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business gcse > Finance > Flashcards

Finance Flashcards

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1
Q

What are internal sources of finance?

A

a source of money that comes from within the business

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2
Q

What is owner’s capital?

A

the money invested by the owner into their business

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3
Q

What is retained profit?

A

when a business makes profit, it can either leave some or all of its profit and use it to reinvest into the business to expand

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4
Q

What is selling assets?

A

involves selling products the business have, for example unused machinary

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5
Q

What are external sources of finance?

A

a source of money that comes from outside of the business

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6
Q

What is family and friends?

A

money obtained to a business from family or friends

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7
Q

What is a bank loan?

A

money that is given from a bank which then needs to be paid off often with interest over a certain period of time

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8
Q

What are overdrafts?

A

when a business decides to use more money than they currently have in their bank account

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9
Q

What is a venture capitalist and business angels?

A

refers to an individual or group of people who are willing to invets money into a new or growing business in return foran agreement to share the profits

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10
Q

What are new partners?

A

when a new person is added to a businessas a partner

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11
Q

What is share issue?

A

a business may sell more of their shares to raise money

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12
Q

What is a trade credit?

A

allows a business to obtain raw materials and stock but pay for them at a later date

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13
Q

What is leasing?

A

a way for a business to rent out machinary that they require by paying monthly upkeeping costs

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14
Q

What is hire purchase?

A

it is used to purchase an asset and are not owned until the business pays back all of the money they owe

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15
Q

What are government grants?

A

a fixed amount of money that is given by the governement to a business

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16
Q

advantages of owners capital

A

-quick and convinent
-no interest required
-doesn’t require a loan

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17
Q

disadvantages of owners capital

A

-the owners may not have enough money
-once the money is used, it is gone

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18
Q

advantages of retained profits

A

-quick and convinent
-easy to gain
-no interest

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19
Q

disadvantages of retained profits

A

-once the profits are used then they are gone and therefore there is no backup for future unexpected problems

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20
Q

advantages of selling assets

A

-can create space
-quick
-easy way to make money

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21
Q

disadvantages of selling assets

A

-might have to sell below the original purchase price
-may need in the future

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22
Q

advantages of family and friends

A

-low interest
-may not to be paid back

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23
Q

disadvantages of family and friends

A

-money may be lost
-can cause arguments

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24
Q

advantages of bank loans

A

-easy to get
-can obtain large amounts of money

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25
Q

disadvantages of bank loans

A

-pay interest
-hard to obtain for new businesses

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26
Q

advantages of overdrafts

A

-quick to access
-allows emergency purchases

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27
Q

disadvantages of overdrafts

A

-high interest rates
-only short term

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28
Q

advantages of venture capitalists and business angels

A

gain money quickly
potential to raise lots of money
-may offer advice and help

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29
Q

disadvantages of venture capitalists and business angels

A

-owner must give away part of their business
- may have contrasting views which could lead to conflicts

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30
Q

advantages of share issue

A

-can gain money quickly
-no interest

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31
Q

disadvantages of share issue

A

-give away part of business
-leaves the business to be open for takeover
- shareholders receive dividends

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32
Q

advantages of new partners

A

-easy way to gain money
-potential to raise huge amounts of finance
-offer advice and help

33
Q

disadvantages of new partners

A

-owner must give away part of the business
-may have different visions for the business

34
Q

advantages of trade credit

A

-access to supplies without immediate payment
- no interest

35
Q

disadvantages of trade credit

A

-short term
-small amounts

36
Q

advantages of leasing

A

-no large upfront payments
-leasing company pay for repairs and maintenance

37
Q

disadvantages of leasing

A

-can be expensive
-assets aren’t owned by the business

38
Q

advantages of hire purchase

A

-expensive assets can be purchased then paid back over time

39
Q

disadvantages of hire purchase

A

-interest
-equipment is not owned until all the money is paid off

40
Q

advantages of government grants

A

-does not need to be paid back
-available to small businesses

41
Q

disadvantages of government grants

A

-needs to meet certain criteria
-time consuming to complete paperwork

42
Q

What is revenue?

