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Business (LC) > Chapter 17 - Finance > Flashcards

Chapter 17 - Finance Flashcards

1
Q

What is a cash flow forecast?

A

Plan of estimated income and expenditure for a business

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2
Q

What is liquidity?

A

The ability to pay debts as they fall due

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3
Q

What is a cash surplus?

A

More cash coming in that going out

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4
Q

What is a cash deficit?

A

More cash going out than coming in

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5
Q

What is the purpose of a cash flow forecast?

A

Identifying periods of cash surplus
Identifying periods of cash deficit
Applying for finance
Financial control

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6
Q

What is important to consider when preparing a cash flow forecast?

A

Delays
Seasonal fluctuations
Bad debts

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7
Q

What are 5 ways to deal with a cash flow forecast deficit?

A 
Increase selling price
Decrease selling price
Discounts
Finance 
Adjust payments
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8
Q

What is a household budget?

A

A financial plan of future income and expenditure for a household

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9
Q

What is fixed expenditure?

A

The amount remains the same

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10
Q

What is irregular expenditure?

A

The amount varies

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11
Q

What is discretionary expenditure?

A

Non essential items

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12
Q

What are 3 reasons for preparing a household budget?

A

Identify cash surplus
Identify cash deficit
Apply for loans

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13
Q

How can a household deal with a cash deficit?

A

Spread payments out
Postpone expenditure
Shop around for cheaper alternatives

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14
Q

How can a household deal with cash surplus?

A

Repay loans
Invest
Save

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15
Q

How long is short term finance?

A

Up to 1 year

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16
Q

How long is medium term finance?

A

1-5 years

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17
Q

How long is long term finance?

A

5+ years

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18
Q

What is internal finance?

A

Finance obtained inside the business

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19
Q

What is external finance?

A

Finance obtained outside the business

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20
Q

What is security?

A

Assets used to secure certain types of finance

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21
Q

What is a bank overdraft?

A

Allows customers to withdraw more money than is in their account which they repay at a later date

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22
Q

What are the advantages and disadvantages of a bank overdraft?

A
  1. Interest paid only on the amount used
  2. No security
  3. Fast Application process
  4. High interest rate
  5. Penalties if it not repaid
  6. Damage to credit rating
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23
Q

What is a credit card?

A

Customers pay for goods and services using a credit card and then pay the money on the balance of the card at an agreed time

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24
Q

What are the advantages and disadvantages of a credit card?

A
  1. No interest charge if paid on time
  2. Safety
  3. Worldwide use
  4. High interest rate
  5. Overspending
  6. Government tax
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25
Q

What is accrued expenses?

A

When a supplier allows you to use its services first and then pay after

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26
Q

What are the advantages and disadvantages of accrued expenses?

A
  1. Free finance
  2. No security
  3. Improves cash flow
  4. Loss of services if not paid for
  5. Limited availability
  6. Loss of discounts
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27
Q

What is factoring?

A

A business sells its debts to a factoring firm who then go after the people who have no paid their debts and request payments

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28
Q

What a debtor?

A

A person who receives goods or services on credit from a business and agrees to pay at a later date

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29
Q

What is factoring without recourse?

A

The factoring firm cannot ask for a refund if the debtor refuses to pay the debt

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30
Q

What is factoring with recourse?

A

The factoring firm can ask for a refund if the debtor refuses to pay

31
Q

What are the advantages and disadvantages of factoring?

A
  1. No security
  2. Immediate
  3. Full control
  4. High fees
  5. Risk of bad debts
  6. Business relationship damages
32
Q

What is trade credit?

A

A business receives goods or services from suppliers and pays later

33
Q

What is creditworthiness?

A

The ability to borrow money or pay later

34
Q

What are the advantages and disadvantages of trade credit?

A
  1. Free finance
  2. No security
  3. Immediate use
  4. Loss of discounts
  5. Damage to credit rating
  6. Credit businesses only
35
Q

What is hire purchase?

A

A buyer receives goods and pay a certain amount a month for a set number of months and then they own the good

36
Q

What are the advantages and disadvantages of hire purchase?

A
  1. Immediate use
  2. No security
  3. Fast
  4. Delayed ownership
  5. High interest rate
  6. Risk of repossession
37
Q

What is a medium loan?

A

Borrows money and pays it off over a period of 1-5 years

38
Q

What are the advantages and disadvantages of a medium term loan?

