tom’s toys will be able to pay back

Business Studies-Zoe Brown (8 decks)

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