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Business > Finance > Flashcards

Finance Flashcards

1
Q

What is Revenue?

A

money going into the business

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2
Q

What are Costs?

A

money going out of the business

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3
Q

What is the formula for revenue?

A

Revenue = Price x Quantity Sold

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4
Q

What is Price?

A

The amount of money a customer pays for a product or service.

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5
Q

What is Profit?

A

Money remaining after Total Costs are taken away from Total Revenue

(Profit = Total Revenue - Total Costs)

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6
Q

What is Breakeven?

A

When revenue can cover the Business’ total costs, therefor the business is no longer making a loss.

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7
Q

What is Breakeven Output?

A

The amount of Products a business needs to sell in order to reach Breakeven. (Breakeven point in Units)

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8
Q

What is the Margin of Safety? (MoS)

A

How much sales can drop before the Business reaches the Breakeven Point again –> where they will begin to make a loss.

The larger the MoS, the safer the business.

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9
Q

What is the formula for Margin of Safety? (MoS)

A

MoS = Actual or Budgeted Sales - Breakeven Output

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10
Q

What is Contribution?

A

How much money a business will make from each individual sale.

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11
Q

What is the formula for Contribution?

A

Contribution = Selling Price - Variable Cost

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12
Q

What is the formula for Breakeven Output?

A

Breakeven Output = Fixed Costs ÷ Contribution

OR

Breakeven Output = Fixed Costs ÷ (Selling Price - Variable Cost)

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13
Q

What is Cashflow?

A

The flow of cash (money) in and out of a business.

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14
Q

What is Cash Inflow and Cash Outflow?

A

Cash Inflow - the flow of cash into a business.

Cash Outflow - the flow of cash out of a business.

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15
Q

What is a Cashflow Forecast?

A

A prediction of how cash will flow in and out of a business in the future.

This can be used to see how well they will be performing, and if any action is needed to avoid a cash crisis (when a business does not have enough money to do things).

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16
Q

What is a source of Finance?

A

How a business gets money to fund (pay for) itself.

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17
Q

What is Finance?

A

Money for the business.

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18
Q

What is Internal and External Finance?

A

Internal - money obtained in the business (e.g. Retained Profits, Selling assets).

External - money obtained outside the business (e.g. Loans, Share Capital, Venture Capital, Crowdfunding).

19
Q

Give examples of Short Term and Long Term finance.

A

Short - Overdraft, Trade Credit

Long - Retained Profits, Loans, Personal Savings, Share Capital, Venture Capital, Crowdfunding.

20
Q

What is the difference between Short Term finance, and Long Term finance?

A

Short Term Finance - pay back in immediately or fairly quickly

Long Term Finance - pay back over a much longer period of time, usually a year or more.

21
Q

What is an Overdraft?

A

When you can withdraw more money than you have in your bank.

A business can spend more than they have and feel financially comfortable, however overdrafts have High Interest rates

22
Q

What is Trade Credit?

A

Buy now, Pay Later.

When a supplier (anyone who provides a product or service) allows the customer a longer period of time to pay for the product or service.

23
Q

What is Venture Capital?

A

A type of Share Investment made by funds managed by a professional investor. The minimum investment is usually over £1million –> so not available for small businesses.

24
Q

What is Share Capital?

A

Finance made by issuing shares to outside investors.

Selling a large part of your business ownership, meaning they gain a share of your profits and can make decisions for the business

25
Q

What is Crowdfunding?

A

Ordinary people getting together to raise money for businesses and projects, however if the target is not met, all money invested must go back to the investors.

26
Q

What is Fixed Cost?

A

Costs for a business that do not change depending on how the business is performing. Therefore the business will pay the same amount each week, month, year, etc.

27
Q

What is Variable Cost?

A

Costs for a business that change depending on how well a business is performing

28
Q

What is Government taxation?

A

Compulsory charges on business individuals by the government.

29
Q

What is Inflation?

A

An equal increase in Prices and Wages.

30
Q

What are Exchange rates?

A

The price of 1 currency in terms of another.

E.g. £1 = $1.50

An increase in the value of a currency is called an Appreciation, and a decrease is called a Depreciation.

31
Q

How do you work out the Cost of a Currency? (Exchange Rate)

A

Cost = Price x Exchange Rate.

E.g. If £1 = $1.50;
£50 x $1.50 = $75.
So £50 in the USA is $75.

32
Q

What is Net Cash Flow?

A

The difference between money going in, and money going out of a business.

Net Cash Flow = Cash Inflow - Cash Outflow

33
Q

How can a Business improve its Cash flow?

A

Reducing Cash Outflow - e.g. Buying less stock

OR

Increasing Cash Inflows - e.g. Creating more sources of finance (overdraft, trade credit, share capital, loans, etc)

34
Q

What is an Asset?

A

Something that contains economical value

35
Q

What is Capital?

A

Money that has been invested into a Business.

36
Q

What is an Advantage of Internal Growth?

A

Internal Growth is Organic and has low risk

37
Q

What is a Disadvantage of Internal Growth?

A

Can be very slow

38
Q

What is an Advantage of External Growth?

A

External finance can be a very fast way of growing

39
Q

What is a Disadvantage of External Growth?

A

Very risky

40
Q

What are Overheads?

A

Overheads (aka “Direct Costs”) are the fixed costs for operating a business, such as Rent and Bills. Not linked to the product or service they are providing.

41
Q

What is an Advantage of Trade Credit?

A

Increase Relationship with Suppliers

A business/customer can get a product before having the money available.

42
Q

What is a Disadvantage of Trade Credit?

A

For a supplier/business, if a customer expects Trade Credit, it can be very confusing for their Cash Flow.

43
Q

Give some examples of Fixed Costs.

A

Rent, Insurance, Salaries for Staff, Bills

Business (3 decks)

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