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Higher business > Finance > Flashcards

Finance Flashcards

1
Q

Sources of finance

A

Bank loan
Bank mortgage
Bank overdraft
Share issue
Venture capitalist
Angel investor
Hire purchase
Leasing
Trade credit
Debentures
Debt factoring
Own equity
Retained profit
Sale of assets
Sell and lease back

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2
Q

Internal sources of finances

A

Own equity
Retained profit
Sale of assets
Sell and lease back

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3
Q

External sources of finance

A

Bank loan
Bank mortgage
Bank overdraft
Share issue
Venture capitalist
Angel investor
Hire purchase
Leasing
Trade credit
Debentures
Debt factoring

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4
Q

Short term sources of finance

A

Bank overdraft
Trade credit
Gov grant
Retained profit
Own equity
Debt factoring

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5
Q

Long term finance sources

A

Bank loan
Bank mortgage
Debentures
Venture capitalist
Share issue

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6
Q

Bank loan

A

Where a business borrows finance from a bank, and pays it back over a long period of time in monthly instalments, with interest.

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7
Q

Bank mortgage

A

Where a business borrows finance from a bank specifically to purchase property, which the business pays back in monthly instalments with interest over a 25 year period.

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8
Q

Bank overdraft

A

Where a bank allows a business to use slightly more finance than there is in their account.

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9
Q

Share issue

A

Where a business sells new shares to the public, either on the stock market (PLC) or to approved members (LTD) for finance.

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10
Q

Venture capitalist

A

Organisations which invest in other businesses for a share of ownership, they typically only invest in established businesses.

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11
Q

Angel investors

A

Where an individual invests in a business for a share of the business ownership.

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12
Q

Hire purchase

A

Where a business purchases an asset, by paying for it in instalments for a higher overall price.

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13
Q

Leasing

A

Where a business pays to use an asset for a certain period of time.

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14
Q

Trade credit

A

Where a business or customer gets to purchase a product or asset now and pay for the product or asset later.

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15
Q

Debentures

A

A form of loan given out by a business, or individual over the stock market, which has to be paid back with interest.

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16
Q

Debt factoring

A

Where another different business purchases another businesses customer debt, for a lower price, to increase the business cash flow.

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17
Q

Own equity

A

Where a business uses the owners personal capital (finance) as a source of finance.

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18
Q

Retained profit

A

Where a business uses the profit made from last year to grow and cover business payments.

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19
Q

Sale of assets

A

Where a business sells off a piece of equipment or valuable item the business owns, to increase finance.

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20
Q

Sell off and lease back

A

Where a business sells of an asset which they still need, and then lease the asset from the individual/ business they just sold to to still use the asset.

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21
Q

Cash budget

A

A document which forecasts the cash flowing into and out of the business.

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22
Q

Liquidity

A

The amount of finance a business can access quickly or has on had.

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23
Q

Liquid asset

A

An asset which can easily be converted back into cash.

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24
Q

Asset

A

An item or property owned by a business.

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25
Q

Reasons for cash budget

A

Predicts a surplus
Predicts a deficit
Compare actual figures to cash budget
Helps financial investors
Set targets + budgets
Predict cash flow.

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26
Q

Features of cash budget

A

Opening balance
Receipts
Total receipts
Total cash available
Payments
Total payments
Closing balance

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27
Q

Cash budget columns

A

Right hand side -totals
Left hand side - receipts + payments,

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28
Q

Cash flow issues

A

Too much money tied up in capital
Too much credit time
Purchase assets outright instead of hire purchase
Decrease in sales
Increase in payments
Inflation

29
Q

Cash flow solutions

A

Selling unnecessary assets
Financial incentives to fast payments
Increase product price
Advertise to increase sales
Owners draw less finance.

30
Q

Types of ratios

A

Profitability
Liquidity
Efficiency

31
Q

Purpose of ratios

A

Compare performance of business to competitors
Calculate profitability liquidity and efficiency
Compare against previous years
Highlights areas of business needing attention
Can be used to support decision making.