A
  1. Low interest rates
  2. No security
  3. No loss of control
  4. Interest charged
  5. Risk of repossession
  6. Repayments may increase
39
Q

What is leasing?

A

Regular payments are made for the use of a product or service but the lessee does not own it

40
Q

What are the advantages and disadvantages of leasing?

A
  1. Immediate use
  2. No security
  3. Access to up to date items
  4. Ownership
  5. Cost
  6. Risk of repossession
41
Q

What is a mortgage?

A

Long term loan for property

42
Q

What is a tracker mortgage?

A

The rate of interest on a mortgage varies

43
Q

What are the advantages and disadvantages of a mortgage?

A
  1. Amount
  2. Long repayment period
  3. Low rate of interest
  4. Risk of repossession
  5. High overall cost
  6. Repayments may increase
44
Q

What are the advantages and disadvantages of savings?

A
  1. No security
  2. No financial control
  3. No application process
  4. Low rate of interest
  5. Savings period
  6. Regular saving
45
Q

What are retained earnings?

A

Profits of a business that they use to reinvest in the business

46
Q

What are the advantages and disadvantages of retained earnings?

A
  1. Large amount of finance
  2. No financial cost
  3. No security
  4. Savings period
  5. One off payment
  6. Impact on dividends
47
Q

What is a deposit account?

A

Account used for savings

48
Q

What are dividends?

A

The portion of profits paid to shareholders

49
Q

What is equity capital?

A

A business sells shares in the business to investors

50
Q

What are the advantages and disadvantages of equity capital?

A
  1. No security
  2. No financial cost
  3. Repayments
  4. Loss of control
  5. Shareholders can sell shares
  6. Shareholder disputes
51
Q

What is a grant?

A

A sum of money that you don’t have to repay

52
Q

What are the advantages and disadvantages of grants?

A
  1. Amounts available
  2. No financial control
  3. No security
  4. Criteria for grant
  5. Application process
  6. Partial fundings
53
Q

What is a debenture?

A

A long term loan that you only pay interest on until you pay the rest at the end of the repayments

54
Q

What are the advantages and disadvantages of a debenture?

A
  1. Fixed rate of interest
  2. No loss of control
  3. Large amounts available
  4. Costs
  5. Risk of losing assets
  6. Risk of business failure
55
Q

What is sale and leaseback?

A

A business sells an asset and then leases it back from the buyer

56
Q

What are the advantages and disadvantages of sale and leaseback?

A
  1. Amounts available
  2. Operation
  3. No loss of control
  4. One off source
  5. Assets reduced
  6. Time
57
Q

What is venture capital?

A

A venture capital firm invests money in businesses

58
Q

What are the advantages and disadvantages of venture capital?

A
  1. Expertise
  2. No interest
  3. Amount available
  4. Loss of control
  5. Profit share
  6. Time
59
Q

What factors affect the choice of finance?

A 
Purpose of finance
Security
Tax implications 
Cost 
Control
60
Q

What is the loan criteria?

A

Collateral
Character
Capacity
Creditworthiness

61
Q

What is character in terms of loan criteria?

A

Lender wants to ensure the borrower has a good reputation and that there is less risk

62
Q

What is a current account?

A

Day to day banking

63
Q

What is a standing order?

A

A fixed amount that comes out of a bank account on a regular basis

64
Q

What is direct debit?

A

A variable amount that comes out of a bank account on a regular basis

65
Q

What does ATM stand for?

A

Automated teller machine

66
Q

What does PIN stand for?

A

Personal identification number

67
Q

What does PAC stand for?

A

Personal access code

68
Q

What does iban stand for?

A

International bank account number

69
Q

What does BIC stand for?

A

Bank identifier code

70
Q

On a bank statement what does credit mean?

A

Money coming in

71
Q

On a bank statement what does debit mean?

A

Money going out

72
Q

What are 4 similarities of business and household finance?

A
  1. Financial planning - cash flow forecast vs household budget
  2. Record keeping - records must be kept for tax affairs
  3. Sources of finance - they have common sources
  4. Bank accounts
73
Q

What are 4 differences between household and business finance?

A
  1. Financial planning - business has to go into more detail
  2. Amount borrowed
  3. Taxes
  4. Sources of finance are different

Business (LC) (23 decks)

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