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Business Studies EDEXCEL IGSCE > Business Finance :Unit 25 - 27 > Flashcards

Business Finance :Unit 25 - 27 Flashcards

1
Q
  1. What is short-term finance?
A

short term finance is money borrowed for one year or less

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2
Q

2, What is long-term finance?

A

Long-term finance is money borrowed for more than one year.

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3
Q
  1. What are the 4 needs for funds?
A
  • to pay their suppliers and overheads, daily running of the business(short-term needs).
  • to purchase machinery, property, and office furniture. (long-term needs).
  • Start-up capital (setting up a business)
  • Expansion.
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4
Q

3.5 how would businesses want to expand?

A
  • expand capacity to meet growing orders
    -develop new products.
    -branch into overseas markets.
    -diversify.
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5
Q
  1. What is capital?
A

finance provided by the owners of a business.

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6
Q
  1. What is internal finance?
A

finance generated by the business from its own means.

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7
Q

6, What is external finance?

A
  • finance obtained from outside the business.
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8
Q
  1. What are the 3 (4) internal sources of finance?
A
  • personal savings
    -retained profit
    -selling inventory
    -sale of non-current assets
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9
Q
  1. What is retained profit?
A
  • profit held by a business rather than returning it to the owners and which may be used in the future.
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10
Q
  1. What is personal savings?
A

-savings of the business owner invested in the business.

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11
Q
  1. what are the 2 advantages of retained profit? 2 disadvantages of retained profit?
A

Ad: - does not have to be repaid.
- no interest to pay

Dis: - Not available to a new business
- too low to finance the expansion needed for many small firms.

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12
Q
  1. What are 2 advantages and disadvantages of sale of existing assets?
A

Ad: - Makes better use of the capital tied up in the business
- Does not increase the debt of the business
Dis: It takes time to sell the assets.
- Not available for new businesses.

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13
Q
  1. What are the 1 advantage and disadvantage of the sale of inventory assets?
A

Ad:- reduces the opportunity cost and storage cost of high inventory levels
Dis:- may disappoint customers if insufficient goods are kept in inventory.

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14
Q
  1. What are the 2 advantages and disadvantages of owner savings?
A

Ad:- Available to the firm quickly
- No interest is paid
Dis:- Savings may be too low
- Increases the risk taken by owners.

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15
Q
  1. What are the 4 reasons for external finance?
A
  • to borrow money due to seasonal trade.
  • May need finance to pay for raw materials and wages.
  • Firm might be short of money because it is waiting for a customer to pay.
  • A business may need to meet emergency expenditures.
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16
Q
  1. What are the 3 main short-term, external finance?
A
  • Bank overdraft
  • Trade payables
  • Credit cards
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17
Q

15.1 What is bank overdraft?
What are trade payables/ trade credit?
What are credit cards?

A
  • A bank overdraft is an agreement with a bank where a business spends more than it has in its account(up to an agreed limit)
  • Trade payables is buying resources from suppliers, such as raw materials, and paying them later.
  • A credit card is a payment card, usually issued by a bank, allowing its users to purchase goods or services or withdraw cash on credit.
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18
Q

1, What are the 4 advantages of overdraft? 3 disadvantages of overdraft?

A

Ad: Flexible form of borrowing
- cheaper than loans in the short term.
- Interest rates are variable.
- Suppliers, leaving the business in a better cash position.
Dis: Interest is paid only to the amount overdrawn.
- The bank can ask for the overhead to be repaid at a very short period of time.
- Suppliers may refuse to give discounts or even refuse to give if payment is delayed.

