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Business > Finance > Flashcards

Finance Flashcards

1
Q

Advantages of internal finance

A

No interest paid
Affairs of business private
Does not have to be repaid

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2
Q

Internal sources of finance

A

Debt collection
Sale of fixed assets
Sale of inventory
Retained profits
Owners investment

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3
Q

Advantages of external sources of finance

A

Larger sums available
Quicker
Borrower has use of asset whike paying for it

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4
Q

Disadvantages of external sources

A

Interest to be paid
Lender requires security

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5
Q

External sources

A

Grants
Trade credit
Mortgage
Hure purchase
Leasing
Share issue
Additional partners
Bank loan/overdraft

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6
Q

Advantage of extra partners

A

New partner contribute capital

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7
Q

Disadvantage of extra partners

A

Partner entitled to share of profits

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8
Q

Disadvantage of leasing

A

Payments math be very high
Asset remains property of lender

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9
Q

Advantage of leasing

A

Business can use asset( up to date equipment)

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10
Q

Advantages of hure purchase

A

Can pay in instalments
Hired till paid off

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11
Q

Disadvantage of hire purchase

A

Total cost of asset is much higher than if bought for cash

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12
Q

Advantage of mortgage

A

Business can use premises from beginning
Will eventually become property of business when payments been made

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13
Q

Disadvantage of mortgage

A

More expensive than if bought for cash

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14
Q

Advantage of trade credit

A

Immediate use of goods(30 days to pay)

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15
Q

Advantage of owner’s investment

A

Private
Doesn’t have to be repaid

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16
Q

Disadvantage of owners investment

A

Not all owners have additional capital

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17
Q

Advantage of retained profits

A

Private
Does not have to be repaid

18
Q

Disadvantage of retained profits

A

Not all businesses make enough to reinvest profit

19
Q

Advantage of sale of inventory

A

Raise finance quickly

20
Q

Disadvantage of sale of fixed assets

A

Small businesses not likely be o have surplus assets

21
Q

Purpose of cash flow forecasts

A

Forward planning- predicts the level of spending and level of income will have in a period of time
Review performance- it enables a business to compare the forecasted income and spending against actual amounts
Shows when finance will be required- any business wishing to borrow money etc will need to see when this money will be re available

22
Q

Importance of a forecast to a business

A

Ensures business will not suffer from a shortage of ready money
Business must ensure there is a steady supply of money coming in so that in can pay essential debts
Without adequate cash flow the business could be forced to close because suppliers

23
Q

Consequences of incorrect forecasting

A

Would cause a shortage of working capital- could not pay essential expenses such as wages
Some of the businesses assets may be sold- could affect production eg machinery sold
Inventory levels may be inaccurate- if sales revenues underestimated sufficient inventory not purchased

24
Q

Importance of income statement and statement of financial position to business

A

Show accurate value of business

25
Q

Cost of sales

A

Opening inventory+ purchases - closing inventory

26
Q

Gross profit

A

Sales revenue - cost of sales

27
Q

Net profit

A

Gross profit - expenses

28
Q

Non current assets

A

Assets which are more permanent

29
Q

Current asset

A

Assets can be exchanged for cash

30
Q

Non current liability

A

Borrows for a longer time eg bank loan

31
Q

Current liability

A

Liabilities which must be paid immediately

32
Q

Statement of financial position records

A

Businesses assets
Businesses liabilities
Owners capital
Wonders drawings
Net profit

33
Q

Gross profit %

A

Gross profit/ sales revenue x 100

34
Q

Net profit %

A

Net profit / sales revenue x100

35
Q

Inventory turnover rate

A

Cost of sales / average inventory

36
Q

Return on capital employed

A

Net profit / capital employed x100

37
Q

Working capital ratios

A

Current assets / current liabilities

38
Q

Significance of a break even point

A

Amount of goods which must be sold to make a profit
Level of costs business can bear
Price which needs to be charged for goods

39
Q

How to work out break even point

A

Total fixed costs / selling price per unit - variable cost per unit

40
Q

Variable costs

A

Costs which vary eg electricity

41
Q

Fixed costs

A

Costs not affected by quantity of goods eg rent

42
Q

What is margin of safety

A

The amount in which the business sells in excess of its break even point

Business (3 decks)

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