32
Q

Limitations of ratios

A

Information is historical
Don’t take external factors into account
Doesn’t take internal factors such as employees into account
Must compare same size and type of company to be effective.

33
Q

Types of profitability ratios

A

Gross profit percentage
Profit for year percentage (net profit)
Return on equity

34
Q

Gross profit percentage

A

Gross profit /sales x100
Percentage of profit made by buying stock and selling product.

35
Q

What influences gross profit percentage

A

Increase/ decrease of selling price
Sales quantity

36
Q

Profit for the year percentage

A

Profit for year/ sales x 100
The percentage of overall profit after all expenses have been payed.

37
Q

Factors affecting profit for year percentage

A

Profit margins
Expenses
Sales

38
Q

Return on equity employed

A

Profit for year/ opening equity x100 calculates finance an investor will get back after a period of time.

39
Q

Factors affecting return on equity employed ratio

A

Sales
Expenses

40
Q

Liquidity ratios

A

Current
Acid test

41
Q

Current ratio

A

Current assets /current liabilities
The ability of a business to pay back short term debt

42
Q

Acid test ratio

A

Current assets - closing stock /current liabilities
The ability of a business to pay back short term debt in a crisis situation

43
Q

Efficiency ratio

A

Rate of stock turnover

44
Q

Rate of stock turnover

A

Cost of sales/average inventory

The number of times a business restocks their inventory during the year

45
Q

Average inventory

A

(Opening inventory + closing inventory)/ 2

46
Q

Ways to improve efficiency ratio

A

Use JUST IN TIME

47
Q

Ways to improve liquidity ratio

A

Use just in time
Increase spending

48
Q

Income statements

A

A financial document which shows the gross profit and profit for the year.

49
Q

Key features of an income statement

A

Sales revenue
Cost of sales
Gross profit
Expenses
Profit for the year.

50
Q

Purpose of creating an income statement

A

To show the profit or loss made by the business each year.
To compare gross profit and profit for the year, from different years.
To compare different businesses in the same industry

To compare expenses and sales and find ways to improve of minimise spending

51
Q

Sales revenue definition

A

The finance generated by selling the business products.

52
Q

Cost of sales definition

A

The opening stock add the purchases minus the closing stock.

53
Q

Gross profit def

A

The profit for the year before the expenses are taken off.

54
Q

Expenses

A

The overhead charges the business pays to keep the business running.

55
Q

Profit for the year def

A

The gross profit minus the expenses to run the business.

56
Q

Statement of financial position def

A

The document which shows the assets and liabilities of a business

57
Q

Statement of financial position features

A

Fixed assets
Current assets
Current liabilities
Working equity
Net assets employed
Fixed liabilities
Net assets
Equity and reserves

58
Q

Current assets

A

Short term Items that a business owns that can be quickly converted into cash.

59
Q

Current liabilities

A

Short term Debts that can be quickly be payed off.

60
Q

Fixed assets

A

Long terms Items which can’t be easily converted into cash.

61
Q

Fixed liabilities

A

Long term debts that can’t be payed off quickly.

62
Q

Working equity

A

Current assets - current liabilities

63
Q

Net assets employed

A

Current assets - current liabilities + fixed assets .

64
Q

Net assets

A

Current assets - current liabilities + fixed assets - fixed liabilities

65
Q

Equity and reserves

A

Finance generated by the business

66
Q

Purpose of a financial statement

A

Legal requirements
To show the overall value of the business, to compare against competitors in the same market.
To use to convince investors to invest in a business
Can be used to aid decision making by showing current and fixed assets and liabilities.

67
Q

Uses of financial information

A

HMRC - tax
Investors - trying to find solvency if a business and see if a business is risky
Banks used to make lending decisions
Owners- aid decision making
Employees - check if their job is secure
Competitors - use to see how competition is doing.

68
Q

Technology in finance

A

Spreadsheets
Online banking
Sage software
BACs
EFTPOS

69
Q

Spreadsheets

A

Used to produce financial documents such as cash budget, income statement and statement of financial position

Higher business (20 decks)

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