6 Finance Flashcards
What sources of finacne are there?
Owners funds
Retained profits (from previus years)
Selling assets (something owned by a business
Trade Credit
Bank Loans Mortgages Overdrafts New Share issues Loans from friends and family Hire purchase Goverenmet grants
What is an internal soirce of finance?
Money that is available from within the business
What is an external source of finace?
Money that is avaloabel from outside the business
What is trade credit?
A period of time which suppliers or custoemrs are alloud before they need to pay for the product
How is trade credit a way to increasing finance?
Increasing your trade credit woth your suppliers
Decreasing trade credit from your customers
What is an overdraft?
A flexible loan which the business can use whenever necesary up to an agreed amount
What is hire purchase?
A system by which one pays for a thing in regular instalments while having the use of it
How may you choose the source of finance?
Legal structure of the business
Amount of personal momey of the owner
How risky the business is - anks may not loan to you
Profibility of the business
Assets of the business/owner
Past and future opotunities of the business
Amount of finance that is needed
What is cash flow?
Th emojey that flows in and ut of a business
What is a cash flow statement?
A record of the cash inflows and cash ourflows that took place earlier
What is a cash flow forcast?
The expected inflows and outflows of a business
What are some solutions to a poor cash flow?
Cut costs
Rescheduling payments
Overdrafts
New sources of cash inflow
What is profit?
The measure of the total revenue - the total costs of the business
What is revenue?
The income that a firm recives from selling its goods or services
How do you calcuate revenue?
Revenue = number of units sold X price
What are variable costs?
Costs that change depending on the level of output
What are fixed costs?
Costs that don’t change on the level of output
What is totalo costs?
Variable costs + fixed costs
What is the opposite of profit?
Loss
What is investment?
When a business buys something like a facotry hoping to make profit on it in the long term
What is the Avarage Rate of return?
It compares the average yearly profit from an investment from the cost of income and is stated as a %
Hwo do you calcuate ARR?
Avarage rate of return
Year 1+year 2 + year 3 … -initial cost x100m/ cost of investment
What is break even?
The level of production where the businesses total costs are equal to revenue from sales
What do break even charts show?
Show businesses costs and revenues and the level of production needed to break even
What isnthe margin of saftey?
A measure of the amount by which a business’s current level of production exceeds it’s break even level of output
What is an income statement?
A fincancial ststement showing a business’s revenues and costs and therefore it’s profit over time
Whatnis a balance sheet?
It sets out the assets a liabilites that a business has on a particular day
What is gross profit?
Sales revenue minus its totalmcosts, normally over a year
What is net profit?
Total revenue - total costs
What is liability?
The sum of money that is owed by a business to another business or individual
What is a financial ratio?
This compares 2 figures from a business financial statement
How do you calcuate gross profit margin?
Gross profit/revenue x 100 = x%
