Busniess Section 5

Question 1

3 roles of the finance department?

Answer 1

Identifying sources of finance e.g. bank loans and grants

Setting budgets for business

Providing financial help information

Question 2

3 internal sources of finance?

Answer 2

Owners Capital
Retained profit
Sale of assets

Question 3

Owner capital?

Answer 3

The owner of a business may put some of their own savings to help start and grow the business

Question 4

Retained profit?

Answer 4

A business may use profits it has made in the past to pay for future expenses

Question 5

2 advantages of owner capital?

Answer 5

Available immediately

No need to pay back or pay interest

Question 6

2 disadvantages of owner capital?

Answer 6

Unlikely to be enough

Big risk may lose life savings

Question 7

2 advantages of retained profit?

Answer 7

Available immediately

No need to pay back or pay interest

Question 8

2 disadvantages of retained profit?

Answer 8

Not available to new businesses

Shareholders might want to take the short term reward of high dividends

Question 9

Advantage of sale of assets?

Answer 9

If assert is no longer being used, It makes easy cash

Question 10

2 disadvantages of sale of assets?

Answer 10

Depreciation - Second hand things will only be worth a fraction of the original cost

Time consuming to find a buyer

Question 11

3 external sources of finance?

Answer 11

Bank loan
Overdraft
Take on new partner

Question 12

2 advantages of a bank loan?

Answer 12

Large sum of money can be borrowed

Can be repayed over 3-5 years in affordable chunks

Question 13

Disadvantage of bank loan?

Answer 13

Money has to be paid back with interest

Question 14

2 Advantages of overdraft?

Answer 14

Used to cover short term problems e.g. day to day bills like wages and rent

Likely to pay back less interest as it’s only needed for a short amount of time

Question 15

2 disadvantages of overdraft?

Answer 15

If used for a long time, the interest will become very high

Bank insists it is payed back straight away

Question 16

2 advantages of taking on a new partner?

Answer 16

No interest to pay back like a bank loan or overdraft

They might have new skills and ideas for the business

Question 17

2 disadvantages of taking on a new partner?

Answer 17

They’re entitled to a share of the profits

Disagreements

Question 18

Share issue?

Answer 18

A business can sell to shareholders

Question 19

2 Advantages of share issue?

Answer 19

Money does not have to be payed back

Large sum of money can be raised

Question 20

2 Disadvantages of share issue?

Answer 20

in a PLC, business can be taken over if someone buys more than 50% of the shares

Some profit is given to shareholders in dividends

Question 21

Crowd funding?

Answer 21

Money raised from sponsors
or donors through crowdfunding websites

Question 22

2 advantages of crowdfunding?

Answer 22

An alternative for businesses who have been turned down for a bank loan

Can potentially raise a large sum of money

Question 23

2 disadvantages of crowd funding?

Answer 23

Profits need to be shared with sponsors/donors

Can take a long time to raise the finance

Question 24

Trade credit?

Answer 24

When a supplier allows a business to receive goods first, then pay later

Question 25

advantage of trade credit?

Answer 25

gives the business time to sell goods/stock and then use the income to pay them back

Question 26

2 disadvantages of trade credit?

Answer 26

May not be available to new businesses who have no track record Supplier must still be paid even if the goods aren’t sold

Question 27

Costs?

Answer 27

Payments that a business makes in order to make goods and provide a service

Question 28

Fixed costs?

Answer 28

Costs that do not change with output e.g. rent, wages, insurance

Question 29

Variable costs?

Answer 29

Costs that change with output e.g. stock

Question 30

Total costs=?

Answer 30

fixed costs + variable costs

Question 31

Variable cost=?

Answer 31

variable cost per unit X output

Question 32

Revenue=?

Answer 32

Selling price per unit X output

Question 33

3 ways a business can increase revenue?

Answer 33

Open more shops Advertising Increase product range

Question 34

Profit/loss formula=?

Answer 34

Revenue - total costs

Question 35

difference between gross and net profit?

Answer 35

Net profit reflects the amount of money you are left with after having paid all your allowable business expenses, while gross profit is the amount of money you are left with after deducting the cost of goods sold from revenue

Question 36

Gross profit=?

Answer 36

Revenue - cost of sales

Question 37

Gross profit margin ratio=?

Answer 37

Gross profit/Revenue X 100

Question 38

Net profit=?

Answer 38

gross profit - operating expenses and taxes

Question 39

Net profit margin ratio=?

Answer 39

Net profit/revenue X 100

Question 40

2 ways a business can improve their net profit?

Answer 40

Reduce number of workers Reduce amount spent on advertising

Question 41

Average rate of return?

Answer 41

Measure the profitability of an investment over the time of the investment

Question 42

Why would some investors want to know what the rate of return is for a business?

Answer 42

to know whether it is going to be worthwhile investment

Question 43

How to figure out the average rate of return=?

Answer 43

1) profit - cost of investment 2) Divide by the number of years 3) Average profit/cost of investment X100

Question 44

What is gross profit?

Answer 44

the amount of profit made by a business as a result of buying and selling goods or services

Question 45

Why is it important for a business to make a profit?

Answer 45

To reward investors and owners To use for future improvement and expansion

Question 46

What is the break even number of units?

Answer 46

number of units that a business needs to sell to make neither a profit or a loss Total revenue = total costs

Question 47

Break-even formula?

Answer 47

Fixed costs /selling price per unit - variable cost per unit

Question 48

3 reasons cash is essential?

Answer 48

To pay workers To pay suppliers To pay bills

Question 49

Cash?

Answer 49

the amount of money a business has available at a given point in time

Question 50

Profit =?

Answer 50

total revenue - total costs

Question 51

4 examples of cash inflows?

Answer 51

Sales Bank loans Share capital Rent received

Question 52

4 examples of cash outflows?

Answer 52

Rent Wages Insurance Stock

Question 53

Net cash flows=?

Answer 53

Total cash inflows - total cash outflows

Question 54

Share capital?

Answer 54

the amount of money the owners of a company have invested in the business

Question 55

disadvantage of a clash flow forecast?

Answer 55

it’s only a prediction

Question 56

3 reasons that break even analysis is good in business decision making?

Answer 56

Can be used to make judgements about prices and costs More likely to be offered a bank loan as it is part of a plan Helps them to plan how much to sell in order to make profit

Question 57

Martin of safety=?

Answer 57

current level of sales - break even point