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Business Studies > 5. Finance > Flashcards

5. Finance Flashcards

1
Q

What’s the purpose of the finance function

A

Provide financial information
Support decision making and business planning 

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2
Q

What is owners capital as a source of finance

A

The savings of owner usually used during start-up

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3
Q

What advantages of using the owners capital

A

Capital doesn’t need to be repaid
No interest

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4
Q

What’s the disadvantages of owners capital

A

If owner doesn’t have sufficient savings other sources will be needed

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5
Q

What is retained profit as a source of finance

A

The profit made from the business is reinvested in the business

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6
Q

What is the advantages of retained profit

A

No interest
doesn’t need to be repaid 

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7
Q

What are the disadvantages of using retained profit

A

Only accessible if the business has made a profit

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8
Q

What is sale of assets as a source of finance

A

Fixed assets such as machinery are sold to fund expenses or equipment 

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9
Q

What are the advantages of sale of assets

A

It’s useful if the asset is not required

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10
Q

What are the disadvantages of the sale of assets

A

Takes time to sell

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11
Q

What is overdraft as a source of finance

A

An arrangement with a bank which allows the business to spend more money

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12
Q

What’s the advantages of overdraft

A

Its meet short-term cash flow problems
Interest is only paid on the borrowed amount 

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13
Q

What’s the disadvantages of using overdraft

A

If the money is not repaid interest will continue to be added onto the borrowed amount

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14
Q

What is trade credit as a source of income

A

The business does not need to pay supplier for a period of time

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15
Q

What’s the disadvantages of trade credit

A

Goods must be paid even if products don’t sell 

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16
Q

What is the advantages of trade credit

A

Helps meet short-term cash flow problems


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17
Q

What is the advantage of taking on a new partner

A

Brings in new skills
No cost

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18
Q

What are the disadvantages of taking on a new partner

A

The partner will have a saying how the business operates
Partner will take profits

19
Q

What is a loan

A

Money is borrowed from a bank or lender

20
Q

What is the advantages of a loan 

A

Instalments help budgeting
Longer term solution

21
Q

What’s the disadvantages of a loan

A

Interest is paid
Business risks assets as security

22
Q

What is crowdfunding

A

Money is raised by sponsors who are either donators, lenders or partners

23
Q

What are the advantages of crowdfunding

A

Large capital can be raised
No security

24
Q

What’s the disadvantages of crowdfunding

A

Interest may need to be paid
Profits may need to shared

25
Q

How do you calculate revenue

A

Quantity sold x selling price

26
Q

What is revenue 

A

Income coming into a business from the sale of products and services

27
Q

What are the two types of costs

A

Fixed and variable

28
Q

What are fixed costs

A

Cost that don’t change based on output 

29
Q

What are variable costs

A

Cost that change based on output

30
Q

What is the equation for variable costs

A

Quantity sold x cost per unit

31
Q

How do you calculate gross profit

A

Revenue – cost of sales

32
Q

What is gross profit

A

The profit made by business as a result of buying and selling goods

33
Q

What is net profit

A

Gross profit – fixed costs

34
Q

How do you calculate gross profit margin 

A

Gross profit/revenue x100

35
Q

How do you calculate net profit margin

A

Net profit/revenue x100

36
Q

What is revenue affected by

A

Pricing strategy
Competitors and their prices

37
Q

What is the impact of high variable cost

A

The business may need to change supplier which could alter the quality of products

38
Q

How do you calculate annual rate of return

A
  1. Total income of investment – cost
  2. Profit/number of years
  3. Profit per year/ cost of investment 
39
Q

What is the importance of cash

A

Cash is required to meet short-term debts and expenses.
Cash is also required to provide liquidity

40
Q

What is cash

A

The money held in bank accounts and as cash on the premises

41
Q

What is profit

A

Revenue received by a business minus the costs of the business

42
Q

What is a cash flow forecast

A

A prediction of the amount of money that is expected to flow into and out of the business

43
Q

How can negative cash flow be interpreted

A
  • It may only be temporary and not necessarily a long term issue
  • The business may require additional finance to support cash shortage

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