Finance (unit 5) Flashcards
why do businesses need extra money at times
they need to buy new equipment or premises, they have an opportunity to introduce a new product or service, a major item of equipment needs to be brought up to date
explain the advantages and disadvantages of owners funds
this is the amount of money invested by the owner/partner in the business
the money does not have to be re-paid
no interest has to be paid
may not have enough money
explain the advantages and disadvantages of retained profits
these are profits which are kept within the business from previous months/years
there are no extra costs. no interest to be paid
there may be insufficient money to fund the business
explain the advantages and disadvantages of bank overdrafts
shot term allowance given by bank to cover cash flow problem
useful as a short term source of finance to overcome cash flow problems
you are not tied into an agreement which requires repayment over several years
an expensive form of borrowing with high interest charges and costs especially if the facility is not arranged in advance
explain the advantages and disadvantages of loans
from a bank or other financial institution
the money can be obtained in one lump sum
repayments can be spread over several years
the loan must be repaid with interest
explain the advantages and disadvantages of government grants
avaliabe for specific reasons, eg expanding in a deprived area
the money does not have to be repaid
a large amount of money can be received at one time
there may be certain restrictions as to what the money can be used for
explain the advantages and disadvantages of hiring and leasing
this saves having to buy expensive items outright as payments are made in regular installments
H- allows business to buy assets with only a small initial payment
once full payments have been made the asset is owned
the asset is not fully owned until the last payment is made
the total paid is more than the price of the asset
L-can obtain the asset without a large financial outlay,
repairs are carried out by the leasing company free of charge,
upgrades can be obtained when the lease runs out
you never own the asset
explain the advantages and disadvantages of share issue
only applies to public limited companies whose shares are bought and sold on the stock exchange or private limited company who may offer shares privately
large amounts of money can be raised quickly
dividends have to be paid to shareholders which reduces the retained profits of the business
a break even analysis is completed by plotting the figures for:
- sales
- fixed costs
- total costs
describe the margin of satftey
the point where the business is benefiting for its sales
describe fixed costs
are costs which stay the same regardless of units produced or sold (rent & rates)
describe variable costs
are costs which change directly with production (materials and laubour)
what are total sales
all the money gained from units sold
what is the break even formula
fixed costs/ contribution = break even units
what is a cash budget
is a plan that a buisiness prepares for internal use. it can be produced for a few months or for the years ahead. the budget is compiled on the estimated income and estimated expendure
