Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business > Finance > Flashcards

Finance Flashcards

1
Q

Why do new businesses need to raise finance? (4)

A

Renting or buying a building
Buying a vehicle
Advertising the business
Equipment and machinery for the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why would an established business need to raise finance?

A

To expand
To improve efficiency
To develop new products

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Internal sources of finance? (4)

A

Owners’ funds
Sale of unwanted assets
Trade credit
Retained profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

External sources of finance? (4)

A

Bank loans and mortgages
Family and friends
Overdrafts
Government Grants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is an internal source of finance?

A

Money available from within a business.
Business doesn’t face possibly high interest rates.
Banks won’t have a say on how a business is run.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are owners funds?

A

Money put into the business by its owner/owners.
These are beneficial for sole traders or partnerships as they can’t sell shares to raise money.
NO INTEREST RATES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are retained profits?

A

Profit made by a business in the early years.
NO INTEREST RATES AS IT IS NOT BORROWING MONEY

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Disadvantage of retained profits?

A

A business’ shareholders may be disappointed if profit is kept within the business and is not paid to them as dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is an asset?

A

Something owned by a business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What 2 ways can assets be sold?

A

Selling assets such as buildings for cash
Selling an asset then leasing it back so that it is still available for use.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Disadvantage of selling assets?

A

The business may need it later. If it sells the asset and leases it back, the business will have to pay a sum of money regularly to the new owner.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is trade credit?

A

A period of time which suppliers allow customers before payment for suppliers must be made.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is an external source of finance?

A

Money that comes from outside the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Advantage and disadvantage of external sources of finance?

A

Can raise large sums of finance.
Heavy interest charges.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a bank loan?

A

Interest charged.
Rigid schedule for repayment
Low interest rates and very reliable.
The bank gives a large sum of money in return for the business agreeing to repay the amount in instalments over the next few years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Disadvantage of bank loans?

A

Bank may ask for a collateral (an asset the bank holds as security for the repayment of the loan).
- More likely asked to new businesses as they represent a greater risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a mortgage?

A

A loan used to buy buildings.
Normally paid back over a long period of time e.g 30 years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is an overdraft?

A

A flexible loan that businesses can use whenever necessary up to an agreed limit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Disadvantage of an overdraft?

A

Bank may charge very high rates of interest.
Bank may not agree to grant an overdraft.
A bank may withdraw a business’ overdraft with little notice.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are new share issues?

A

Shares are sold in return for a payment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Disadvantage of new share issues?

A

If the business sells a large quantity of shares, it may mean that the new shareholders will have enough shares to take control of the business from the current owners. The new shareholders will also expect dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Advantages of family/friends?

A

High chance there is no interest rates.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Disadvantage of family/friends?

A

May not be able to give enough money and may need it returned suddenly.

24
Q

What is hire purchase?

A

Purchasing assets and selling them in instalments.
Can’t raise large amounts of money from this.

25
Q

What are government grants?

A

Money given by the government in exchange for them operating in a certain place or way.
They can be difficult to obtain.
Most grants do not need to be repaid and don’t lead to any interest payments.

26
Q

Factors influencing the choice of sources of finance? (3)

A

Amount of personal finance available.
The amount of finance needed.
The business’ profitability.

27
Q

What is cash flow?

A

Money entering and exiting a business.
If cashflow is positive, the business has the funds available to operate.
If cashflow is negative, they may not be able to pay their debts or be able to afford stock.

28
Q

3 solutions to negative cash flow?

A

Cutting costs
Increasing sales
New sources of finance

29
Q

How do businesses get cash inflows? (3)

A

Income from sales
Loans from banks
Money invested by the business’ owners.

30
Q

How do businesses get cash outflows? (4)

A

Buying raw materials
Wages
Rent or Mortgage
Taxes

31
Q

What is a cash flow forecast?

A

A plan of the expected inflows and outflows to and from a business over a period of time.

32
Q

What is a cash flow statement?

A

A record of the cash inflows and outflows that took place over an earlier period of time.

33
Q

Benefits of cash flow forecasts?

A

Managers can identify times where the business may be short of cash.

34
Q

Causes of cash flow problems?

A

Poor management - not employing specialist managers of finance.

Business is making a loss - when the production costs are greater than the revenue it receives from sales.

Offering customers too long to pay (trade credit)

35
Q

2 things a manager will consider before solving cash flow problems?

A

The cause of the cash flow problem - e.g if its because the customers are taking too long to pay, reduce the amount of trade credit offered. Maybe switch to an overdraft but there will be high interest rates.

The business’ circumstances - if the business is new to the market they’ll need very generous trade credit to attract customers. Maybe switch to an overdraft.

36
Q

Difference between cash flow and profit?

A

Cash flow is the way money moves through a business.
Profits are when the business’ revenue exceeds its total costs over a period of time.

37
Q

What is revenue?

A

The income the business receives from selling its products.

38
Q

What are sales?

A

Number of products sold by a business over some time period.

39
Q

What are fixed costs?

A

Costs that don’t alter e.g rent.

40
Q

What are variable costs?

A

Costs that vary directly with the business’ level of output e.g raw materials/wages.

41
Q

What is average rate of return?

A

The average amount of profit made from an investment as a percentage of the initial cost.

42
Q

What is break even?

A

The level of production at which a business’ total costs and revenue from sales are equal.

43
Q

What is a break even chart?

A

It shows a business’ costs and revenues and the level of production needed to break even.

44
Q

What is the margin of safety?

A

How many more sales are being made than necessary to break even.

45
Q

What are break even charts used for?

A

Helps managers analyse the business’ future financial performance.

46
Q

2 Advantages of break even analysis?

A
  • Shows the effects of changes in price, they can check whether a change in price leads to a loss or a profit.
  • Banks are more likely to give a loan if they can see evidence of planning future finances.
47
Q

2 Disadvantages of break even analysis?

A
  • It assumes that a business will sell all of the output it produces.
  • In many markets, costs and prices change rapidly and frequently, thus break even charts can be inaccurate.
48
Q

What is an income statement?

A

A financial statement showing a business’ revenue and costs and thus its profit or loss over a period of time.

49
Q

What is a balance sheet?

A

Sets out the assets and liabilities that a business has on a particular day.

50
Q

Why do businesses need an income statement and a balance sheet?

A
  • Required by the law, if a company fails to provide one they could be fined.
  • Helps the business’s managers make decisions.
  • Guides investors, it gives a lot of information to people who want to invest in the business.
51
Q

Components of income statements?

A

Revenue earned by the business
Costs of production that have been paid by the business.
Profit earned or loss made

52
Q

What is a liabilty?

A

A sum of money owed by a business to another business or an individual.

53
Q

What is a non current asset?

A

Business keeps these for many years e.g shops and vehicles. They create revenue and enable it to earn profits.

54
Q

What are current assets?

A

Assets that a business expects to have for a short time e.g inventories of raw materials.

55
Q

What are non current liabilities?

A

Debts that are paid back over many years e.g mortgages.

56
Q

What are current liabilities?

A

Debts that a business will pay back within a year e.g money owed to suppliers.

57
Q

How can businesses judge their profits?

A

Comparing profits with previous years.

Business (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions