Finance Flashcards
List the SOURCES OF FINANCE
What factors influence the type of finance used?
- Purpose of the finance e.g. to buy stock or buy premises
- Objectives of the organisation e.g. maximise profit or business expansion
- Cost and amount of finance required e.g. Interst rates
- Type of business e.g. small business May need an overdraft
- Length of time finance is needed e.g. mortgage for long term
Some sources of finance are available to some organisations, whilst others are only available to specific types of organisations.
Can you list these?
What is a CASH BUDGET?
This is a forecast of the cash coming into and going out of the firm each month.
What is wrong with this cash budget?
The firm purchased the van outright rather than leasing it. It has resulted in them not having enough cash.
Can you think of other problems that might be highlighted by a cash budget?
- Low sales - could increase marketing activity
- Borrowing at high interest rates could try to get a cheaper source of finance
- Owners taking too much drawings - need to reduce this
- Customers not paying on time - need to chase unpaid bills
- Allowing customers too much credit - set credit limits
Describe why having a good cash flow is important to a firm?
- The firm has money to buy raw materials or pay wages
- The firm can pay its debts
- Ensures suppliers are paid
What is the Profit Formulae?
Fill in the blanks:
A = £100,000
B = Gross Profit
C = Profit for the Year
D = £50,000
A = Sales
B = £30,000
C = £20,000
2017 Q6: Describe the sources of finance available to a private limited company for expansion
- RETAINED PROFITS - reinvest profits from previous years
- SHARE ISSUE- selling shares to family and friends (Ltd)
- BANK LOAN - money borrowed repaid in instalments with interest
- OVERDRAFT - taking money money out of bank than you have
- MORTGAGE - money borrowed to buy a property
- HIRE PURCHASE - purchasing assets e.g. van and paying over time with interest
- LEASING - renting equipment / assets
- GOVERNMENT GRANTS - lump sum of money from the government or charity if certain conditions met.
2017 Q6: Justify the use of sources of finance outlined in previous question.
(Give a different justification for each one)
- RETAINED PROFITS - Cash is readily availability; Does not have to be paid back; No interest charged.
- SHARE ISSUE - No interest charged; Does not have to be repaid
- BANK LOAN - Repaid in instalments; Helps with budgeting
- OVERDRAFT - Easy to arrange; Only pay interest on amount borrowed
- MORTGAGE - Repaid over a long period of time; Large amount of money can be raised
- HIRE PURCHASE - Costs spread over a period of time; helps cash flow issues
- LEASING- can acquire an expensive asset without large capital outlay; Easy to change equipment
- GOVERNMENT GRANT - Does not need to be paid back
2017 Q6: Outline the BENEFITS of budgeting to an organisation
- To make COMPARISONS between actual and projected figures
- Allows the firm to know when to take CORRECTIVE action e.g. cut electricity costs
- To allow the firm to make better DECISIONS e.g know when to hire new staff
- Identify a SURPLUS or SHORTFALL in cash
- Set SALES TARGETS for staff
