Finance-Prelim Flashcards

1
Q

What are some short term sources of finance?

A

Bank overdraft, government grant, retained profits, leasing

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2
Q

Describe a bank overdraft.

A

Allows a business to overdraw an amount of money from their bank account.

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3
Q

What are the advantages of a bank overdraft?

A

-Easy to set up
-Quick to access finance

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4
Q

What is a disadvantage of a bank overdraft?

A

-must be paid back quickly or can be expensive due to high interest rates

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5
Q

Who is a bank overdraft available to?

A

-sole traders
-partnerships
-LTDs

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6
Q

Describe a government grant.

A

given to encourage entrepreneurs to start up a new business or open a business in a particular area by offering expert knowledge as well as financial assistance

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7
Q

What is an advantage of a government grant?

A

-Provides finance which does not need to be repaid

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8
Q

What is a disadvantage of a government grant?

A

-one off payments
- must fulfil criteria

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9
Q

Who are government grants available to?

A

-social enterprises
-charity

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10
Q

Describe retained profits.

A

When a business saves a portion of its profits and reinvests back into the company

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11
Q

What is an advantage of retained profits?

A

profits belong to the company so the owner is in control

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12
Q

What are the disadvantages of retained profits?

A

-relying on profits is risky, some months a business may not make profits
-May run out of retained profits quickly

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13
Q

Who are retained profits available to?

A

-Sole trader
-Partnership
-LTD
-Social enterprises

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14
Q

Describe leasing.

A

A business can lease or rent vehicles or machinery from another company. They pay a monthly fee and the leasing company takes care of maintenance.

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15
Q

What are the advantages of leasing?

A

-leasing company will repair and maintain the machinery which saves business costs
-if a business has limited finance this does not require a large initial payment.

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16
Q

what are the disadvantages of leasing?

A

-the business will never own the asset
-in the long run, the monthly costs will total to more than it would have cost to buy the asses outright

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17
Q

Who is leasing available to?

A

-sole trader
-partnership
-LTD

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18
Q

What are some medium-long term sources of finance?

A

Bank loan
Share issue
Mortgage

19
Q

Describe a bank loan.

A

Lend a business money over a short period of time. This is then paid back in monthly instalments with interest.

20
Q

What are the advantages of a bank loan?

A

-payments are in regular fixed instalments which means
-it is easier for the business to budget

21
Q

What are the disadvantages of a bank loan?

A

-interest must be paid along with the amount borrowed.
-small businesses tend to pay higher interest rates

22
Q

Who is a bank loan available to?

A

-sole trader
-partnership
-LTD
-social enterprise

23
Q

Describe a share issue.

A

selling more shares to raise capital for the business

24
Q

What are the advantages of a share issue?

A

-large sums of money can be raised
-does not need to be paid back

25
Q

What are the disadvantages of a share issue?

A

-more shares means more dividends
-selling shares may result in less control of the business

26
Q

Who are share issues available to?

A

LTD’s

27
Q

Describe a mortgage.

A

A loan from the bank which can only be used to buy property.Paid back in monthly instalments.

28
Q

What are the advantages of a mortgage?

A
  • business can borrow a large sum of money over a ling period
    -Monthly payments are agreed with the back which makes it easier for the business to budget.
29
Q

What are the disadvantages of a mortgage?

A

-interest has to be paid on top of repaying the mortgage.

30
Q

Who are mortgages available to?

A

-sole trader
-partnership
-LTD

31
Q

What is a sole trader’s source of finance?

A

owner savings

32
Q

What is a partnership’s source of finance?

A

partners investing their savings

33
Q

What is an LTD’s source of finance?

A

Financed through selling shares to family and friends

34
Q

What is the public sector’s source of finance?

A

tax

35
Q

What are the third sector’s sources of finance?

A

grants, donations, fundraising

36
Q

What is the break-even point?

A

A business breaks even if it does not make a profit or a loss.
The breakeven point is where TOTAL REVENUE is the same as TOTAL COSTS.

37
Q

Why is the Break Even Important for a business?

A

Breakeven is a useful planning tool used by managers to identify the number of items they must sell to ensure they will at least cover their costs and not make a loss – the breakeven point.

38
Q

What is a fixed cost?

A

These are the expenses the business incurs which do not change with output.
These costs are usually the same amount each month.

39
Q

what are some examples of fixed costs?

A

Items such as rent, advertising, rates and salaries are fixed costs.

40
Q

What are variable costs?

A

These are the expenses which change according to the level of output, therefore, the more the business produces the higher the variable costs will be.

41
Q

What are some examples of variable costs?

A

Items such as raw materials or electricity are variable costs

42
Q

How do you calculate variable costs?

A

Cost Per Unit X Number of unit

43
Q

What is the total cost?

A

Total cost is the fixed costs and variable costs added together. This is the amount of money the business spends to make and provide its goods and/or services.