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Business Studies > Finance > Flashcards

Finance Flashcards

1
Q

What is external finance?

A

External finance is capital that has come from outside of the business, for example; a bank loan.

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2
Q

What is internal finance?

A

Internal finance is capital that has come from inside of the business, for example; own savings.

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3
Q

Why might a business need finance?

A
  • Start up a business, eg pay for premises, new equipment and advertising.
  • Run the business, eg having enough cash to pay staff wages and suppliers on time.
  • Expand the business, eg having funds to pay for a new branch in a different city or country.
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4
Q

Name external sources of finance:

A
  • bank loan
  • overdraft
  • leasing/lease hire
  • grant (usually Government grant)
  • friends and family
  • selling shares
  • mortgages
  • trade credit
  • business angel/venture capital
  • selling assets
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5
Q

Name internal sources of finance:

A
  • own savings
  • interest on investments
  • retained profit
  • selling assets (maybe)
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6
Q

What is trade credit?

A

Trade credit is where suppliers deliver the goods now but are willing to wait a number of days before payment.

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7
Q

What is factoring?

A

Factoring is where firms sell their invoices to a factor such as a bank. They do this for some cash right away, rather than waiting 28 days to be paid the full amount.

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8
Q

What is an overdraft?

A

An overdraft facility is where a bank allows a firm to take out more money than it has in its bank account.

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9
Q

What type of business would use a bank loan as a source of finance??

A

Any type of business would use a bank loan as a source of finance.

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10
Q

What type of business would use loans from friends and family as a source of finance??

A

Sole traders and partnerships would use loans from friends and family as a source of finance .

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11
Q

What type of business would sell shares as a source of finance?

A

PLC’s and LTD’s would selling shares as a source of finance.

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12
Q

What type of business would use retained profit as a source of finance?

A

Any business that makes a profit would use retained profit as a source of finance.

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13
Q

What type of business would use a credit card as a source of finance?

A

Small businesses such as sole traders would use credit cards as a source of finance, but also larger businesses would use it for sales people.

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14
Q

What type of business would use own savings as a source of finance?

A

Sole traders and partnerships would use own savings as a source of finance.

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15
Q

What type of business would sell assets as a source of finance?

A

Any type of business would sell assets as a source of finance.

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16
Q

What type of business would use trade credit as a source of finance?

A

Any business with a good credit history would use trade credit as a source of finance.

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17
Q

What type of business would use a business angel/venture capital as a source of finance?

A

Small businesses would use a business angel/venture capitalist as a source of finance.

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18
Q

What type of business would use government grants as a source of finance?

A

Small businesses or social enterprises would use this as a source of finance.

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19
Q

What type of business would use interest on investments as a source of finance?

A

Large businesses would use interest on investments as a source of finance.

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20
Q

What type of business would use mortgages as a source of finance?

A

Any businesses would use mortgages as a source of finance.

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21
Q

What is a cash flow?

A

Cash flow is money in and out of the business.

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22
Q

What are inflows?

A

Inflows are money received by customers and other sources. For example; a loan could be an inflow as well as selling things within the business.

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23
Q

What are outflows?

A

Outflows are money paid to suppliers wages. For example; wages are an outflow as well as advertising the business.

24
Q

What is a cash flow forecast?

A

A cash flow forecast is a plan of expected money in and out of the business.

25
Q

Name 3 examples of cash inflows;

A
  • cash from company sales
  • grants
  • bank loans
26
Q

Name 4 examples of cash outflows;

A
  • wages
  • company materials
  • payments of bills
  • rates and rents
27
Q

Name 4 uses of cash flow;

A
  • banks can see how much capital is flowing in the business
  • the business can plan to see if they can out costs or increase revenue
  • businesses can decide whether they want to expand or shrink the business
  • businesses can decide if they need to invest anymore capital
28
Q

What is fixed capital?

A

Fixed capital includes land, machinery and buildings.

29
Q

What is working capital?

A

Working capital includes stocks of raw materials, semi-finished goods, components and money.

30
Q

What is net cash flow?

A

Net cash flow is the difference between total cash in and total cash out each month.

31
Q

What happens when a business becomes insolvent?

A

If a business runs out of cash and cannot pay its suppliers or workers it is insolvent.

32
Q

How can a business improve its cash flow?

A
  • Reducing cash outflows, eg by delaying the payment of bills, securing better trade credit terms or factoring.
  • Increasing cash inflows, eg by chasing debtors, selling assets or securing an overdraft.
33
Q

What is revenue?

A

Revenue is the value of total sales made by a business within a period of usually a year.

34
Q

How do you work out net profit?

A

net profit = gross profit - expenses (fixed cost)

35
Q

How do you work out gross profit?

A

gross profit = revenue - variable costs

36
Q

How do you work out retained profit?

A

retained profit = net profit - corp tax

37
Q

What is corptax?

A

Corptax is 24% of net profit.

38
Q

What is a business plan?

A

A business plan is a document which contains the aims of a business and how it will achieve them.

39
Q

List the 10 things that a business plan includes;

A
  • the name of the company
  • the type of ownership
  • the size of the business
  • the aims and objectives of the business - SMART
  • the product or service
  • market research or proposed marks and the 4 p’s
  • personnel - experience of skills of those inside the business
  • costs
  • premise of equipment
  • financial details - capital, cash flow, profit and loss etc
40
Q

What does SMART stand for?

A
  • specific
  • measurable
  • achieveable
  • realistic
  • time-related
41
Q

What is remortgage?

A

This is when you get a new mortgage to pay off your existing mortgage whilst keeping your existing home.

42
Q

What 7 factors do you have to consider before deciding a source of finance?

A
  • type of business
  • amount of finance required
  • what it is being used for
  • period of time
  • cost of finance
  • risks involved
  • how quickly it is required
43
Q

What is a profit and loss account?

A

A profit and loss account is an account which shows how net profit is calculated.

44
Q

What is net profit?

A

Net profit is the profit made by the business after all its expenses.

45
Q

What expenses might a business be faced with?

A
  • wages
  • rates
  • gas
  • electricity
  • insurance cost
  • cleaning costs
  • rent
46
Q

What is the trading account?

A

A trading account shows the difference between sales revenue and what goods cost to make. This is gross profit.

47
Q

What is balance sheet?

A

A balance sheet is a sheet which shows the value of a business and what is is worth.

48
Q

When is a balance sheet required?

A

A balance sheet is required if you’re a limited company.

49
Q

What is a balance sheet made up of?

A
  • assets - fixed and current
  • liabilities - long-term and current
  • captial
50
Q

What are fixed assets?

A

Fixed assets are things such as land and buildings - not for re-sale.

51
Q

What are current assets?

A

Current assets are things that are held in the business for a short time such as stock.

52
Q

What are long-term liabilities?

A

Long-term liabilities are things such as loans.

53
Q

What are current liabilities?

A

Current liabilities is the money the business owes such as tax.

54
Q

What is the capital section?

A

The capital section is the capital the shareholders have put into the business.

55
Q

What is break even?

A

total revenue = total costs

56
Q

What 3 things do business use break even for?

A
  • help them to decide, when setting up, what level of output and sales are needed
  • support an application to a bank for a loan so that the bank can see the business has good planning
  • see the results of ‘what if’ changes - what is the selling price is increased or cost increases
57
Q

What is the formula for break even?

A

fixed costs / selling price - variable costs

Business Studies (18 decks)

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