B6 - Finance Flashcards
What is retained profit?
Profit that’s been earnt by a business in the previous year
Its been retained by the business
What is New Share Issue?
Where a business releases new shares for people to buy into the business
What is a loan?
An amount of money borrowed from a bank or other lender
What is a mortgage?
A longer term loan that’s used to buy a property
What is an Overdraft?
A short term lending of smaller amounts of money, may be organised by the bank
Whta is Trade Credit?
Where a business pays suppliers at a later date - buy now, pay later
What is Hire Purchase?
When a business pays for something in installments
What is a government grant?
A sum of money awarded to a business from the government that doesn’t have to be paid back
What is Cash Flow?
Movements of cash in and out the business
What is Cash Inflow?
Cash into the business appears at the top of the cash flow forecasl
This is called Income
What is Cash outflow?
Cash that’s being spent in the business.
This is known as expenditure
This will be on bill such as wages and advertising
What are solutions to cash flow problems?
- Overdrafts
- Reducing cash outflow
- Increasing cash inflow
- Re-schedullimg payments
- Finding new sources of finance
What is the formula for Net Cashflow?
Cash Inflows - Cash Outflows
What are fixed costs?
Costs that don’t vary with the level of output in a business
What are some examples of fixed costs?
- Rent
- Salaries of Managers
What are Variable Costs?
Costs that vary with the level of trade
What is the formula for Total Costs?
Total Costs = Fixed Costs + Variable Costs
What is the formula for Sales revenue?
Sales revenue = price of product x quantity of product
What is the formula for Profit?
Profit = Total Revenue - Total Costs
What is Average Rate of Return?
The annual percentage profit that an investment makes compared to the cost of the investment
What is the formula to calculate Average Rate of Return?
( Average annual profit / initial capital outlay ) X 100
What is Break-Even?
The point where a business is no longer making a profit or a loss
What are the uses of Break Even
- Used to write a business plan
- Used as a ‘ what if tool ‘ to work out what happens if price goes up
- Used by start ups to work out when they’ll stop making a loss
What is Margin of Safety?
The difference between the actual level of output and the breakeven output.
How do you calculate margin of safety?
Actual Output - Breakeven Output
What does the Margin of Safety show?
How many units less you can make before you start making a loss
What are Financial Statements?
Written records that convey the business activties and the financial performance of a business
What are the 3 Finacial Statements
- Income Statement
- Statement of Financial Position
- Cashflow Statement
What are 3 examples of Internal Stakeholders?
- Owners
- Managers
- Employees
What is Gross Profit?
Profit after deducting costs of Sales
What is the formula for Gross Profit?
GP = Sales Revenue - Cost of Sales
What is Gross Profit Margin?
A financial measure used to asses a Business’ finacial health and business model
What is the formula for Gross Profit Margin?
( Gross Profit / Sales Revenue ) X 100
What is Net Profit?
The money left after paying all your bills?
What is the Formula for Net Profit?
NP = Operating Profit - Interest
What is Net Profit Margin.
Helps a Business measure how well they’re controlling their expenses
What is the Formula for Net Profit Margin?
( Net Profit / Sales Revenue ) X 100
What is Economies of Scale?
when Average cost FALLS as output GROWS
What is Diseconomies of Scale?
Once Economies of Scale have been reached if the output grows, the average cost per unit INCREASING
What is Outsourcing?
Getting another business to provide the service for you
What are 4 examples of Outsourcing
- Production : some car manufactures may oursource some parts
- Payroll
- Delivery
- Purchasing
What are reasons to DisEconomies of Scale occuring
- Business has too many employees
- Employees become less motivated
What are benefits of a business franchising out?
- Speeds up growth : franchisee pay billss
- Less HR costs : employees
- Less operational costs : franchisee deals with it
What are cons of a business franchising out?
- Reduced Control
- Profit sharing
