Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Business > Financial Objectives > Flashcards

Financial Objectives Flashcards

1
Q

What are the 4 main functional areas of a business?

A
  1. Finance
  2. Marketing
  3. Human Resources
  4. Operations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a business?

A

A business is defined as an organisation or enterprising entity. It can be for-profit entities or non-profit organizations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is revenue?

A

The money coming in from the sales of goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the equation for revenue?

A

Revenue= number of units sold x selling price per unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What can revenue also be referred to as?

A

Turnover

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What can the two costs be classified as?

A

Fixed cost and variable cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is fixed cost?

A

A cost that stays the same regardless of the output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Give examples of fixed costs

A

Rent
Managers salaries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are variable costs?

A

Costs that change in relation to the number of items produced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the equation for total cost

A

Total cost= fixed cost + variable cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is profit?

A

Profit is the difference between the income of a business and its total costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the equation for profit?

A

Profit = revenue- cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the 2 ways profit can be improved by?

A

Increasing the revenue
Lower the cost of

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the two types of cash flow?

A

Cash inflows
Cash outflows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are examples of cash inflows?

A

Cash sales
Payments from debtors
Owners money invested
Sale of assets
Bank loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are examples of cash outflows?

A

Purchasing stock
Paying wages
Paying debts- bank loans
Creditors (lenders)
Purchasing assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is cashflow?

A

Cash flow refers to the money flowing into and out of a business over a period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Why might a profitable business be short of cash?

A

-holding too much stock
-good sold on credit (trade credit B2B)
-dividends (reward to shareholders)
-purchase of a fixed asset (factory)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is trade credit?

A

A business to business arrangement where a buyer can purchase good or service without paying upfront

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Why do seasonal businesses experience cash flow difficulties

A

-outflow will be greater than inflow during the less busy season
-sales will be lower
-will experience negative cash flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the 3 types of profit?

A

Gross profit
Operating profit
Profit for the year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the equation for gross profit?

A

Sales revenue-
Cost of sales/ direct cost
=gross profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the equation for operating profit?

A

Gross profit
-expenses/indirect cost
=operating profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the equation for profit for the year?

A

Operating profit
-interest & taxation & one off items
=profit for the year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What are shareholders?
People who own shares of a company
26
What are dividends?
May be payed to a shareholder if the company makes profit
27
What is a budget?
A financial plan for the future concerning the revenues and costs of a business
28
What is variance?
The difference between budgeted and actual figures
29
What are the two types of variance?
Favourable and adverse
30
What are the three types of budgets?
Income Expenditure Profit
31
What are some reasons for using budgets?
-to improve efficiency -to establish priorities -to gain financial support -to motivate staff -avoid overspending
32
What is favourable variance?
When the costs are lower than expected or the revenue and profit is higher than expected
33
What is adverse variance?
When costs are higher than expected or revenue and profit is lower than expected
34
What are some problems of setting budgets?
-general rise in price level -limits may be imposed -time consuming -conflicts between departments
35
What is an internal cause for variance?
Something within a businesses control
36
What is an external cause for variance?
Something outside the control of the businesses controll
37
Give some examples of internal causes of variance
-overestimating/underestimating -changing the selling price -improving efficiency -poor communication
38
What are some examples of external causes of variance?
-competitor behaviour -cost of raw materials -changes in the economy
39
What can a business do to respond to an adverse profit variance?
-cut prices -updating product -enter new markets -promotional strategies -cut supplier costs -conduct additional market research
40
What is the break even point?
The point at which the business is not making profit or loss -where the total revenue is the same as the total cost
41
What is the formula for break even output?
=fixed cost/ contribution per unit
42
What is contribution?
The difference between sales revenue and variable costs of production
43
What is the equation for contribution per unit?
Selling price (per unit)- variable cost (per unit)
44
What are the two equations for total contribution?
=contribution per unit x number of units sold Or =total revenue- total variable cost
45
Does contribution include fixed costs?
No
46
What is the equation for the margin of safety?
=actual output- breakeven output
47
What does it mean if a business is operating with a positive margin of safety?
The business is profitable
48
What are debtors?
People who owe the business money aka receivables
49
What are creditors?
People or organisations that are owed money by a business aka payables
50
What is trade credit?
The period of time given by suppliers before customers have to pay for goods and services
51
What is cashflow forecasting?
Predicting the future flows of cash into and out of the firms bank account over a specific period of time
52
Why is cashflow so important?
If a business runs out of cash it will fail even if it is profitable
53
What are some main cash inflows?
Cash sales Grants Loans Share capital invested Receipts from debtors Interest on bank balances Sale of fixed assets
54
What are some main cash outflows?
Payment to suppliers Interest on loans & overdrafts Wages and salaries Payments for fixed assets Dividends payed to shareholders Repayment of loans Tax on profits Payment to creditors
55
What is net cashflow?
Cash inflow -cash out flow
56
What are the two categories of expenditure?
Capital expenditure and revenue expenditure
57
What is capital expenditure?
Spending of money on assets that might be used again and again e.g. machinery
58
What is revenue expenditure?
Spending on the day to day running of the business e.g. wages, raw materials
59
What are the 7 main sources of finance?
-bank loans -overdrafts -crowd funding -share capital -venture capital -debt factoring -retained profit
60
What are internal sources of finance?
Already exist within the business
61
Give examples of internal sources of finance?
Selling assets Retained profit Entrepreneurs savings
62
What are external sources of finance?
Funds injected from outside the business
63
Give examples of external sources of finance?
-debt factoring -share capital -bank loan -venture capital -overdrafts
64
What are the advantages and disadvantages of a bank loan?
Advantages: -can last for 3-10 years -interest rates are often fixed Disadvantages: -can lack flexibility and businesses may have to take out more money than they need -have to pay a fee for early repayment
65
What are the advantages and disadvantages of an overdraft?
Advantages -flexible on short term Disadvantages -high interest rates
66
What are the advantages and disadvantages of debt factoring?
Advantages -receivables turned into cash quickly Disadvantages -quite a high cost (charge around 3%)
67
What are the advantages and disadvantages of venture capital?
Advatages -often provide advice and knowledge of market -long term Disadvantages -loose some control over business -venture capitalist may exert too much influence
68
What are the advantages and disadvantages of retained profit ( profits left in the business)?
Advantages -Doesn’t dilute ownership -flexible -cheap Disadvantages -restricts value of dividends
69
What are the advantages and disadvantages of share capital?
Advantages -shareholders are not promised dividends Disadvantages -dilutes control -vulnerable to takeover
70
What are the advantages and disadvantages of crowd funding?
Advantages -access to large amount of investors -fastest way Disadvantages -puts ideas public (ideas can be stolen) -if the target amount is not reached money is returned to investors and business gets nothing
71
Which sources of finance are long term?
Loans Crowd funding Share capital Venture capital Retained profit
72
Why would a business need long term finance?
-purchase long term assets -finance long term plans e.g. expansion
73
What are examples of short term sources of finance?
Overdrafts Retained profits Debt factoring
74
Why would businesses use short term sources of finances?
-to pay outstanding bills -overcome cash flow shortages
75
What do businesses have to consider when choosing a source of finance?
-the legal structure of a business (ltd?/plc?/sole trader?) -the cost of the finance (rate of interest) -flexibly -control -long term/short term

Business (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions