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Business Studies > Finance > Flashcards

Finance Flashcards

1
Q

Why does a business need finance?

A

fund expansion, replace worn out assets

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2
Q

What is external source of finance?

A

raising funds from outside the business allowing them to raise larger amounts

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3
Q

What is an internal source of finance?

A

Raising funds within the business meaning they don’t need to pay high interest

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4
Q

What is an example of Internal sources for finance?

A

Owners capital
Retained profit
Selling unwanted assets

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5
Q

What is an example of external sources of finance?

A

Bank overdraft
Trade credit
Crowdfunding

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6
Q

What is retained profit?

A

When the business has worked out their profit they can decide wether to keep it or reinvest in the business

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7
Q

What are the advantages of retained profit?

A

A cheap form of finance
No interest
doesn’t reduce the ownership

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8
Q

What are drawbacks of retained profit?

A

Growth may be slow if it relies on retained profit

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9
Q

What is owners capital?

A

money that a entrepreneur has saved up

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10
Q

What are disadvantages of owners capital?

A

only available to businesses with profit

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11
Q

What are advantages of Owners Capital?

A

Cost effective
No need to repay money
not going to lose control

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12
Q

What is selling unwanted assets?

A

Selling spare land, buildings, machinery that are no longer needed by business

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13
Q

What is a Loan?

A

an amount of money borrowed for a set period with an agreed repayment schedule

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14
Q

What is an advantage to loans?

A

No loss in control
Repayments are spread out

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15
Q

What are disadvantages of loans?

A

May need to risk an asset as security
Interest must be paid on top of the loan

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16
Q

What is a bank overdraft?

A

A short term source of finance that is available to help fund the day to day payments required

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17
Q

What are the disadvantages of Over draft?

A

Interest is charged daily

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18
Q

What is a benefit of Overdraft?

A

can meet short term cash flow issues
business can continue trading
Interest is paid only on the amount borrowed

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19
Q

What does taking on a new partner mean?

A

contributes to finance to the business

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20
Q

What are benefits of taking on a new partner?

A

new fresh ideas and skills

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21
Q

What is a drawback of taking on a new partner?

A

they are entitled to a share of the company

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22
Q

What is a debtor?

A

They owe you

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23
Q

What is a creditor?

A

You owe them

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24
Q

What is a share issue?

A

small businesses can set up as limited companies and raise finance by selling shares

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25
Q

What are advantages of Share Issue?

A

There is no interest to be paid
Cost does not need to be repayed

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26
Q

What are Drawbacks of share issue?

A

loss of control
Need to satisfy shareholders expectations

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27
Q

What is trade credit?

A

a firms supplier allowing them to have the goods and pay them back later

28
Q

What are disadvantages of Trade Credit?

A

Difficult for new businesses
The goods must be paid for even if they don’t sell
Dangers of losing future arrangements if not paid in time

29
Q

What are the benefits of trade credit?

A

allows business to use the goods before they pay the suppliers
Helps when there is a shortage of funds
usually interest free

30
Q

How do you calculate revenue?

A

Selling price per unit x quantity sold

31
Q

What is revenue?

A

income gained by a business from selling goods and services

32
Q

What are costs?

A

the spending that occurs to set up and run a business

33
Q

What are fixed costs?

A

the costs that do not change with output

34
Q

What are variable costs?

A

costs which change as a result of change in output

35
Q

What is an example of variable costs?

A

Raw Materials
Wages
Electric/gas/water

36
Q

What is an example of Fixed Costs?

A

Rent
Business Rates
Salaries
Insurance

37
Q

What are peace rates?

A

changes on how much are produced

38
Q

How do you calculate the Total Costs?

A

Fixed Costs + Variable Costs

39
Q

What is profit?

A

The amount of money they made from a product

40
Q

How do you calculate profit?

A

Total Sales - Total Cost

41
Q

What is Gross profit?

A

the profit made before any operation expenses or interest has been deducted

42
Q

What is Net Profit?

A

Shows how much the business has left to reinvest

43
Q

How do you calculate Gross Profit?

A

total revenue - cost of sales

44
Q

How do you calculate Net Profit?

A

total revenue - cost of sales - other expenses

45
Q

How is a negative number written in finance?

A

in brackets

46
Q

How do you calculate the gross profit margin?

A

Gross profit
—————————— x100
Sales revenue

47
Q

How can you increase a businesses sales revenue?

A

Lowering the selling price may increase demand
Increasing prices if customers are prepared to pay it
Increasing assets of a product

48
Q

What are ways to improve a gross profit margin?

A

Increase sales revenue
lower cost of sales

49
Q

How to calculate the Net Profit Margin?

A

Net Profit
————————- x 100
Sales Revenue

50
Q

What is the Average Rate of Return?

A

a quantitative method of deciding wether an investment is worthwhile

51
Q

How do you calculate the ARR (Average Rate of Return)

A

Average Profit from investment
—————————————————– x100
Cost of the investment

52
Q

How do you calculate the Average Profit from Investment?

A

Add all numbers
Take away from initial investment
divide by the number of years

53
Q

What does it mean to break even?

A

the sales revenue is the same as the total costs

54
Q

How do you find the break even point on a graph?

A

Where the Sales revenue and Total Costs meet up

55
Q

How do you calculate the Break Even Point?

A

(Sales price - Variable costs)

56
Q

What is Cash flow?

A

the movement of money into and out of a business bank account

57
Q

What is Inflow?

A

The money that flows into a bank account e.g loans

58
Q

What are OutFlows?

A

the money that goes out of a bank account e.g wages

59
Q

What is Net Cash Flow?

A

The difference between the inflows and the outflows

60
Q

What is a cash flow forecast?

A

a financial document that shows the expected flow of money

61
Q

How do you calculate Total inflows?

A

investment + sales

62
Q

How do you calculate total outflows?

A

raw materials + wages + marketing + set up costs

63
Q

How do you calculate Net Cash Flow?

A

total inflows - total outflows

64
Q

How do you calculate Opening balance?

A

previous months closing balance carried over

65
Q

How do you calculate Closing Balance?

A

Opening balance + Cash Flow

Business Studies (6 decks)

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