6 Finance

Question 1

What sources of finacne are there?

Answer 1

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

Question 2

What is an internal soirce of finance?

Answer 2

Money that is available from within the business

Question 3

What is an external source of finace?

Answer 3

Money that is avaloabel from outside the business

Question 4

What is trade credit?

Answer 4

A period of time which suppliers or custoemrs are alloud before they need to pay for the product

Question 5

How is trade credit a way to increasing finance?

Answer 5

Increasing your trade credit woth your suppliers

Decreasing trade credit from your customers

Question 6

What is an overdraft?

Answer 6

A flexible loan which the business can use whenever necesary up to an agreed amount

Question 7

What is hire purchase?

Answer 7

A system by which one pays for a thing in regular instalments while having the use of it

Question 8

How may you choose the source of finance?

Answer 8

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

Question 9

What is cash flow?

Answer 9

Th emojey that flows in and ut of a business

Question 10

What is a cash flow statement?

Answer 10

A record of the cash inflows and cash ourflows that took place earlier

Question 11

What is a cash flow forcast?

Answer 11

The expected inflows and outflows of a business

Question 12

What are some solutions to a poor cash flow?

Answer 12

Cut costs
Rescheduling payments
Overdrafts
New sources of cash inflow

Question 13

What is profit?

Answer 13

The measure of the total revenue - the total costs of the business

Question 14

What is revenue?

Answer 14

The income that a firm recives from selling its goods or services

Question 15

How do you calcuate revenue?

Answer 15

Revenue = number of units sold X price

Question 16

What are variable costs?

Answer 16

Costs that change depending on the level of output

Question 17

What are fixed costs?

Answer 17

Costs that don’t change on the level of output

Question 18

What is totalo costs?

Answer 18

Variable costs + fixed costs

Question 19

What is the opposite of profit?

Answer 19

Loss

Question 20

What is investment?

Answer 20

When a business buys something like a facotry hoping to make profit on it in the long term

Question 21

What is the Avarage Rate of return?

Answer 21

It compares the average yearly profit from an investment from the cost of income and is stated as a %

Question 22

Hwo do you calcuate ARR?

Answer 22

Avarage rate of return

Year 1+year 2 + year 3 … -initial cost x100m/ cost of investment

Question 23

What is break even?

Answer 23

The level of production where the businesses total costs are equal to revenue from sales

Question 24

What do break even charts show?

Answer 24

Show businesses costs and revenues and the level of production needed to break even

Question 25

What isnthe margin of saftey?

Answer 25

A measure of the amount by which a business’s current level of production exceeds it’s break even level of output

Question 26

What is an income statement?

Answer 26

A fincancial ststement showing a business’s revenues and costs and therefore it’s profit over time

Question 27

Whatnis a balance sheet?

Answer 27

It sets out the assets a liabilites that a business has on a particular day

Question 28

What is gross profit?

Answer 28

Sales revenue minus its totalmcosts, normally over a year

Question 29

What is net profit?

Answer 29

Total revenue - total costs

Question 30

What is liability?

Answer 30

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

Question 31

What is a financial ratio?

Answer 31

This compares 2 figures from a business financial statement

Question 32

How do you calcuate gross profit margin?

Answer 32

Gross profit/revenue x 100 = x%