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Finance Flashcards

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1
Q

Breakeven point (using contribution) formula

A

fixed costs /contribution per unit

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2
Q

contribution per unit formula

A

selling price (per unit) - variable cost (per unit)

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3
Q

Profit formula

A

sales revenue - costs

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4
Q

total costs formula

A

fixed costs + variable costs

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5
Q

Revenue formula

A

selling price x quantity

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6
Q

Average rate of return (ARR) formula

A

average annual profit/
initial cost of investment x100

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7
Q

Average annual profit formula

A

net profit generated by an investment/
number of years the profit is expected to last

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8
Q

Gross profit margin formula

A

Gross profit/
sales revenue x100

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9
Q

net profit margin formula

A

net profit/
sales revenue x100

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10
Q

Name the 3 internal sources of finance

A

owners capital
retained profit
selling assets

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11
Q

define owners capital

A

The money invested by the owner of the business - often comes from their personal savings.

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12
Q

define retained profit

A

When a business makes a profit, the business can leave some or all of this money in the business and reinvest it in order to expand.

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13
Q

define selling assets

A

Involves selling products owned by the business.

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14
Q

Name 10 external sources of finance

A

family and friends
bank loans
overdrafts
venture capital and business angels
new partners
share issue
trade credit
leasing
hire purchase
government grants

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15
Q

Define family and friends

A

Businesses can be given a loan from their family family and friends that may not need to be payed back or are payed back with little or no interest.

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16
Q

Define bank loan

A

The money borrowed from a bank by an individual or a business - is payed off with interest over a agreed period of time.

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17
Q

Define Overdrafts

A

Where a business or person uses more money than they have in their bank account.

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18
Q

Define venture capital and business angels

A

An individual or a group which is willing to invest money into a new or growing business in exchange for an agreed share of the profits.

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19
Q

Define new partners

A

When an individual person or people are brought into the business as a new business partner.

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20
Q

Define share issue

A

A business may sell more of their ordinary shares to raise money.

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21
Q

Define trade credit

A

A trade credit must be agreed with a supplier and forms a credit agreement with them. Allows a business to obtain raw materials and stock but pay for them at a later date.

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22
Q

Define leasing

A

A way of renting an asset that the business requires, such as a coffee machine. Monthly payments are made.

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23
Q

Define Hire purchase

A

Used to purchase an asset such as a delivery van or piece of equipment. A deposit is payed and the remaining amount for the asset is payed monthly over a set period of time.

24
Q

Define government grants

A

A fixed amount of money awarded by the government. Grants are given to a business on the condition that they meet certain criteria such as providing jobs in areas of high unemployment.

25
Q

Advantage and disadvantage of owners capital

A

Quick and convenient
once the money is gone its gone

26
Q

Advantage and disadvantage of Retained profits

A

easy access to the money
Once the money is gone, it is not available for any future unforeseen problems the business might face.

27
Q

Advantage and disadvantage of selling assets

A

can create space for more profitable uses
might not get the full market value of the assets or even be able to sell them at all.

28
Q

Advantage and disadvantage of family and friends

A

money may not need to be payed back
money may be lost if the business fails

29
Q

Advantage an disadvantage of bank loans

A

Can get a significant amount of money at one time
difficult for a business to access

30
Q

Advantage and disadvantage of Overdraft

A

allows emergency purchases
is only a short term solution

31
Q

Advantage and disadvantage of venture capitalists and business angels

A

they may offer advice and help
owner must give away part of the business

32
Q

Advantage and disadvantage of new partners

A

potential to raise huge amounts of money
they may have different visions for the business than the business.

33
Q

Advantage and disadvantage of share issues

A

can gain lots of money quickly
leaves a business open to takeovers

34
Q

Advantage and disadvantage of trade credit

A

access to supplies without immediate payment
usually small amounts

35
Q

Advantage and disadvantage of leasing

A

leasing company may be responsible for repairs and maintenance
assets are not owned by the business

36
Q

Advantage and disadvantage of hire purchase

A

Expensive assets can be purchased and paid back over time
interest is charged on hire purchase items

37
Q

Advantage and disadvantage of government grants

A

does not need to be paid back
business need to meet certain criteria

38
Q

What sources of finance are useful for start up businesses

A

owners capital
family and friends
a bank loan
venture capital and business angels
trade credit
leasing and hire purchases
government grants

39
Q

What sources of finance are useful for businesses with cash flow issues

A

owners capital
family and friends
bank loans
overdraft
share issue
trade credit
selling assets

40
Q

Define Revenue

A

Revenue is any money a business makes from selling their goods and services.

41
Q

Define Costs

A

Costs are anything business pays for.

42
Q

What are the 2 categories of costs

A

variable costs
fixed costs

43
Q

Define fixed costs

A

Fixed costs are costs for a business that do not change.

44
Q

Variable costs

A

Variable costs are costs that change depending on the output of a business.

45
Q

Define profit

A

Profit is any revenue left over after all the business’ costs have been paid.

46
Q

Define break-even

A

The point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss.

47
Q

Formula gross profit

A

Sales revenue - cost of sales

48
Q

Define profit and loss account

A

Shows the revenue and costs of a business and these are used to work out weather or not the business has made a profit

49
Q

Formula for net profit

A

Gross profit - expenses

50
Q

Define gross profit margin

A

The percentage of sales revenue left over once the cost of sales has been paid

51
Q

Define net profit margin

A

Proportion of sales revenue left over after all costs have been paid

52
Q

Formula for net cash flow

A

Cash in flows - cash out flows

53
Q

Define cash flow forecasting

A

Involves predicting the future flow of cash into and out of a business

54
Q

Formula for opening balance

A

Opening balance = closing balance of the previous year.

55
Q

Formula for closing balance

A

Net cash flow + opening balance

Business finance (3 decks)

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