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GCSE Business > Finance > Flashcards

Finance Flashcards

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1
Q

Things a new business needs to spend on.

A

Property-Their building
Vehicles-Van/Lorries to transport goods
Advertisement-Inform potential customers about their existence
Machinery and equipment-To manufacture your product
Raw materials-To be made into the products

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2
Q

Things established businesses need to spend on.

A

Expansion-Increase scale of enterprise or acquisitions
Improve efficiency-Training employees or purchasing new tech
Develop new products-Research and new production facilities.

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3
Q

Internal sources of finance

A

Owners funds-Money put into the business by its owner.(No interest).
Retained profits-Profit made in previous years. (Only available to successful companies).
Selling assets-A business sells assets like property to generate money.

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4
Q

Selling assets-A business sells assets like property to generate money.

A

Internal

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5
Q

Retained profits-Profit made in previous years. (Only available to successful companies).

A

Internal

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6
Q

Owners funds-Money put into the business by its owner.(No interest).

A

Internal

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7
Q

Expansion-Increase scale of enterprise or acquisitions

A

Established businesses

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8
Q

Improve efficiency-Training employees or purchasing new tech

A

Established businesses

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9
Q

Develop new products-Research and new production facilities.

A

Established businesses

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10
Q

Property-Their building

A

New businesses

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11
Q

Vehicles-Van/Lorries to transport goods

A

New businesses

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12
Q

Advertisement-Inform potential customers about their existence

A

New businesses

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13
Q

Machinery and equipment-To manufacture your product

A

New businesses

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14
Q

Raw materials-To be made into the products

A

New businesses

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15
Q

External sources of finance

A

Bank loans-Requires interest and may ask for collateral
Mortgages-Solely for property, longer repayments than loans
Overdrafts-Borrow more than in account. Flexible loans.
Issuing shares-A business chooses when to IPO but new businesses with little value won’t get as much. Also means letting go of control.
Friends and Family-Free of interest, easier to get.
Hire purchase-Pay off tech/machinery over a long period of time
Government grants-Business that fit with government aims will receive money from the government, usually startups.

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16
Q

Bank loans-Requires interest and may ask for collateral

A

External

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17
Q

Mortgages-Solely for property, longer repayments than loans

A

External

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18
Q

Overdrafts-Borrow more than in account. Flexible loans.

A

External

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19
Q

Issuing shares-A business chooses when to IPO but new businesses with little value won’t get as much. Also means letting go of control.

A

External

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20
Q

Friends and Family-Free of interest, easier to get.

A

External

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21
Q

Hire purchase-Pay off tech/machinery over a long period of time

A

External

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22
Q

Government grants-Business that fit with government aims will receive money from the government, usually startups.

A

External

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23
Q

Influences on choosing which source (New businesses)

A

Amount of personal finance available
Legal structure
Risk-Is there space in the industry

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24
Q

Amount of personal finance available

A

New businesses

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25
Q

Legal structure

A

New businesses

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26
Q

Risk-Is there space in the industry

A

New businesses

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27
Q

Influences on choosing which sources (Established businesses)

A 
Profitability of the business
Assets owned
Past history and future prospects
Legal structure
Amount of finance needed
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28
Q

Profitability of the business

A

Established businesses

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29
Q

Assets owned

A

Established businesses

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30
Q

Past history and future prospects

A

Established businesses

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31
Q

Legal structure

A

Established businesses

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32
Q

Amount of finance needed

A

Established businesses

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33
Q

Advantages of using retained profits

A

No interest payments

Can be arranged immediately

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34
Q

Disadvantages of using retained profit

A

Only available to profitable businesses

Shareholders may oppose the decision

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35
Q

Advantages of selling assets

A

No interest payments

May keep assets (if leased back)

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36
Q

Disadvantages of selling assets

A

Many businesses do not have suitable assets

Leasing assets back means regular payments

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37
Q

Advantages of bank loans and mortgages

A

Can be arranged quickly

Allows repayments over a long period of time

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38
Q

Disadvantages of bank loans

A

Interest has to be paid

Banks may require an asset as collateral

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39
Q

Advantages of selling shares

A

No interest payments

40
Q

Disadvantage of selling shares

A

The owners may lose control of the company

Only available to companies

41
Q

Advantages of Government Grants

A

Many Government Grants do not have to be repaid

42
Q

Disadvantages of a Government Grants

A

A business may have to meet strict conditions to receive a grant
Businesses may have to invest money alongside the grant

43
Q

Influences on what source of finance to use (new businesses)

A

Amount of personal finance available to the entrepreneur
The business’ legal structure
How risky the new business is judged to be

44
Q

Amount of personal finance available to the entrepreneur

A

New businesses

45
Q

The legal structure of a business

A

New businesses

46
Q

How risky the business is

A

New business

47
Q

Influences on what source of finance to use (established businesses)

A 
Profitability
Assets owned by the business
Past history and future prospects
Legal structure of the business
Amount of finance needed
48
Q

