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Business GCSE > 3.6 Finance > Flashcards

3.6 Finance Flashcards

1
Q

1 pros and cons of using family and friends for cash

A

pros
-easy to arrange
-money free of interest

cons
-money might not be enough
-could fall out with friends

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2
Q

1 what is retained profit

A

profit spent but kept within the business

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3
Q

1 pros and cons of retained profit for cash

A

pros
-no interest payments
-can be arranged immediately

cons
-only available to profitable businesses
-shareholders may oppose the decisions

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4
Q

1 what is selling assets

A

when a business sells items they no longer need

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5
Q

1 pros and cons of selling assets for cash

A

pros
-no interest payments
-may keep assets

cons
-dont have suitable assets
-leasing assets back means regular payments

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6
Q

1 what is bank loans

what is a mortgage

A

money obtained from a bank that is paid back over a period of time

a loan used to buy a property

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7
Q

1 pros and cons of bank loans and mortgages

A

pros
-arranged quickly
-allows repayment over a long time period

cons
-interest has to be paid
-banks may require assets as collateral

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8
Q

1 what is selling shares for cash

A

inviting people to buy a part of the business

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9
Q

1 pros and cons of selling shares

A

pros
-no interest payments

cons
-owners may lose control
-only available to companies

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10
Q

1 pros and cons of government grants

A

pros
-dont have to be repaid

cons
-meet strict conditions
-invest money along side the grant

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11
Q

1 what is an over draft

A

when a bank allows a business to spend more than whats in their accout

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12
Q

1 pros and cons of an overdraft

A

pros
-easily arranged
-only interest if you use it

cons
-interest paid
-fee charged

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13
Q

1 what is trade credit

A

when a business gets a time period to pay for their items

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14
Q

1 pros and cons of trade credit

A

pros
-no interest

cons
-if payment is delayed the supplier may stop supplying

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15
Q

1 what influences a new business on choosing a source of finance

A

amount of personal finance available
legal structure
how risky the business is judged to be

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16
Q

1 what influences an established business on choosing a source of finance

A

profitability of the business
assets owned
past history
future prospects
legal structure
amount of finance needed

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17
Q

2 what is cash

A

notes, coins and bank deposits that provide firms with spending power to pay their bills and expenses

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18
Q

2 what is cash flow

A

the money that flows in and out of a business ona day to day basis

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19
Q

2 what are the elements of cash flow

A

cash flow INTO the business as receipts
-from cash received from selling products
cash flow OUT as payments
-pay wages, suppliers etc

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20
Q

2 what is net cash flow

A

difference between money in and money out

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21
Q

2 what is the difference between profit and cash flow

A

the challenge for managers to make sure there is always enough cash to pay expenses when they are due
running out of cash threatens the survival of the business

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22
Q

2 what happens if a business runs out of money

A

they become insolvent
must raise extra finance or cease trading
planning is important, drawing up a cash flow forecast
may need an overdraft

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23
Q

2 what is cash inflows

A

payments into a firm made by customers

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24
Q

2 what is net cash flow

A

cash inflow - cash outflow

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24
2 what is cash outflows
payments made by a business
25
2 what does a cash flow forecast show
cash inflows (receipts) cash outflow (payments) net cash flow opening balance closing balance
26
2 what is the closing balance
opening balance + net cash flow
27
2 what is opening balance
closing balance from previous month
28
2 why is it important to forecast cashflow
identify periods of cash short fall identify periods of cash surplus secure additional funding
29
2 consequences of cash flow problems
relationships with suppliers may deteriorate workers leave cease trading
30
2 causes of cash flow problems
poor planning external factors inadequate credit control excessive stock hold heavy investing over trading
31
2 how to improve cash flow problems
increasing cash inflows -over drafts -sale of assets -short credit terms decreasing cash outflows -delay paying creditors -lease not buy -reduce spending
32
2 what is debt factoring
when a company sells money that is owed to them to a factoring company so that they can get the money owed sooner
33
2 what is credit crunch
when banks are unwilling to lend money to business because they fear the business may not be able to pay it back
34
3 what is the two profit equations
total revenue - cost = profit total revenue = cost + profit
35
3 what is total revenue equation
selling price x quantity = total revenue
36
3 what is total cost euqation
total fixed cost + total variable costs = total cost total cost = total revenue - profit
37
3 what are total fixed costs
always stay the same, no matter the quantity sold
38
3 what are total variable costs equations
unit cost x quantity sold/made = variable costs
39
3 why should you include financial calculations about revenue, cost and profit in a business plan
see how much it will cost to run the business see if it is viable to show to investors produce financial targets and objectives plan and monitor finances
40
3 what is share issue
selling a share or part ownership of a company
41
4 what is an income statement
shows the trading and profits or losses of a business over a given period of time
42
4 why is an income statement neccessary
its a legal requirement to provide one to publish accounts ensure the right amount of tax is paid
43
4 why is an income statement helpful
allows shareholders to see how much profit has been made and if it is maintainable can compare with other business in relations to previous years to see how well a company has performed
44
4 why is an income statement helpful to banks
allows them to see if they are likely to get back any money that they chose to lend
45
4 equation for gross profit margin
gross profit / revenue x 100
46
4 equation for net profit margin
operating profit (net profit) / revenue x 100
47
4 what is a statement of financial position
a snapshot of what a business owns what a business owes on a given day usually last day of financial year aka balance sheet
48
4 what is an asset
something a business owns
49
4 what is a liability
something a business owes
50
4 why do business use financial documents
to monitor and record what is is doing helpful and necessary
51
4 if net profit is 2700 in 2016 (revenue = 5400) and gross profit is 3900 in 2016 what is net profit margin and gross profit margin
NPM = 27000/5400 x100 = 50% GPM = 3900/5400 x100 = 72.2%
52
4 name some assets
stocks cash debtors buildings
53
4 name some liabilities
mortgage loans
54
4 what do businesses invest in
need assets to use to produce goods and services land and buildings machinery and vehicles new products training staff research and development
55
4 what is average rate of return
method of deciding whether an investment is worth it compares average yearly profit from an investment through its life with the cost of it initially given as a percentage higher % is better
56
4 how do you calculate average rate of return
get total profit subtract cost of investment from total profit divide (profit - cost of investment) by number of years this gets average yearly profit then.. ARoR = average yearly profit / cost of investment x 100
57
4 if total profit is 185,000 years is 3 cost of investment is 125,000 what is average rate of return
185000/3=61666.67 61666.67/125000 x100 = 49.33%
58
4 what is break even point
volume of sales needed to ensure total revenue = total costs no profit or loss is made
59
4 what is margin of safety
how much current level of production exceeds the break even level of output
60
4 what is a financial statement
the records of the financial dealings of the business of their day to day transactions net assets always equals total equity also called a balance sheet
61
4 what are non-current assets
things that a business needs to operate and that have a value but which are hard to convert into cash eg, land, buildings,cars, machinery
62
4 what are current assets
things that can be easily converted into cash LIQUID eg, inventory, cash
63
4 what are current liabilities
debts that a business has to pay in the next 12 months eg, raw material suppliers, overdrafts
64
4 what are non-current liabilities
debts the business owes that have more than 12 months pay back time eg, long-term loans, mortgages
65
4 what is total equity
where the money for the investment has come from eg, shareholder funds
66
4 what is GPM if sales revenue = 178 cost of sales = 99
gross profit = 178-99 = 79 GPM = 79/178 x100 = 44%

Business GCSE (7 decks)

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