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GCSE Business Studies > 6. Finance > Flashcards

6. Finance Flashcards

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1
Q

Things an entrepreneur will need to spend money on in order to start a business?

A

Renting or buying a building, Vehicles, Advertising the business, Equipment and machinery for the business, Inventories of raw materials

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2
Q

Reasons why an established business would need to raise finance

A

To expand, improve effciency, develop new products

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3
Q

Internal source of finance

A

Money that is available from within the business, for example, retained profits from previous years

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4
Q

Owners’ funds

A

money put into a business by its owner or owners

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5
Q

Trade credit

A

A period of time which suppliers allow customers before payment for supplies must be made

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6
Q

External source of finance

A

Refers to money that comes from outside the business, for example, a loan from a bank

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7
Q

Collateral

A

An asset that a bank holds as security for the repayment of a loan

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8
Q

Mortgages

A

Loans from banks and building societies that are used to buy land and buildings, such as offices and shops

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9
Q

Overdraft

A

A flexible loan whixh business can use, whenever necessary, up to an agreed limit

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10
Q

Sources of finance

A

Retained profits, selling assets, bank loans and mortgages, selling shares, goverment grants

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11
Q

Grant

A

A sum of money given to an entrepreneur or a business for a specific reason.

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12
Q

Cash flow

A

The money that flows into and out of a business on a day-to-day basis

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13
Q

Government grants

A

The goverment encourages people to start to expand businesses because this creates jobs. They can offer a range of grants. The garnts will only cover part of the money needed. Most grants do not have to be repaid

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14
Q

Cash inflow

A

Money flows into a business and becomes available to it

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15
Q

Reasons why a business might receive cash inflows

A

Income from sales, loans from banks, money invested by the business’s owners

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16
Q

Cash outflow

A

When a business makes a payment, it causes an outdlow of cash

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17
Q

What are some actions that can lead to a cash outflow

A

Buying raw materials, wages, rent or mortgage, interest on loans, tax

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18
Q

Benefits of having a positive cash flow position?

A

avoids periods in which it has a negative cash balance
does not need to borrow and can avoid paying interest charges
will be more able to arrange long-term loans helps to reduce the risk of a business failing

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19
Q

Cash flow forecast

A

A plan of the expected inflows and outflows to and from a business over a period of time

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20
Q

Cash flow statement

A

A record of the cash inflows and outflows that took place over an earlier period of time

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21
Q

Causes of cash flow problems

A

Poor management, The business making a loss, Offereing customers too long to pay

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22
Q

Profit

A

Measures the difference between the values of a business’s revenue (sales) and its total costs

23
Q

Revenue

A

The income that a firm receives from selling its goods or services. It is also referred to as ‘turnover’. It is measured by the number of units sold multiplied by the price

24
Q

How to find out revenue

A

Revenue = number of units sold x price

25
Q

Sales

A

The number of products sold by a business

26
Q

Costs

A

The spending that is necessary to set up and run a business

27
Q

Fixed costs

A

Those costs that do not change when a business changes its output

28
Q

Variable costs

A

The costs that vary directly with the business’s level of output

29
Q

Formula of total variable costs

A

Total variable costs = variable costs of a single unit x number of units

Or

Total costs - fixed costs

30
Q

What is Total costs

A

Fixed costs + variable costs

31
Q

Formula of total costs

A

Total costs = fixed costs + variable costs

32
Q

Loss

A

The amount by which a business’s costs are larger than its revnue from all sales

33
Q

Formula to calculate profits (or losses)

A

Profits (or losses) = revenue - total costs

34
Q

Investment

A

Takes place when a business buys an asset, such as a factory, in the hope of making a profit from its use

35
Q

The average rate of return (ARR)

A

Compares the average yearly profit from an investment with the cost of the investment and is stated as a percentage

36
Q

Formula for average rate of return (ARR)

A

ARR = average yearly profit x 100 divided by cost of investment

37
Q

Break-even

A

The level of production at which a business’s total costs and revenue from sales are equal

38
Q

Break-even chart

A

Shows a business’s costs and revenues and the level of production needed to break-even

39
Q

Margin of safety

A

Measures the amount by which a business’s current level of production exceeds its break-even level of output

40
Q

Income statement

A

A financial statement showing a business’s revenues and costs, and thus, its profit or loss over a period of time

41
Q

Balance sheet

A

Sets out the assets and liabilities that a business has on a perticular day

42
Q

Gross profit

A

A business’s sales revenue minus its cost of sales over a period of time, normally a year

43
Q

How to figure out gross profit

A

Gross profit = revenue - cost of sales

44
Q

Net profit

A

A business’s sales revenue minus its cost of sales, its overheads and other costs over a period of time, normally a year

45
Q

Overheads (expenses)

A

Costs that do not alter when the level of production changes e.g. salaries of managers, interest on loans

46
Q

Liability

A

A sum of money that is owed by a business to another business or an individual

47
Q

Total equity

A

The part of a company’s money that belongs to shareholders

48
Q

Financial ratio

A

Compares two figures from a business’s financial statements

49
Q

How to find gross profit margin

A

gross profit margin = gross profit/revenue x 100

50
Q

How to find net profit margin

A

net profit margin = net profit/revenue x 100

51
Q

Stakeholders

A

Individuals and organisations that are affected by, and affect, the business

52
Q

How to find out average annual profit

A

(Total profit - initial costs) / Number of Years

53
Q

Liquidity

A

How easy something can be converted

54
Q

Debt factorising

A

Method of finance selling of debt

GCSE Business Studies (6 decks)

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