Finance 💚

Question 1

Start-up finance (5)

Answer 1

Government grants = don’t have to be repaid
Trade credit = giving time to pay for purchases
Overdrafts = use more than in your account, has to be paid back
Loans = money taken from the bank that has to be paid back
Hire purchases = paying deposit then paying the rest in instalments

Question 2

Internal/external finance

Answer 2

Internal = personal savings, retained profits, selling assets
External = loans, trade credit, government grants

Question 3

Four factors affecting choice of finance

Answer 3

Type of company
Amount of money needed
Length of time
Cost of finance

Question 4

Investments (3)

Answer 4

New machinery
New buildings
New vehicles

Question 5

Break-even analysis + -

Answer 5

+ easy to work out
+ it’s quick
+ help get loans
- assumes there’s no waste
- if data is incorrect analysis is incorrect
- only shows what needs to be sold not what will be sold

Question 6

Three reasons for poor cash flow

Answer 6

Poor sales = lack of demand
Overtrading = takes on too many orders
Poor business decisions

Question 7

Three parts to an income statement

Answer 7

Trading account = records revenue, cost of sales, gross profit
Profit/loss account = records indirect costs
Appropriation account = records where profit has gone

Question 8

Gross/net profit margin equation

Answer 8

Gross = gross profit / sales x 100
Net = net profit / sales x 100