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Higher Business > Finance > Flashcards

Finance Flashcards

1
Q

What are the 12 sources of finance

A

Bank loan
Mortgage
Bank overdraft
Share issue
Grant
Hire purchase
Debt factoring
Crowd funding
Sale of assets
Retained profit
Venture capital
Debentures

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2
Q

bank loan
2 adv 1 disadv

A

finance borrowed from the bankand repaid with interest

+can be repaid in instalments
+can be received quickly with minimum paperwork

-repaid with interest

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3
Q

commercial mortgage
2 adv 2 disadv

A

finance borrowed from the bank to purchase property

+large amounts can be raised
+long repayment time so more affordable

-property is secured against the loan
-interest applied

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4
Q

bank overdraft
1 adv 2 disadv

A

an agreement to use more money than you have in your account

+easy to organise in app or over the phone

-only available for small sums of money
-interest is chaarged daily- expensive borrowing

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5
Q

share issue
2 adv 2 disadv

A

selling part ownership by inviting shareholders or advertising on stock market
+no interest or repayments
+large amounts raised

-dilutes ownership- votes at AGM
-profits have to be shared/ dividends paid

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6
Q

grant
1 adv 2 disadv

A

finance from the government that does not need to be repaid

+does not need repaid

-time consuming due to amount of paperwork required
-criteria needs to be met

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7
Q

leasing
2 adv 3 disadv

A

when a company rents an asset e.g equipment or property

+no cash outlay- just monthly rental fee
+landlord wll be responsible for maintenance

-asset is never ownede
-may cost more in the long term
-high termination fees to edn contract early

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8
Q

hire purchase
1 adv 2 disadv

A

buyinh an asset and paying in monthly instalments

+spreads cost over time- helps cash flow

-asset not towned until final payment
-high interest added to payments

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9
Q

debt factoring
2 adv 1 disadv

A

selling the value of your invoices/ debts to a debt factoring company

+reduces the chance of ‘bad debts’
+time and effort saved from unpaid bills

-loss of finance as debt is sold for less than original value

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10
Q

crowd funding
2 adv 2 disadv

A

involves getting small amounts if finance from a large group of people usually on the internet or social media

+access to large amout of investors worldwide
+can be fast to raise finance due to social media/ instant donations

-a public request for investments means competitors could copy ideas
-if target not reached, money will need to be returned

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11
Q

sale of assets
1 adv 2 disadv

A

selling of any assets e.g equipment that is no longer required (internal source)

+no debt or interest payments incurred

-could take tine to sell so not useful for cash flow
-asset will ne sold at less than price when purchased

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12
Q

retained proft
3 adv 1 disadv

A

reinvestment of profits made in previous year (internal source)

+does not need repaid
+no debt incurred
+no interest payments

-limited amount may be available

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13
Q

venture capital
2 adv 1 disadv

A

when an investor provides money to a startup or expanding business that others see as risky

+capital can be gained
+specialist knowledge/ contacts can be given by the investor

  • equity stake gained by investor meaning share of profits and say in the business
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14
Q

debentures
2 adv 1 disadv

A

long term loans paid on specific date that are sold on the stock market

+large amounts can be raised
+holders are creditors and not owners so control of business not lost

-a fixed rate of interest is paid annually- regardless of profits

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15
Q

7 purposes of an income statement

A

TO COMPARE TO PREVIOUS YEAR- to help make decisions on how to improve

FOR TAX PURPOSES- to calculate corporation tax due to the government

CALCULATE PROFIT FOR THE YEAR- to make decisions on how it will be appropriated

CALCULATE GROSS PROFIT- to show how effective sales and manufacturing costs are

CALCULATE COST OF SALES- to make decisions on mark up

CALCULATE TOTAL EXPENSES- to see how much the firm is spending on overheads

CALCULATE SALES- to show the income being made selling goods

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16
Q

what is sales revenue

A

the value of money received from selling goods and services

17
Q

what is cost of sales

A

amount spent on purchases and selling goods
(opening inventory + purchases- closing inventory)

18
Q

what is gross profit

A

profit made from buyiing materials and selling goods
(sales revenue - cost of sales)

19
Q

what are expenses

A

running costs and overheads e.g wages, advertising, rent, electricity, gas etc.

20
Q

what is profit for the year

A

final profit which can be appropriated as dividends or reinvested
(gross profit- expenses)

21
Q

How do you calculate gross profit

A

Sales revenue less (-) cost of sales

22
Q

How do you calculate profit for the year

A

Gross profit less (-) less expenses

23
Q

Profitability ratios

A

These show how profitable a firm is. Nearly all of the figures come from the income statement

24
Q

Gross profit percentage

A

For every £1 of sales revenue many pence of gross profit is made, calculated by dividing gross profit by sales revenue and multiplying by 100

25
Q

profit for the year percentage

A

for every £1 of sales revenue, how many pence proft for the year. profit for the year/ sales revenue x100

26
Q

Return on equity employed (ROEE)

A

Shows shareholders return on investment, for every £1 invested how many pence returned. Calculated by dividing PFTY by opening equity and multiplying by 100

27
Q

5 ways to improve gross profit percentage

A
  • increase selling price
  • find a cheaper supplier
  • negotiate cheaper price with current supplier
  • buy raw materials in bulk to receive bulk buying discount
  • start promotion to encourage more sales
28
Q

2 ways to improve profit for the year percentage

A
  • improved expense control e.g finding cheaper utility suppliers, reducing overtime
  • any action that improves gross profit
29
Q

2 ways to improve return on equity employed

A
  • increase gross profit
  • reduce expenses to increase PFTY
30
Q

8 users of financial info and how they use it

A

Lenders (bank)- to determine whether to lend finance by checking the liquidity of the statement of financial position

Employees- to check profitability to see if they are being paid fairly. Is their job secure?

Government- to calculate tax by using the income statement (HMRC) (has correct tax been paid)

Owner (shareholders)- will use the ROEE ratio to see the level of returns expected, and compare it to other investments

Suppliers- to check liquidity to ensure that payment can be made for inventory supplied.

Competitors- to make comparisons to assess their position against competitors

Financial journalists- to write articles about company performance in national newspapers

Trade unions- to assess if members are paid fairly

Higher Business (5 decks)

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