Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

business > finance > Flashcards

finance Flashcards

1
Q

sources of finance (9)

A
  • owners personal finance
  • profits
  • selling assets
  • grants
  • loans
  • shares
  • selling then leasing assets
  • bank overdraft
  • trade credit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

owners personal finance advantages (2)

A
  • owner keeps control over business
  • reduce the amount that has to be borrowed ensuing there is no debt
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

owners personal finance disadvantages (2)

A
  • can be difficult to withdraw savings if they are invested in the business
  • risk owner may loose their savings if the business fails
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

retained profits advantages (2)

A
  • used to make larger purchases such as assets or bulk buy
  • business doesn’t go into debt
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Retained profits disadvantages (2)

A
  • business may strugle to grow if profits are consumed.
  • cant solve short term cash flow issues
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

sale of assets advantages (2)

A
  • money can be raised from asset sales
  • money doesn’t need to be repaid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Sale of assets disadvantages (1)

A
  • if finance is required urgently asset may be sold at a low price
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

selling and leasing back advantage (2)

A
  • the asset is kept which may be essential for the business.
  • business passes responsibility of maintaining and renewing equipment to leasing company
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

selling and leasing back disadvantages (1)

A
  • if leased long term it can be expensive
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

selling shares advantages (2)

A
  • large sums of money can be raised
  • money doesn’t need to be repaid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

selling shares disadvantages (2)

A
  • dividends have to be paid back
  • expensive to advertise the sale of shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

bank overdraft advantages (2)

A
  • easy to arrange
  • business can pay expenses with no money in the bank
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

bank overdraft disadvantages (2)

A
  • high interest rates are applied by banks
  • bank overdraft can be withdrawn by a bank at any time and must be repaid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

trade credit advantages (2)

A
  • allows a business to sell goods at higher prices and earn profit
  • helps businesses cash flow
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

trade credit disadvantages (2)

A
  • discount for prompt payment is lost
  • suppliers will be reluctant to continue trade credit if a business fails to pay
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

grants advantages (2)

A
  • offered to help a businesses expand or start up
  • money doesn’t need to be repaid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

grants disadvantages (2)

A
  • complicated to apply for and business has to meet certain requirements
  • usually a one off payment and are not repeated
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

bank loan advantages (2)

A
  • business can budget or repayments
  • purchases for essential materials can be made and paid back over years
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

bank loans disadvantages (2)

A
  • interest has to be repaid along with the loaned amount
  • smaller businesses often need to pay a larger interest.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

factors affecting sources of income (5)

A
  • short term finance required
  • long term finance required
  • interest rates
  • payback term
  • size and type of organisation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

how does short term finance required affect sources of finance

A

Organisation may only need finance for a short term so an overdraft could be used

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

how does long term finance required affect sources of finance

A

an organisation may need long term finance required to fund a property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

how does interest rates affect sources of finance

A
  • Organisation will choose agreements with lowest interest rates to keep costs down
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

how does payback term affect sources of finance

A

the quicker the pay back the lower the interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

how does the size and type of the organisation affect sources of income

A

Organisation can be restricted to certain sources of finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

purpose of budgeting (5)

A
  • to predict a surplus and
  • focus on investment during period of surplus
  • to predict a deficit
  • allow action to be taken to avoid a deficit
  • to compare with figures from different departments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

cash flow problems (5)

A
  • too much tied up in inventory
  • too many credit sales
  • high spending amount on non current assets
  • not enough sales revenue
  • too many unpaid debts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

solution too much tied up in inventory

A

use just in time inventory and sell of excess inventory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

solution to too much credit sales

A

offer cash discounts to encourage customers to pay in cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Solution to not enough sales revenue

A

adapt the marketing mix

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

solution too many unpaid debts

A

sell debts to debt factoring companies

32
Q

what is an opening balance

A

amount of cash available at the start of the month

33
Q

what are total receipts

A

total cash received during the month

34
Q

what does the cash available mean

A

cash available to spend
opening balance + total receipt

35
Q

what are total payments

A

total amount of cash spent during the month

36
Q

what are closing balances

A

amount of cash available at end of the month
cash available - total payments

37
Q

users of financial statements

A

owners - asses profits and make decisions
employees - ensure job security
competitions - measure success as comparison
investors - asses potential investment
lenders - decide weather or not to loan

