finance Flashcards
who does finance in a business
a small business may hire a accounant a large business would have a department
financial infomation
data of average profitabilty profit and loss costs of revenue and cash flow forecast
accurate info
it must be accurate so the decisions will be effective for the business
business planning
helps for start up, expansion the inabiltiy to get finances will restrict business activity types of ownership
source of finance
where it gets it money
revenue
sales
break even
number of products needed to be sold to cover costs
cash flow
a record of money coming in and going out of a business
when will financial information be important
when a company wants to be eco-friendly - more cost selling abroad or online addition money fr production process
examples of finances
expansion recruitment new business developing marketing activities
long term or short term
both
loan
long term /medium money borrowed from bank or lender. if not paid an asset can be taken to pay of loan interest must be paid and business could risk losing and asset but they know how much to pay
share issue
shares are sold which raises more money. investors are given dividend and can fund expansion new and established businesses long term no interest shareholders have a say. can be taken over
crowdfunding
medium long term money raised by sponsors they can donate lend and become part-owner. usually for start up and expansion interest may be paid, profits may need to be shared if equities sold no security needed for loans
retained profit
money that is not distributed but invested in business long medium term# no interest no repaying no cost to raise finance only avaliable if business has this profit
sales of assets
fixed asset e.g machine is sold, typically for replacment and expansion. established business short, medium long term good if asset is useless take time to sell advertising to sell it more cost more to advertise it
overdraft
short term all businesses arranging with the bank to spend more than there is used for day to day expenses e.g wages can continue trading short term cash flow problems solved high interest
trade credit
does not need to pay the suppliers straightaway 30-90 days all businesses interest free during the trade credit period they can sell to customer then use money to pay back the supplier interest is paid after the time limit items still need to be paid for
new partner
expansion, replacement capital expansion contributes to finance long term established business new skill no costs share profit has a say in the running on the business
owners capital
all businesses use their own savings for expansion, and start up all terms they may not have enough savings no interest no costs no repayment
net margin
net profit/ sell revenue *100
how to reduce fixed costs
lower cost location reduncies , automations, reduced hours cheap insurance store closures
how to reduce variable costs
cheaper materials buying in discount
gross profits
profit made as a result of buying and selling goods and services, but without paying for expenses
gross profits equation
gross profit = revenue - cost of sales 2 choc - 1 choc = 1 choc
net profit
profit of sales minus the expenses
net profits equation
net profit/ sales revenue * 100
large increase of profit
purchase of equipment and building takeover increased dividenend higher income for owner more development in service and goods
falling of profit
postphone purchase of new equipment taken over by another business reduced dividend and income less development in service and goods
break even
a business will breakeven if it sells enough products that total sales equal total costs. no lost
break even equation
fixed cost / selling price - variable cost per unit
use of break even
to get loans from bank how much you will need to sell to make a profit making judgement on prices and costs see impact of changing costs
limitation of break even
forecast can be different from reality variable cost could reduce assumes that the fixed cost do not change one product assumes all products are sold
draw the break even graph
