finance Flashcards
Describe one advantage and one disadvantage of the following sources of finance to an organisation: (6 Marks) 2013S2Q3b • Bank loan • Grant • Issuing Shares Describe one advantage and one disadvantage of the following sources of finance to an organisation: (6 Marks) 2013S2Q3b • Bank loan • Grant • Issuing Shares
Bank Loan \+ Can be paid back in instalments - Interest will be charged Grant \+ Does not need to be repaid - Must adhere to the conditions set Issuing Shares \+ Can generate large sums \+ dividend only payable if profits are made - Cost of issuing shares can be very high - Spreading control of the organisation
Identify 2 sources of finance available to an organisation when looking to expand.(2 Marks)
(Bank) loan. Take on a partner. Issue shares. Issue debentures. Mortgage premises. Retained profits. Grants (from government, the EU, LECs or Prince’s Trust etc) Leasing. Hire purchase.
Explain one advantage and one disadvantage for each source identified above in (i). (4 Marks
Bank Loan
+ Can be paid back in instalments thereby spreading payments over a long period of time.
- Higher interest will be charged if deemed to be of higher risk.
Partner
+ Introduces more finance that does not need to be repaid.
+ Brings extra expertise which may make them more efficient.
- Sharing control over the organisation which may make decision-making harder/more time consuming.
- Profits having to be shared …
Issue Shares
+ Can generate large sum which does not need to be repaid.
+ Shareholders only get an annual dividend which is payable only if profits are made.
- Cost of issuing shares can be very high and thereby prohibitive.
- Spreading control of the organisation which means there will be more people having a say in decisions.
Issue Debentures
+ Only need to pay an annual interest charge over period of loan.
The capital is not repaid until the end − smaller payments.
- Interest must be paid even if a loss is made.
Mortgage
+ Can be paid back in instalments over a period of time thereby spreading payments.
- Due to paying mortgage over a very long period of time, interest charges are very high.
Retained Profit
+ Does not need to be repaid as the money belongs to the organisation.
+ No loss of control of business if not taking on other owners.
- If only small amounts being made, then may take a long time to generate enough.
Grant
+ Does not need to be repaid thereby saving money.
- Must adhere to the conditions set with the grant otherwise may have to repay it.
Leasing
+ Frees up capital to be spent on other things.
+ Easier to change equipment when it becomes obsolete.
- Business never owns the equipment …
- Renting over a long period of time can work out more expensive than purchasing.
Hire Purchase
+ Cost is spread over a long period of time …
- Good is never owned until the last instalment is made.
Outline possible solutions to cash flow problems that may have been identified in an organisation. (3 Marks)
•Offering discounts and promotions (to encourage sales) – max 1 for methods of increasing sales
• Sell off fixed assets
• Encourage customers to pay bills swiftly
• Reduce wage bill
• Reduce expenses eg electricity (max 1)
• Arrange longer credit periods with suppliers
• Seek out other sources of finance – overdraft/loan
• Ask the owner to take less drawings
• Find a cheaper supplier for raw materials
• Spread payments of purchase of fixed assets
Do not accept – Fire employees
Other than job losses through branch closures, suggest 2 ways the business could cut costs. (2 Marks)
- Reduce electricity costs.
- Reduce marketing costs.
- Reduce phone calls.
- Reduce opening hours.
- Switch to a cheaper supplier for stationery.
- Reduce interest rates given to savers.
- Move to cheaper premises.
- Reduce over time/reducing hours/change contract.
- Restructuring/delayering/outsourcing.
77 Suggest 3 possible causes of a Cash Budget Deficit for a business. (3 Marks)
- Debtors taking too long to pay.
- Creditors reducing credit period.
- Expenses costs too high (max 1 for expenses).
- Sales falling.
- Poor planning/estimating.
- Failing to take account of External Factors.
- Drawings too high.
- Purchasing items all at once rather than paying in instalments.
Identify 3 causes of cash flow problems. (3 Marks
- Poor sales.
- Too much money tied up in stock.
- Allowing customers too much credit.
- Allowing customers too long to pay.
- Borrowing too much money at high interest rates.
- Owners taking too much drawings.
- Purchase of large items outright.
- Expenses too high.
Other than the Balance Sheet, identify and describe a financial statement that a business would prepare for helping with the finance. (2 Marks)
Trading Account – profit made on trading activities/buying & selling goods/Gross profit.
Profit & Loss Account – Expenses of the business are deducted to find the profit the business has made/Net Profit.
Cash Budget – plan of the incoming and outgoings of the business are given to find the cash surplus and deficits each month.
Cashflow statement – the summary of cash inflows and outflows over a period of time.
Identify different types of ICT that could be used in the finance department of an organisation. (3 marks)
- Internet
- Word processor
- Spreadsheet
- Database
- Network
- Mobile phone
Describe a possible use, in the finance department, for each type of ICT identified
in (e)(i) above
Email
• To contact Head Office to give weekly financial figures eg sales revenue
Internet
• To research information on new taxation rates
Word processor
• To create letters to send to customers to tell them their accounts are overdue
Spreadsheet
• To calculate the monthly wages
• To calculate the annual profit and loss
Database
• To keep staff records on personal allowance, tax codes etc
Network
• To allow all finance department staff to access the same files regardless of their location in the organisation eg cash budgets
Mobile Phone
• To check current value of stocks and shares held by the organisation
Identify 4 different types of ICT that could be used by a Human Resources department.(4 marks)
- Video Conferencing
- Internet/E-commerce
- Intranet
- Ediary
- Networks
- Word Processor/MS Word
- Database/MS Access
- Presentation Packages
- Mobile/Smart Phone Apps
Describe ways that the Human Resources department could use each type of ICT identified in 5a(i).
(4 Marks
(A different use must be given for each type).
Video Conferencing
• To carry out training across branches in different areas.
Internet
• To place job adverts online.
Intranet
• To put dates of training meetings on to give to staff.
Email
• To notify staff when their annual appraisal is taking place.
Ediary
• To arrange a meeting between department managers regarding Health and Safety.
Networks
• To place the organisation staff absence policies into a shared area for all to use.
Word Processor
• To key in job adverts.
• To key in letters of interview to candidates for a job.
Database
• To store staff details.
Presentation Packages
• To create a presentation to staff on the new staff development programme.
Give 2 advantages an entrepreneur would gain from using a spreadsheet to prepare
financial information. (2 Marks)
- Calculations can be performed using formulas.
- Information can be saved and used again.
- Standard layouts can be used.
- Graphs can be prepared from the information.
- “If statements” can be used.
- Can be exported into other packages eg word processing.
