Finance

Question 1

Cash can be known as….

Answer 1

Liquidity assets

Question 2

Why profits is important?

Answer 2

• It rewards the business people who have taken risks to run it
• It provides the funds to develop the business further
• It is a source of cash, which allows the business to meet its debts

Question 3

Give the formula of return on capital employed?

Answer 3

Net profits/Capital employed *100

Question 4

How to calculate the capital employed

Answer 4

Net profits + capital

Question 5

Define cash-flow forecast

Answer 5

An estimate of the future cash inflows and outflows of a business

Question 6

Why cash is important to a business

Answer 6

Cash is important to the business because it needs to be able to make payments to suppliers, production process, rent, wages etc.

Question 7

Net cash flow

Answer 7

inflows - outflows

Question 8

Closing balance

Answer 8

opening balance + net cash flow

Question 9

How a short-term cash-flow problem might be overcome

Answer 9

increasing loans, delaying payments, asking debtors to pay more quickly

Question 10

A business can improve its working capital by:

Answer 10

• Decreasing the length of credit sales
• Negotiating long credit terms with suppliers
• Reduce inventory levels

Question 11

Define income statement

Answer 11

Financial record of the business’s profits, costs and revenue over a given period of time

Question 12

Define balance sheets

Answer 12

An accounting statement that records owner’s equity, assets and liabilities of a business at a particular date

Question 13

Why shareholders need to know about the business’s accounts

Answer 13

They will want to know how well the business is performing and how well their money is being spent so that they can get a good return on the money they have invested in the business. This can help then decide whether or not they want to continue investing the business or the invest in other businesses

Question 14

Why potential investors need to know about the business’s accounts

Answer 14

Before investing in a business, investors will want to know how profitable the business is before deciding in investing in the business so that they can get good returns from their investment

Question 15

Why managers need to know about the business’s accounts

Answer 15

They can compare the accounts with previous years to measure the performance of the business and to see if they have achieved any objectives. They will also want to see how high their retained profits are so they can consider buying non-current assets to upgrade the business or to expand the business

Question 16

Why employees need to know about the business’s accounts

Answer 16

They will be interested in the profitability of the business because they want to have job security

Question 17

Why government need to know about the business’s accounts

Answer 17

They will be interested in the profits made by the business because the higher the profits are, the higher the taxes paid

Question 18

Why customers need to know about the business’s accounts

Answer 18

They will want to know whether or not a business will continue to supply them with goods and services.