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19
Q
  1. What are the 4 types of long-term external finance?
A
  • Loan capital
  • Share capital
  • Venture capital
  • Crowdfunding
20
Q

16.1 What are the 4 types of loan capital? Define each.

A
  • mortgages:- a long-term financial loan where land or property is used as security.
  • unsecured bank loans:- when a bank lends money without having a claim on one of your assets.
  • Debentures:- these are long-term loans/ certificates issued by limited companies.
  • Hire purchase:- it allows a business to buy fixed assets over a long period of time with monthly payments which include an interest charge.
21
Q
  1. What is share capital? venture capital? crowdfunding?
A
  • Share capital: is selling of shares to existing shareholders to raise large amounts of money
  • Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential.
  • Crowdfunding: where a large number of individuals invest in a business using an online platform and therefore avoid using bank.
22
Q
  1. What are the 3 advantages and disadvantages of share capital? venture capital?
A

VENTURE CAPITAL
Ad: provides expert management assistance
- comes with networking opportunities
- comes without the need to pledge personal assets.
Dis: it is relatively scarce and difficult to obtain.
- Can be relatively expensive.
- Requires setting up a board of directors
SHARE CAPITAL
Ad: Permanent source of capital that would not have to be repaid.
No interest has to be paid.
Dis: Dividends are paid
- can lose ownership.

23
Q
  1. What is the advantage and disadvantage of selling debentures?
A

ad: can be used to raise very long-term finance.
dis: must be repaid with interest.

24
Q
  1. What are other external finance benefits? Give 2 advantages and a disadvantage
A

Ad: do not have to be repaid.
- no interest has to be paid.
Dis: often includes “string attached”.

25
Q

20.1 What are the 2 advantages and 4 disadvantages of crowdfunding?

A

Ad: Serves as proof of concept.
Creates an organic customer base.
A form of free marketing.
Funding from multiple sources.
Avoids business loan interest costs.
A fast method of raising capital.
Dis: -Your business idea may get swiped
- Time requirements may be significant
- Fees can be steep.
- You may not have as much guidance.

26
Q

Who are venture capitalists?

A
  • specialist investors who provide money for business purposes, often to new businesses.
27
Q
  1. What is cash flow? cash inflow? cash outflow?
A

Cash flow: flow of money into and out of a business.
Cash inflow: a flow of money into a business.
Cash outflow: a flow of money out of a business.

28
Q
  1. What is liquid?
A

Liquid is an asset that is easily changed into cash.

29
Q
  1. What are the 2 reasons need cash?
A
  • To pay suppliers, overheads, and employees.
  • To prevent business failure.
30
Q
  1. What are overheads?
A
  • money spent regularly on rent insurance, electricity, and other things that are needed to keep a business operating,
31
Q
  1. What is insolvent?
A
  • Inability to meet debts
32
Q
  1. What is cashflow forecast?
A
  • prediction of all expected receipts and expenses of a business over a future time period, which shows the expected cash balance at the end of each month.
33
Q
  1. 3 ways a business can have better control over its cash flow?
A
  • keep up-to-date records of financial transactions.
  • always plans ahead by producing accurate cash flow forecasts.
  • operates an efficient credit control system, which prevents slow or late payment.
34
Q
  1. What are the 3 reasons for the difference between cash and profit?
A
  • Some goods are sold on credit.
  • Sometimes owners might put more cash into the business.
  • Purchases of fixed assets.
35
Q
  1. What is net cash flow?
A

it is the difference between the total cash inflow and the total cash outflow.

36
Q
  1. What is the closing cash balance?
A
  • the amount of cash that the business expects to have at the end of each month.
    (opening balance + net cash flow)
37
Q
  1. What are the 4 reasons why cash flow forecasts are important?
A
  • identifying cash shortages.
  • Supporting applications for funding.
  • Help When planning the business
  • Monitoring cash flow.
38
Q
  1. What is costs?
A

costs are expenses that must be met when setting up and running a business.

39
Q
  1. What are two types of costs?
A
  • fixed costs
  • variable costs
40
Q
  1. What is fixed cost?
    variable cost?
A

fixed costs: costs that do not vary with the level of output.
variable costs: costs that change when output levels change.

41
Q
  1. What is average costs? total costs?
A
  • The average cost of production is the cost of producing a single unit of output.
  • Total costs is fixed costs and variable costs added together.
42
Q
  1. How to calculate the average cost?
A

total costs/quantity produced

43
Q
  1. How to calculate the total cost?
A

fixed costs+ variable costs

44
Q
  1. What is total revenue? how to calculate total revenue.
A

money generated from the sale of output.
—-price x quantity—-

45
Q
  1. How to calculate the profit?
A

profit = Total revenue- total cost

46
Q
A

Business Studies EDEXCEL IGSCE (13 decks)

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