38
Q

what does an income statement show

A

the profit made from buying and selling known as gross profit

39
Q

sales revenue definition

A

profit made from selling goods and services

40
Q

cost of sales meaning

A

amount spent on selling goods
sales revenue - cost of sales

41
Q

gross profit definition

A

profit made from buying and selling
sales revenue - cost of sales

42
Q

expenses definition

A

costs throughout the year

43
Q

profit for the year definition

A

profit made after expenses are deducted from gross profit
gross profit - expense

44
Q

what does a statement of financial position show

A

it shows the items a business owns
- non current assets
- current assets
- liabilities
- working equity
- net assets employed
- non current liabilities
- net assets
- equity and reserves

45
Q

definition of non current assets

A

items owned for a period of more than a year. leasing

46
Q

definition of current assets

A

items owned for less than a year

47
Q

Definition working equity. Calculation?

A

Ability to pay short term debts
current assets - current liabilities

48
Q

definition of current liabilities

A

items owed for a period of less than a year

49
Q

Definition of net assets employed

A

value of non current assets added to working equity

50
Q

definition of non current liabilities

A

long term debts of business

51
Q

definition of net assets. calculation?

A

value of business
net assets employed - non current liabilities

52
Q

definition of equity and reserves

A

shows how business has been financed

53
Q

purpose of ratio analysis (4)

A
  • to compare the performance of the business with previous years
  • compare performance of the business with competitors
  • highlight areas that need attention
  • highlight trends to aid decision making
54
Q

limitations of ratios (2)

A
  • do not take into account external factors
  • difficult to find exact competitors so valid comparisons are difficult
55
Q

profitability ratios examples and meaning

A

how profitable a business is
gross profit percentage
profits for the year
Return on equity employed

56
Q

gross profit calculation

A

gross profit/sales revenue x 100

57
Q

description of gross profit percentage

A

measures percentage of profit made from buying and selling. the higher the better

58
Q

how to improve gross profit percentage

A

increase sales revenue by increasing price. find a cheaper supplier

59
Q

profit for the year percentage calculation

A

profit for the year/sales revenue x 100

60
Q

description of profit for the year percentage

A

measures profit ones expenses have been deducted from gross profit. higher the better

61
Q

how to improve profit for the year percentage

A

reduce expenses
Increase sales revenue
Improve gross profit

62
Q

Return on equity employed formula

A

profit for the year/equity x 100

63
Q

description on equity employed formula

A

measures percentage of investment that is returned to investors. the higher the better

64
Q

how to improve on equity employed formula

A

increase profits
reduce expences

65
Q

what are liquidity ratios

A

measures cash situations on a business and ability to pay debts
- current ratio
- acid test ratio

66
Q

current ratio formula

A

current assets / current liabilities

67
Q

description of current ratio

A

measures ability of business to pay short term debts
ideal is 2:1

68
Q

how to improve current ratio

A

if business has less than 2:1 then it has to secure more current assets
if higher than 2:1 then should invest in current assets

69
Q

acid ratio formula

A

(Current assets - closing inventory) / current liabilities

70
Q

description of acid ratio ratio

A

Measures ability for a business to pay back debts in crisis situations. 1:1 ratio is good

71
Q

how to improve acid ratio

A

less than 1:1 must secure more current assets
Current ratio ok but acid test is low then too much money in inventory

72
Q

what are efficiency ratios

A

how well a business uses its resources

73
Q

rate of inventory turnover formula

A

cost of sales /average inventory

74
Q

Description of rate of inventory turnover

A

Measures times a business has to restock inventory during the year

75
Q

how to improve rate of inventory turnover

A

most want a high rate as it shows products are selling and not tied up. JIT or sales of return.

business (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions