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GCSE Business Studies - OCR > Finance > Flashcards

Finance Flashcards

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1
Q

What is internal finance?

A

Where the money is already in the business (therefore no cost) but has an opportunity cost

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2
Q

What is external finance?

A

Where finance is sourced outside of the business, it usually costs in interest and security is required so that it can be repossessed if the loan isn’t paid back

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3
Q

What is an opportunity cost?

A

Where the business has to choose in between 2 options of what to spend there money on as they can’t spen it on both

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4
Q

What is short term finance?

A

Up to 12 months

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5
Q

What is medium term finance?

A

1-3 years

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6
Q

What is long term finance?

A

3+ years

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7
Q

What is a share issue?

A

Where companies raise finance by trading finance for a share

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8
Q

What is retained profit?

A

Where profit is made and held back to pay for things like equipment

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9
Q

What is hire purchase?

A

Where a business will pay monthly for something they need (interest will be added) it won’t be theirs until final payment is made

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10
Q

What is cash flow?

A

The amount of money being transferred in and out of a company

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11
Q

What is cash flow forecast?

A

Where business try to predict its income and expenditure

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12
Q

What is the balance being carried forward to the next month?

A

The difference between the total income and total expenditure

The closing balance for one month becomes the opening balance for the next

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13
Q

What is negative cash flow?

A

Where the total expenditure > total income

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14
Q

What happens if the balance being bought forward is negative?

A

It will be subtracted from the next months total income

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15
Q

How many months is a forecast of negative cash flow bad?

A

A few consecutive months

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16
Q

Can businesses fail even if they make a profit?

A

Yes because they will have run out of money

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17
Q

Is having a negative cash flow bad for a business?

A

Not necessarily as it may mean that the flow of money in is

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18
Q

Why do businesses forecast cash flow?

A

So they can identify the months in which they will be short of cash and the forecast helps them to prepare / find solution

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19
Q

Which cash flow forecasts are more actuate?

A

Short term

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20
Q

Why aren’t long term cash flow forecasts accurate ?

A

The prices of goods may change, new competitors may enter the market etc

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21
Q

How can businesses avoid incorrect forecasting made by long term forecasting ?

A

Updating their forecasts at regular intervals

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22
Q

Can good cash flows still have low profit?

A

Yes

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23
Q

What is sales revenue?

A

The income from the sale of good also known as NET sales

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24
Q

What is gross profit?

A

The profit made after deduction of variable costs

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25
Q

What is net profit?

A

The actual profit after all costs are deducted

26
Q

How do you calculate sales revenue and gross profit?

A
  1. Income from sales - total costs

2. Revenue - variable costs

27
Q

Why is profit important?

A

It is a return on investments (investment + profit )

It is a reward for risk taking

Retained profits used for investment

Can be used for dividends to shareholders

28
Q

What is a dividend?

A

A lump of money per share (only applies to public limited companies)

29
Q

What is VAT?

A

The tax on purchase price, in the UK it is 20% and is paid at the last stage (retail point)

30
Q

What products don’t have VAT?

A

Most essential food products and children’s clothing

31
Q

What happens to the money collected from VAT?

A

It goes to the government

32
Q

What are fixed costs?

A

Costs which don’t change with output such as rent

33
Q

What are variable costs?

A

Costs which do change with output such as the average cost per product

34
Q

How do you calculate average cost?

A

Total cost / amount sold

35
Q

What are some examples of fixed costs?

A

Rent
Electricity
Salaried staff
Insurance

36
Q

What are some examples of material costs?

A

Flour for cupcakes
Hourly staff
Bonus payments

37
Q

Why do businesses manage costs?

A

So that they don’t end up with greater costs over profit

38
Q

How can a business reduce its costs?

A 
Reduce its labour workforce 
Produce efficiently 
Only produce what has been ordered 
Reduce waste 
Globalisation
39
Q

What is break even?

A

Where the business makes no profit or loss

40
Q

How do you calculate the margin of safety?

A

Actual sales - break even sales

41
Q

How does calculating break even help a company?

A

It tells the business at what point it is that they start to make a profit in terms of quantity sold

42
Q

Why is calculating break even a bad thing for a business?

A

It only applies to one product
Based on output being sold
It’s forecast isn’t real

43
Q

How can a business reduce its variable costs?

A

Buying in bulk (economies of scale)

44
Q

How can a business reduce its fixed costs?

A

Negotiate rent or move somewhere cheaper

45
Q

How can a business increase its revenue?

A

Increase quantity sold through promotion

46
Q

Why does a business need finance?

A

To pay staff, for marketing, to have enough start up capital, to pay investors back, for growth etc

47
Q

What is cooperation tax?

A

A tax put on company profits

48
Q

What is national insurance?

A

Payments made by employees and employers for NHS and state pension etc

49
Q

What does the local government collect?

A

Rates from business’s

50
Q

What is income tax?

A

The tax taken of an employees wages

51
Q

What is overdraft?

A

An arrangement with the bank where a business can use more money than it is (interest charged)

52
Q

Trade credit

A

A business buys it’s good and pays for them 30 days later (interest free)

53
Q

Retained profit

A

A business holds back some profit for later use

54
Q

Sale of assets

A

Selling assess for finance to help pay for things (opportunity cost)

55
Q

Loan

A

A sum of money borrowed from the bank for a fixed amount of time (interest paid back)

56
Q

Lease

A

Where items are ‘borrowed’ and monthly payments are made given back after a certain amount of time

57
Q

Hire purchase

A

Obtaining items and making monthly payments (inc interest)

58
Q

Grants

A

Money from the government for a specific use

59
Q

Mortgage

A

Long term money borrowed from the bank for purchase of property

60
Q

Share issue

A

Raising money buy selling a share in the business

GCSE Business Studies - OCR (2 decks)

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