Profitability

A

Established businesses

49
Q

Assets owned by the business

A

Established businesses

50
Q

Past history and future prospects

A

Established businesses

51
Q

Legal structure

A

Established businesses

52
Q

Amount of finance needed

A

Established businesses

53
Q

What is cash flow

A

Cash flow is the money that flows into and out of a business on a day to day basis

54
Q

Inflows

A

Income from sales
Loans from banks
Money invested by the business’ owner

55
Q

Income from sales

A

Inflow

56
Q

Loans from banks

A

Inflow

57
Q

Money invested by the business’ owners

A

Inflow

58
Q

Outflows

A 
Buying raw materials
Wages
Rent or mortgage
Interest on loans
Taxes
59
Q

Buying raw material

A

Outflows

60
Q

Wages

A

Outflows

61
Q

Rent or mortgages

A

Outflows

62
Q

Interest on loans

A

Outflows

63
Q

Taxes

A

Outflows

64
Q

Benefits of having a positive cash flow

A

No need to borrow (avoid interest)
More able to arrange long term loans
Reduces the risk of businesses getting into debt and failing

65
Q

What is a cash flow forecast

A

A table of the inflows and outflows of cash that are expected by a business’ managers

66
Q

What is a cash flow statement

A

A cash flow statement is a table of past month’s cash flow to help predict and prepare for the future

67
Q

Importance of cash flow forcastes

A

It can identify times when the business might be short of cash
Enables the business to take actions to avoid cash shortages becoming a major problem

68
Q

Causes of cash flow problems

A

Poor management
The business is making a loss
Offering customers too long to pay

69
Q

Solutions to cash flow problems

A

Reschedule payments
Cut costs
Use overdrafts
Find new sources of cash inflows

70
Q

Influences on choosing the best solution

A

The cause of the cash flow problem

The business’ circumstances

71
Q

Price

A

Price is the amount a business asks a customer to pay for a single product.

72
Q

2 factors affecting price?

A

The prices set by the competition

The cost of production

73
Q

What are sales?

A

Sales is the number of products sold by a business over some time. Usually a week, month, quarter or year.

74
Q

What are costs?

A

Costs are the spending that is necessary to set up and run a business. A business normally has to pay two main types of cost: fixed costs and variable costs.

75
Q

What are fixed costs?

A

Fixed costs do not alter when a business changes its output. For example, a shopkeeper still needs to pay the same amount of rent, regardless of sales.

76
Q

What are variable costs?

A

Variable costs are costs which vary based on output. For example, if a shopkeeper is serving more customers, he will need to buy more inventory.

77
Q

Equation for total costs

A

Fixed costs+Variable costs

78
Q

Equation for total variable costs

A

Variable costs of a single unit X Number of Units

79
Q

What are total costs?

A

Total costs are a business’s expenditure over a time period.

80
Q

What is profit?

A

Profit is the amount by which a business’s revenue from all its sales exceeds its costs.

81
Q

What is loss?

A

A loss is the amount by which a business’s costs are larger than its revenue from all sales.

82
Q

What is a balance sheet?

A

A balance sheet sets out the assets and liabilities that a business has on a particular day.

83
Q

What does a balance sheet show?

A

It shows where a business’ finance has come from and how the business has spent the money that it has raised. It is only a snapshot of the business’ position.

84
Q

Types of assets

A

Non-current assets and Current assets.

85
Q

What are non-current assets?

A

Non-current assets are assets which a business will normally keep for many years. Examples of non-current assets include shops and vehicles. They create revenue for the business and enable it to earn profits.

86
Q

What are current assets?

A

They are assets that the business only expects to have for a short time (normally less than one year). Examples of current assets include cash and inventories of raw materials. Current assets (especially cash) are used by the business to settle debts such as paying for raw materials.

87
Q

What are assets?

A

An asset is something that is owned by a business.

88
Q

What are liabilities?

A

Liabilities are the amounts owed by a business to other businesses and individuals.

89
Q

Types of liabilities.

A

Non-current liabilities and Current liabilities.

90
Q

What are non-current liabilities?

A

They are debts that will be paid back over many years. Loans from the bank or a loan to buy property (mortgage) are examples of this type of liability.

91
Q

What are current liabilities?

A

They are debts that a business will pay within a year. Examples of current liabilities include money owed to suppliers and tax the business has to pay.

92
Q

What is total equity?

A

Total equity is part of a company’s money that belongs to shareholders. If a company stops trading and sells all its non-current and current assets, it would normally have a large sum of money remaining. This would be used to pay all the company’s liabilities. The money that is left once this is done is called total equity.

93
Q

What are net assets.

A

The sum of all the assets a business owns.

94
Q

What will equal the amount of money put into the business (total equity) on a balance sheet?

A

Net assets.

95
Q

If the shareholders of a business raised extra finance to buy new vehicles than what would increase by the same amount?

A

The value of the business’ non-current assets and the shareholders’ total equity.

96
Q

Key indicators of a business’ performance over time from its income statement.

A

The revenue from sales of goods and services and gross and net profits.

97
Q

What are financial ratios?

A

Financial ratios are ratios that compare two figures from a business’ financial statements. For example profit to revenue.

GCSE Business (3 decks)

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