Finance

Question 1

Breakeven point (using contribution) formula

Answer 1

fixed costs /contribution per unit

Question 2

contribution per unit formula

Answer 2

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

Question 3

Profit formula

Answer 3

sales revenue - costs

Question 4

total costs formula

Answer 4

fixed costs + variable costs

Question 5

Revenue formula

Answer 5

selling price x quantity

Question 6

Average rate of return (ARR) formula

Answer 6

average annual profit/
initial cost of investment x100

Question 7

Average annual profit formula

Answer 7

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

Question 8

Gross profit margin formula

Answer 8

Gross profit/
sales revenue x100

Question 9

net profit margin formula

Answer 9

net profit/
sales revenue x100

Question 10

Name the 3 internal sources of finance

Answer 10

owners capital
retained profit
selling assets

Question 11

define owners capital

Answer 11

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

Question 12

define retained profit

Answer 12

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.

Question 13

define selling assets

Answer 13

Involves selling products owned by the business.

Question 14

Name 10 external sources of finance

Answer 14

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

Question 15

Define family and friends

Answer 15

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.

Question 16

Define bank loan

Answer 16

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

Question 17

Define Overdrafts

Answer 17

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

Question 18

Define venture capital and business angels

Answer 18

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.

Question 19

Define new partners

Answer 19

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

Question 20

Define share issue

Answer 20

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

Question 21

Define trade credit

Answer 21

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.

Question 22

Define leasing

Answer 22

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

Question 23

Define Hire purchase

Answer 23

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.

Question 24

Define government grants

Answer 24

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.

Question 25

Advantage and disadvantage of owners capital

Answer 25

Quick and convenient once the money is gone its gone

Question 26

Advantage and disadvantage of Retained profits

Answer 26

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

Question 27

Advantage and disadvantage of selling assets

Answer 27

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.

Question 28

Advantage and disadvantage of family and friends

Answer 28

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

Question 29

Advantage an disadvantage of bank loans

Answer 29

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

Question 30

Advantage and disadvantage of Overdraft

Answer 30

allows emergency purchases is only a short term solution

Question 31

Advantage and disadvantage of venture capitalists and business angels

Answer 31

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

Question 32

Advantage and disadvantage of new partners

Answer 32

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

Question 33

Advantage and disadvantage of share issues

Answer 33

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

Question 34

Advantage and disadvantage of trade credit

Answer 34

access to supplies without immediate payment usually small amounts

Question 35

Advantage and disadvantage of leasing

Answer 35

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

Question 36

Advantage and disadvantage of hire purchase

Answer 36

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

Question 37

Advantage and disadvantage of government grants

Answer 37

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

Question 38

What sources of finance are useful for start up businesses

Answer 38

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

Question 39

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

Answer 39

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

Question 40

Define Revenue

Answer 40

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

Question 41

Define Costs

Answer 41

Costs are anything business pays for.

Question 42

What are the 2 categories of costs

Answer 42

variable costs fixed costs

Question 43

Define fixed costs

Answer 43

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

Question 44

Variable costs

Answer 44

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

Question 45

Define profit

Answer 45

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

Question 46

Define break-even

Answer 46

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

Question 47

Formula gross profit

Answer 47

Sales revenue - cost of sales

Question 48

Define profit and loss account

Answer 48

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

Question 49

Formula for net profit

Answer 49

Gross profit - expenses

Question 50

Define gross profit margin

Answer 50

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

Question 51

Define net profit margin

Answer 51

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

Question 52

Formula for net cash flow

Answer 52

Cash in flows - cash out flows

Question 53

Define cash flow forecasting

Answer 53

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

Question 54

Formula for opening balance

Answer 54

Opening balance = closing balance of the previous year.

Question 55

Formula for closing balance

Answer 55

Net cash flow + opening balance