Finance Flashcards
What is revenue
Income that a business receives from selling it’s goods and services
Explain fixed costs
These are costs, such as rent and insurance, which do not change when the level of output or production alters. They remain the same, regardless of the level of production.
Explain variable costs
Examples of these costs include wages and expenditure on fuel and raw materials. They rise directly with the level of output, so if output or production increases, variable costs increase to.
What is sources of finance
A means of raising funds that are needed by a business for purposes such as expansion.
What is raising finance
The process of getting the money needed, for examples to start or expand a business.
What is an asset and examples of
Something that is an owned by a business, such as land, buildings, vehicles and machinery.
Why would new businesses need to raise finance
To buy assets needed to operate the business, such as property, machinery and vehicles
To pay for promotion(for example, advertising) that will be essential to let consumers know about the business and its products.
To buy raw materials, fuel and components that will be needed for the business to start trading .
Why would an existing business need to raise finance
To buy assets such as raw materials, components and machinery to allow the business to increase sales and to grow.
To invest in developing new products and promoting these products to customers.
To make the business more efficient, possibly by buying production line technology or training employees.
What is internal source of finance and examples
Money that is available within the business, for example retained profits from previous years.
What are three internal sources of finance
Retained profits
Trade credit
Selling assets
Advantages and disadvantages of retained profit
Advantage - avoids paying interest on loans
Disadvantage-only available to profitable businesses, owners receive less of the profits
Advantages and disadvantages of trade credit
Advantage - a free source of finance
Disadvantage - this finance is usually only available for 90 days
Advantages and disadvantages of selling assets
Advantages - money may be available quickly, avoids interest charge
Disadvantage - assets not available to business in the future, sale and lease back requires future payments to use the asset
What are retained profits
The part of the business’s annual profits which is kept within the business to finance future investments
What is trade credit
A period of time which suppliers allow customers before payment for suppliers must be made.
What is an external source of finance and example
Refers to money outside the business, for example, a loan from a bank
What is a share issue
When a company sells additional shares in the business to raise finance
What are six external sources of finance
Family and friends
A new share issue
Loans and mortgages
Overdrafts
Hire purchase
Government grants
What is a loan
An amount of Money provided to a business for a stated purpose in return for regular payments, including interest charges. Usually lent over a short period of time, for example 5 years
What is a mortgage
A loan from a bank or building society that is used to buy land and buildings such as an office or shop. Usually lent over a long period for time, for example 25 years.
What is overdraft
A flexible loan which businesses can use, whenever necessary, up to an agreed limit
What is hire purchase
A source of finance under which business pay for assets by making an initial payment and then paying instalments over time.
What is a government grant
A sum of money given to an entrepreneur or business by the government for a specific purpose