A

revenue is any money that a business makes from selling goods and services

43
Q

What are costs?

A

anything that a business pays for

44
Q

calculation for revenue

A

revenue = selling price x quantity sold

45
Q

what are fixed costs?

A

costs that do not change, no matter what the output for the business is

46
Q

what are variable costs?

A

costs that change depending on the output of a business

47
Q

equation for total costs

A

total costs = fixed costs + variable costs

48
Q

What is profit?

A

any revenue that is left after a business has paid all of its costs

49
Q

equation for profit

A

profit = revenue - total costs

50
Q

What is break even?

A

the point at which revenue and total costs are the same meaning that the business is making neither a profit or loss

51
Q

equation for contribution per unit

A

selling price per unit - variable costs per unit

52
Q

equation for break even point

A

break even point = fixed costs / contribution

53
Q

how to draw a break even chart?

A

step 1: fixed cost line
step 2: variable cost line
step 3: total cost line
step 4: total revenue line

54
Q

why is an increase in revenue positive?

A

if revenue increases, it is likely that profit will also increase

55
Q

why is a decrease in revenue bad for a business?

A

if revenue is decreasing then a business is at risk of not breaking even or having very low profit margins

56
Q

why are increasing costs bad for a business?

A

likely to reduce the business’ profit margins

57
Q

why are decreasing costs good for a business?

A

allows the business to access more profit as long as their quality remains the same

58
Q

ARR step 1 equation

A

average annual profit = total profit / number of years

59
Q

ARR step 2 equation

A

ARR = (average annual profit / cost of investment) x 100

60
Q

What does a profit and loss account show?

A

the revenue and costs of a business to work out if the business has made a profit

61
Q

Gross profit equation

A

gross profit = revenue - cost of sales

62
Q

Net profit equation

A

net profit = gross profit - expenses

63
Q

Gross profit margin equation

A

gross profit/sales revenue x 100

64
Q

Net profit margin equation

A

net profit/sales revenue x 100

65
Q

how can changing prices improve a business?

A

-by increasing their prices they can maintain the same level of demand after this they will make more profit
-by reducing prices more people could potentially buy their product or service

66
Q

how can reducing costs improve a business?

A

-reducing costs of raw materials would reduce cost of sales but could affect quality
-reducing labour costs by introducing technology
- reducing labour costs without rducing quality of product or service

67
Q
A
68
Q

What is meant by cash?

A

cash refers to the physical money a business has in note and coins along with any money it has in the bank

69
Q

What is cash flow?

A

cash flow is the movement of money in and out of a business over a period of time

70
Q

What is cash flow forecasting?

A

it involves predicting the future flow of cash in and out of a business’s bank account

71
Q

Equation for closing balance

A

Closing balance = net cash flow + opening balance

72
Q

Equation for net cash flow

A

net cash flow = cash inflows - cash outflows

73
Q

why are cash flow forecasts good for shareholders/owners?

A
  • they will be able to see whether the business is likely to succeed
  • can be used to make key business decisions
74
Q

how do cash flow forecasts help managers?

A
  • can impact the decisions they make
  • managers may have to work with owner to manage money
75
Q

how do cash flow forecasts help employees?

A
  • maya want to know the cash flow position of a business to see if their job is secure
76
Q

why are cash flow forecasts important for bank?

A
  • used to decide whether they should give out a loan or not
77
Q

how do cash flow forecasts help suppliers?

A
  • may want to know if a business is in a financially secure position before offering trade credit
78
Q

when could a business suffer with cash flow issues?

A
  • at start up when large amounts are invested
  • during rapid growth when the business is growing quickly but can’t keep up with the cash being paid out
  • a sudden drop in the level of demand
79
Q

how can a business improve their cash flow?

A
  • increase revenue
  • reduce costs
  • delay payments
  • extra funding

business gcse (6 decks)

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