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Business > Finance > Flashcards

Finance Flashcards

1
Q

What’s the definition of share issue

A

Raising equity from share holders

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2
Q

What’s the definition of a over draft

A

An agreement to overspend on a bank account

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3
Q

What is a mortgage

A

A loan to purchase property

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4
Q

What is a bank loan

A

Money repaid from banks with interest

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5
Q

What is crowd funding

A

Raising finance for a project by gathering sums of money from a large group of people in the internet

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6
Q

What is debt factoring

A

Selling the value of invoices to a factor

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7
Q

What is hire purchase

A

Finance to buy a asset

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8
Q

What is a grant

A

Finance from the government

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9
Q

What is debentures

A

A long term loan sold on the stock market

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10
Q

What is venture capital

A

When a investor gives money to a risky business

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11
Q

What is a retained profit

A

Profit carried forwards from previous years

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12
Q

What is sale of assets

A

The selling of unnecessary equipment

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13
Q

What is a cash budget

A

Cash flow is all the money that comes into and goes out of a business in a month

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14
Q

What is a income statement?

A

An income statement shows the business’ financial performance over a given time period e.g. one year

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15
Q

What does a income statement show? (3)

A

Sales revenue - the amount of money received for selling goods or services
Gross profit - the profit made from buying and selling goods. Gross profit is calculated by deducting cost of sales from sales revenue
Profit for the year - the profit made after all other operating expenses have been deducted from the gross profit

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16
Q

What is the purpose of a income statement? (4)

A
  • shows the profit/loss made by the company from the buying and selling of goods
  • can be used to compare gross profit and profit for the year over different years of trading to identify any trends and to aid decision making
  • comparisons can be made with similar companies in the same industry
  • can be used to compare expenses and sales over the years or between department to see if there are any areas where they can be minimised or improved
17
Q

What are ways you can fix cash flow problems ? (4)

A
  • find a cheaper supplier, This will reduce the cost of purchases meaning more cash available from each sale
  • less machinery or equipment-This allows a business to spread the cost of the purchase over many months
  • Apply for a loan or overdraft from the bank, This will help to cover immediate cash flow problems but will need to be paid back over time with interest
  • Increase advertising or sales promotion, This will increase sales meaning more cash coming into the business
18
Q

What’s the benefits of preparing a cash budget? (4)

A

-It can identify any times where there may be a shortage of cash. This will allow the business to plan ahead and arrange extra funding such as a bank overdraft.
-It can help to regulate expenses. Any months where expenses are high will be highlighted by a cash budget.
—It will clearly show where a business has more cash than expected (surplus) or less cash than expected (deficit). This will allow a business to plan more effectively and make better decisions.
It can be used to show potential lenders or investors. This can help to secure investment in the business

19
Q

What are the main items shown on a cash budgets (4)

A
  • opening balance, cash set at start of financial period
  • incomes- any money recieved
  • expenditure p- any money spent
  • closing balance, cash at end of financial period
20
Q

What are reasons cash flow problems may arise(4)

A

-low sales
-too much money tied up in stock
-customers taking too long to pay their bills
suppliers not allowing credit or a limited credit period
-owner taking too much money out the business, this is also known as drawings

21
Q

Impact on cash flow problems

A
  • unable to pay suppliers meaning stock is not delivered and production stops
  • may need to find a cheaper supplier which may reduce the quality of products
  • costs may increase due to interest on any extra funds borrowed
  • no money to invest in future growth
  • owner may need to reduce their drawings
22
Q

What’s the purpose of a cash budget (4)

A
  • can measure performance
  • helps motivate employees as it sets a target
  • helps managers make decisions
  • identifies deficits
23
Q

What are the main items shown on a income statement (5)

A

Sales revenue- income made from trading
-cost of sales- costs of raw materials used in financial year
-gross profit- profits made from buying and selling stock
Expenses- overheads like wages
-profit of the year- overall profits deducting expenses

24
Q

What’s an advantage and disadvantage of share issue

A

A -large amounts can be raised

DA- dilutes ownership as shareholders get a say in the running of the business

25
Q

Advantage and disadvantages of a bank overdraft

A

A - arranged easily with a quick phone call

DA- interest is charged at a daily rate

26
Q

What’s an A and DA of a mortgage

A

A- property is secured against a loan

DA- long term finance and takes a while to pay back

27
Q

A and DA of a bank loan

A

A- can be paid in instalments

DA- interest is charged

28
Q

A + DA of crowd funding

A

A- access to large numbers of investors worldwide as done internet
DA- if the targeting amount isn’t reached the money is returned to investors and business gets nothing

29
Q

A+ DA of debt factoring

A

A- money is received without having to wait the extending period for the customer to pay
DA- Money is lost from the business as unpaid debts are sold at reduced value

30
Q

A+ DA of hire purchase

A

A- helps cash flow as payments spread

DA- assets not owned until final payment

31
Q

A and DA of a grant

A

A -money doesn’t have to be paid back

DA- criteria needs to be met, requiring lots of work

32
Q

A + DA of debentures

A

A- doesn’t dilute ownership as holders are creditors

DA- fixed rate of annual interest is paid

33
Q

A and DA of venture capital

A

A- may benefit from investors knowledge

DA- higher return rewarded to investors due to risk meaning it costs more for the investee

34
Q

A+ DA of retained profit

A

A-no interest charged

DA -no debt incurred

35
Q

A + DA of sale of assets

A

A -money doesn’t need to be paid back

DA- original value isn’t redeemed due to product being used

Business (7 decks)

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