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CIE Business igcse > Financial information and financial decisions > Flashcards

Financial information and financial decisions Flashcards

1
Q

Roles of finance department

A

Preparing financial statements
Recording transactions
Make important financial decisions
Prepare Cash flow forecast

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2
Q

Why need finance or capital

A

Starting and running a business
Expanding existing businesses
Working capital

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3
Q

Internal sources of Finance

A

Retained profits
Owners savings
Selling of assets
Selling of inventories

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4
Q

Adv & Dis of retained profit

A

No interest to be paid
No repayment

New businesses wont have much
Difficult for small business to get large amounts

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5
Q

Sale of existing assets - adv+dis

A

Better use of capital
No repayment

Takes time
New businesses cannot use it

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6
Q

Sale of inventories

A

Reduces storage- space and cost

Opportunity cost of selling it to customers for higher prices
Should not dissapoint customers with little to no stock.

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7
Q

External finance

A

Grants and subsidies from government
Bank loan
Issue of shares
Micro finance
Crowdfunding
Debentures
Factoring of debts

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8
Q

Short term

A

Short term :
Overdrafts from bank
Trade credit
Factoring of debt (immeadiate cash but does not receive 100%)

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9
Q

Long term

A

Long term : Bank loans
Hire purchase
Leasing
Issue of shares
Debentures
Issue of shares

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10
Q

Ad+Dis short term

A

Overdraft
a business could use this to pay wages or small amounts
Interest paid only for overdrawn amount
Cheaper than ST loans
Overdraft amount varies

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11
Q

Ad+dis Trade credit

A

Interest free loan
Supplier may refuse discounts or supply if delayed too much

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12
Q

Adv and Dis Bank loan

A

quick to arrange
varying length of time
Large companies—low interest rates

Repaid
Bank has right to sell property of business if not paid

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13
Q

Adv and Dis Hire purchase

A

Does not need to find large sums of cash

Cash deposit has to be paid at the start of the period
Interest payments–high

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14
Q

adv+dis Leasing

A

Does not need to find large sums of cash
Maintenance done by company

Leasing costs will be higher than purchasing the asset

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15
Q

Factors

A

size of business
amount required
purpose and time

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16
Q

Size of business and legal form

A

public lit companies have larger sources because — less interest

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17
Q

Amount needed

A

Small amount then short term finance and internal - Owner’s saving or retained profit.

Large amount then long term and external such as bank loan

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18
Q

Purpose and time period

A
  • If use is long term –> finance long term
  • use is short term —-> finance short term
  • If the business already has loans then the bank will be hesitant to give more loans
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19
Q

Banks lending factors

A

Cash flow forecast
Income statement - showing chance of profit
Details of existing loans
Why loan is needed

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20
Q

Cash flow

A

Inflows and outflow over a period of time

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21
Q

Cash inflows

A

Sale of goods
Sale of assets
Payments from debtors
Borrowing money
Investors

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22
Q

Cash outflows

A

Payments to creditors
Purchases (assets, good etc)
Wages, Rent etc
Repaying loans

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23
Q

Cash flow and profit

A

Profit consists of goods sold on credit whereas cash flow is the amount of cash sales a business made in a month.

24
Q

insolvency

A

Businesses run out of cash

25
Q

Why does insolvency occur

A

Long trade credits
Less trade credit received
Many assets purchased

26
Q

Cash flow forecast

A

Shows estimate inflows and outflows and balance

27
Q

Net flow

A

Inflows - outflows

28
Q

Use of cash flow

A

Helps starting business
For Bank managers to give loans
Managing existing business (controlling expenditure if more outflows)

29
Q

Short term solutions

A

Loans
Delaying payments
Reducing selling in credit
Delaying purchases

30
Q

Long term solutions

A

Attracting new investors
Cutting costs (less outflows) and lean production
New products —> more customers —-> more sales

31
Q

Working capital

A

Capital needed to pay day-day expenses of business

32
Q

Calculate working capital

A

Current assets - Current liabilities

33
Q

Importance of profits

A

Reward for entrepreneurs
Source of finance
Indicator of success

34
Q

Gross profit

A

Revenue - cost of sales

35
Q

Net profit

A

Gross profit + incomes - expenses

36
Q

Retained profits

A

Net profit - tax & dividends

37
Q

Current assets

A

Short tem assets the businrss owns for less than a year

38
Q

Non current assets

A

Long term ones more than year

39
Q

Current liabilities

A

debts owed by the business for less than a year

39
Q

Current liabilities

A

debts owed by the business for less than a year

39
Q

Current liabilities

A

debts owed by the business for less than a year

39
Q

Non current liabilities

A

debts owed by the business for more than a year

40
Q

Shareholders funds / Capital

A

Assets - liabilities

40
Q

Shareholders funds / Capital

A

Assets - liabilities

41
Q

Shareholders funds / Capital

A

Assets - liabilities

42
Q

Capital Employed

A

Shareholders funds - Non current liabilities

43
Q

Profitability ratios

A

measurement of the profit made relative to either the value of sales achieved or the capital invested in the business

44
Q

Liquidity ratios

A

Ability of the business to pay back its short term debts

45
Q

Profitability RATIOS :Gross profit margin

A

gross profit/ sales revenue
x 100

46
Q

Net profit margin

A

net profit / sales revenue x100

47
Q

Return on capital employed

A

Net profit/ capital employed x 100

48
Q

Liquidity ratios : Current ratio

A

Current asset / current liabilities

49
Q

Acid test ratio

A

Current assets - inventories/ current liabilities

50
Q

Users and why they use accounts

A
51
Q

Managers

A

Keeps control over performance of each product /division of business

Make decisions like changing prices, expand, change supplier etc etc

Ratios to compare prev years and other businesses

52
Q

Too much of current ratio

A

Working capital tied up is unprofitable assets

CIE Business igcse (1 decks)

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