5. Finance Flashcards
What’s the purpose of the finance function
Provide financial information
Support decision making and business planning 
What is owners capital as a source of finance
The savings of owner usually used during start-up
What advantages of using the owners capital
Capital doesn’t need to be repaid
No interest
What’s the disadvantages of owners capital
If owner doesn’t have sufficient savings other sources will be needed
What is retained profit as a source of finance
The profit made from the business is reinvested in the business
What is the advantages of retained profit
No interest
doesn’t need to be repaid 
What are the disadvantages of using retained profit
Only accessible if the business has made a profit
What is sale of assets as a source of finance
Fixed assets such as machinery are sold to fund expenses or equipment 
What are the advantages of sale of assets
It’s useful if the asset is not required
What are the disadvantages of the sale of assets
Takes time to sell
What is overdraft as a source of finance
An arrangement with a bank which allows the business to spend more money
What’s the advantages of overdraft
Its meet short-term cash flow problems
Interest is only paid on the borrowed amount 
What’s the disadvantages of using overdraft
If the money is not repaid interest will continue to be added onto the borrowed amount
What is trade credit as a source of income
The business does not need to pay supplier for a period of time
What’s the disadvantages of trade credit
Goods must be paid even if products don’t sell 
What is the advantages of trade credit
Helps meet short-term cash flow problems

What is the advantage of taking on a new partner
Brings in new skills
No cost
What are the disadvantages of taking on a new partner
The partner will have a saying how the business operates
Partner will take profits
What is a loan
Money is borrowed from a bank or lender
What is the advantages of a loan 
Instalments help budgeting
Longer term solution
What’s the disadvantages of a loan
Interest is paid
Business risks assets as security
What is crowdfunding
Money is raised by sponsors who are either donators, lenders or partners
What are the advantages of crowdfunding
Large capital can be raised
No security
What’s the disadvantages of crowdfunding
Interest may need to be paid
Profits may need to shared
How do you calculate revenue
Quantity sold x selling price
What is revenue 
Income coming into a business from the sale of products and services
What are the two types of costs
Fixed and variable
What are fixed costs
Cost that don’t change based on output 
What are variable costs
Cost that change based on output
What is the equation for variable costs
Quantity sold x cost per unit
How do you calculate gross profit
Revenue – cost of sales
What is gross profit
The profit made by business as a result of buying and selling goods
What is net profit
Gross profit – fixed costs
How do you calculate gross profit margin 
Gross profit/revenue x100
How do you calculate net profit margin
Net profit/revenue x100
What is revenue affected by
Pricing strategy
Competitors and their prices
What is the impact of high variable cost
The business may need to change supplier which could alter the quality of products
How do you calculate annual rate of return
- Total income of investment – cost
- Profit/number of years
- Profit per year/ cost of investment 
What is the importance of cash
Cash is required to meet short-term debts and expenses.
Cash is also required to provide liquidity
What is cash
The money held in bank accounts and as cash on the premises
What is profit
Revenue received by a business minus the costs of the business
What is a cash flow forecast
A prediction of the amount of money that is expected to flow into and out of the business
How can negative cash flow be interpreted
- It may only be temporary and not necessarily a long term issue
- The business may require additional finance to support cash shortage
