Finance

Question 1

Break even point formula

Answer 1

fixed costs/ (sales revenue- variable costs)

Question 2

Revenue formula

Answer 2

Quantity x selling price per unit

Question 3

Total costs formula

Answer 3

Fixed costs + variable costs

Question 4

Total variable costs formula

Answer 4

Quantity x variable cost per unit

Question 5

Gross profit formula

Answer 5

Revenue - Cost of sales

Question 6

Net profit formula

Answer 6

Gross profit - Expenses

Question 7

Gross profit margin

Answer 7

(gross profit / revenue) x 100

Question 8

Net profit margin formula

Answer 8

(Net profit / revenue) x100

Question 9

Average rate of return (ARR%) formula

Answer 9

(Average annual profit / cost of investment) x100

Question 10

Net cash flow formula

Answer 10

Total cash inflow - total cash outflow

Question 11

Margin of safety formula

Answer 11

Actual sales - break even point

Question 12

What is cash?

Answer 12

all money that comes into a business

Question 13

What is profit?

Answer 13

the money the business retains

Question 14

What are examples of internal sources of finance?

Answer 14

• personal or business savings
• retained profits
• selling fixed assets

Question 15

What are examples of external sources of finance?

Answer 15

• bank loans
• overdraft
• new partners
• owners’ capital
• trade credit
• government grants
• crowd funding
• retained profits

Question 16

What do cash flow forecasts do?

Answer 16

• helps firms to anticipate problems

Question 17

What are the 3 main reasons for poor cash flow?

Answer 17

• poor sales
• overtrading
• poor business decisions

Question 18

Average rate of return

Answer 18

Way of comparing the profitability of different choices over the expected life of an investment
formula: (average annual profit/ initial investment) x100

Question 19

What is a break even forecast

Answer 19

Helps businesses work out the point at which their revenues should match their costs

Question 20

Advantages of breakeven

Answer 20

• Shows how many products they need to sell to ensure a profit
• shows whether a product is worth selling or too risky
• shows the amount of revenue the business will make at each level of output

Question 21

Disadvantages of breakeven

Answer 21

• Breakeven Assumes a business will sell all of the stock (of a particular product) at the same price
• businesses can be unrealistic in their calculations
• they can be time consuming to create

Question 22

What is a cash flow forecast?

Answer 22

• involves predicting the future flow of cash in to and out of a businesses bank account

Question 23

Advantages of a cash flow forecast?

Answer 23

• Enables the business owners to spot and plan for potential cash gaps before they hit
• can allocate budget properly

Question 24

Disadvantages of cash flow forecast

Answer 24

• Mostly based on secondary data
• can’t predict the future with absolute certainty
• time consuming

Question 25

What is net cash flow?

Answer 25

-The difference between all the companies cash inflows and cash outflows in a given period

Question 26

what is crowd funding?

Answer 26

- involves a large number of people investing small amounts of money in a business, usually online

Question 27

What is expenditure?

Answer 27

- Purchases that benefit the business

Question 28

What does the finance function do?

Answer 28

- manages a business' finances + helps with decision-making - monitors change happening internally and externally and observes the impact these have on the businesses finances

Question 29

What is interest?

Answer 29

- money that is paid regularly at a particular percentage, usually when money has been lent or borrowed

Question 30

what is income?

Answer 30

the money or earnings that an individual or household receives regularly over a specific period

Question 31

what is liquidity?

Answer 31

the ability of a business to pay back its short-term debts

Question 32

what is a loan

Answer 32

a fixed amount of money that is given to a business by the bank that has to be repaid over time with interest

Question 33

What is a loss?

Answer 33

when you're spending more money than is coming in to the business

Question 34

What is the margin of safety

Answer 34

the amount sales can fall before the break-even

Question 35

What is negative cashflow

Answer 35

Occurs when there is more cash paid out by a business than the cash it receives

Question 36

What is net profit?

Answer 36

the difference between the amount of money received from selling goods and services and all of the costs incurred in order to make them

Question 37

Net profit margin definition

Answer 37

The proportion of sales revenue that is left once all costs have been paid

Question 38

Opening balance definition

Answer 38

the amount of money a business starts with at the beginning of the reporting period

Question 39

What is an overdraft?

Answer 39

a short-term source of finance that allows a business to spend more money than it has in its bank account, up to an agreed limit

Question 40

What is owners capital?

Answer 40

money invested by the owner of a business

Question 41

What is a positive cashflow?

Answer 41

more money is coming into the business than leaving it

Question 43

what is a profitability ratio?

Answer 43

measures the relationship between revenues and costs

Question 44

what is profit

Answer 44

any revenue left over after all the business' costs have been paid

Question 45

What is retained profits?

Answer 45

profit that has been made by the business in previous years that is then reinvested back into the company

Question 46

What is sale of assets?

Answer 46

when a business sells items that they no longer need and reinvest the money made back into the business

Question 47

What is share issue?

Answer 47

a procedure where companies pass on new shares to new or existing shareholders

Question 48

What is trade credit?

Answer 48

must be agreed with a supplier and forms a credit agreement with them. This source of finance allows a business to obtain raw materials and stock but pay for them at a later date

Question 49

Opening balance formula?

Answer 49

opening balance= closing balance of the previous period

Question 50

Closing balance formula?

Answer 50

net cash flow + opening balance

Question 51

Total variable costs formula

Answer 51

variable costs per unit x number of units

Question 52

Variable costs per unit formula

Answer 52

total variable costs/ number of units

Question 53

Average fixed cost formula

Answer 53

total fixed cost/ quantity produced

Question 54

Return of investment formula?

Answer 54

(net profit/ cost of investment) x 100

Question 55

Average annual profit formula

Answer 55

Total profit/ number of years

Question 56

What is a new partner for source of finance?

Answer 56

when an additional person or people are brought into the business as a new business partner. This means they would provide money to then own part of the business.