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Nat 5 Business Management > Finance > Flashcards

Finance Flashcards

1
Q

Sources of finance (4)

A

-bank overdraft
- grant
-bank loan
-mortgage

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2
Q

Bank loan

A

Money borrowed from the bank which is paid back with interest in instalments

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3
Q

Grant

A

Money secured from the government, which has conditions attached. it doesn’t need to be paid back

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4
Q

Mortgage

A

This is a long-term loan which is secured against the property or land

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5
Q

Bank overdraft

A

A facilitate at the bank to overdraw on your account, usually for less than a year

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6
Q

Adv of bank overdraft

A

Can be agreed in advance

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7
Q

Adv of bank loan

A

Budgeting and planning is easier as repayments are made in regular fixed instalments

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8
Q

Adv of mortgage

A

The business is given a long period of time (approximately 25 years) to repay the mortgage

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9
Q

Adv of grant

A

The grant does not need to be repaided

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10
Q

Disadvantage of bank overdraft

A

This facility may incur a charge to setup and interest rates can be quite high

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11
Q

Disadvantage of bank loan (2)

A

Monthly payments must be made on time. The amount borrowed has to be repaid with interest. This could be expensive

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12
Q

Disadvantage of mortgage

A

Interest has to be paid each month

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13
Q

Disadvantage of grant

A

In order to secure a grant the business must meet certain criteria e.g. employing staff from local area.
Grants can be difficult to obtain.

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14
Q

Fixed costs

A

Costs that always stay the same, no matter how many units of products are made

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15
Q

Variable costs

A

Costs that change depending on how many units of a product are made.

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16
Q

Equation of total cost

A

Fixed cost + Variable cost

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17
Q

Variable costs equation

A

Total costs - fixed costs

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18
Q

Total revenue equation

A

Selling price x units sold

19
Q

To calculate a profit

A

Profit = Total revenue - Total Costs

20
Q

Break even point

A

This is the point where the business is making neither a profit nor a loss, when sales revenue is equal to its total costs

21
Q

What do business spend cash on? (3)

A
  • wages
  • electricity
  • raw materials
22
Q

How can cash flow problem be resolved (6)

A
  • cheaper supplies of raw materials
  • offering discounts to customers
  • taking out bank loans
  • selling equipment or machinery
  • spreading purchase costs
  • tight stock control
23
Q

Cash budgets

A

Contains a list of cash the business expects to receive and the cash expected to be paid out of the business over a period of time

24
Q

The benefits of preparing a cash project (6)

A
  • it shows id the business has a surplus
  • if shops if the business will have a deficit
  • it can show if addictional finance is required
  • It can help control expenses by highlighting periods when expenses could be high.
  • It can allow action to be taken to avoid a deficit; for example, leasing a van rather than purchasing it, or postponing a purchase.
  • It can help in making decisions.
25
How do businesses generate cash
Businesses generate cash by buying and selling goods and/or services. Efficient cash budgeting is crucial to the success of the organisation.
26
Purpose of an income statement (3)
1. Calculate gross profit and profit of the year 2. Calculate how much tax is to be paid 3. Help make decisions e.g. reducing expenses
27
What is gross profit
The profit from buying and selling stock.
28
What is profit of the year
The profit after subtracting expenses.
29
What is sales
The amount of money received from customers in buying businesses product.
30
Cost of sales
How much the business is paid for the goods that it has sold to achieve the sales figure.
31
What is expenses
Other costs the business has to pay, such as wages, delivery, telephone, advertising etc.
32
Reason 0for profit loss in a cash budget (4)
1. Selling price of stock is too low 2. Purchase price of stock is too high 3. Too much stock left over at the end of the year 4. Expenses are too high
33
Action to be taken to fix selling price of stock is too low
Increase selling price, but dont make it too higher the business will lose customers and sales will, therefore, fall.
34
Action to be taken to fix selling price of stock is too high
Look for a cheaper supplier, but do not sacrifice on quality , or the business will lose customers and sales willl, therefore, fall.
35
Action to be taken to fix too much stock left over at the end of the year
The business should undertake market research to ensure that they are purchasing stock that is popular with their customers
36
Action to be taken to fix expenses being too high
Find ways to control expenses- for example encourage to limit phone calls and use emails instead, switch pff lights or heaters when they are not required and find more cost-effective ways to promote and advertise products
37
What are the types of technology used in finance (5)
- Spreadsheets - Online Banking - EPOS - Email - Presentation Software
38
What is a spreadsheet
Spreadhseet are used to record and edit numerical information
39
What can spread sheets be used for (4)
- record cost information and calculate break-even point - prepare cash budgets - calculate profits - create graphs
40
Advantages of using a spreadsheet (4)
- less chance of errors as formulae’s can carry out automatic calculations - businesses can easily see the effect changes will have e.g. changing figure in cash budgets will allow them to see the effect on the closing balance quickly . - what if scenarios can be created, to help managers make decisions - charts can be created to make figures more easily understood.
41
What is a presentation software
Such as power point can be used to engage the audience when presenting information through the use of animations and colour. For example profit figure could be shown in charts,
42
What is an email
Emails can be used to circulate information quickly e.g. next years departmental budget, issuing invoices
43
What is Online banking
Also know as internet banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions though the financial institutions website. An overdraft could be set up without travelling to the branch
44
What is EPOS
EPOS is a computerised system, which may include devices such as barcode readers, scanners, and touchscreens, it is used by the Finance Department to assist with the accounting as it can produce reports in the financial transactions of the business.

Nat 5 Business Management (3 decks)

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