Finance Flashcards
reasons we need finance:
. recruitment
. fund expansion
. run the business
A & D of owners capital
A - no need to repay money (keeps costs low and profit high)
D - owner wont have enough for their personal life
A & D of retained profit
A - no need to repay the money (keeps costs low and profit high)
D - only available for established business that has made profit
A & D of sales of assets
A - good if asset is no longer in use
D - may not be able to find buyer
A & D of overdraft
A - can help with short term cash flow problems
D - interest is charged on a daily basis (can be expensive)
A & D of trade credit
A - allows to sell product and make profit before needing to pay suppliers
D - goods must be paid for even if there is no profit made
A & D of taking on a new partner
A - new skills
D - shared profits
A & D of a loan
A - repayment is spread overtime
D - interest needs to be paid
A & D of share issue
A - finance can be made from many investors
D - dividend needs to be paid to share holders
A & D of crowdfunding
A - lots of money can be raised by contributors
D - no guarantee of getting any money
what is sales revenue and what is the formula for it?
sales revenue is the money a business gets for selling its goods or service. SR = quantity * price
ways to increase sales revenue?
- increase selling price
- decrease selling price and increase quantity
- increase quantity
what is fixed and variable costs?
- fixed costs is costs of the business that doesn’t change as the business changes (rent, insurance)
- variable costs are costs that change as a business changes (packaging, ingredients)
how to work out GROSS PROFIT MARGIN?
(profit/ revenue)*100
what is gross profit?
just the profit made (REVENUE - VARIABLE COST)
how to work out NET PROFIT MARGIN
(net profit/ revenue)*100
what is net profit ?
(gross profit - costs of running business)
how to calculate ARR
- calc all profits
- calc anual profit
- anual profit / investment * 100
What is breakeven ?
when a business sells just enough so its total sales equals its total revenue.
formula for breakeven
fc/ price - vc
A and D of breakeven
A - helps work out weather forecast sales will be enough for a profit.
D - can only be used if all products are sold for the same price
what is cash flow
amount of income and expenditure at any one time
what is positive cash flow?
more money going in than coming out in a period of time
what is negative cash flow ?
more money going out than coming in in a period of time
net cash flow formula
inflow - outflow
how can break even be used to level output?
it identifies when total costs equal total revenue to be able to set a margin of safety.
to set sales target
limitations to using break even
Break even is an estimate and it is assumed that all products are sold the same. costs can change.
factors affecting revenue?
num of competitors
level of output
