M2- topic 3 process of financial managment

Question 1

how are the businesses financial needs determined (4)

Answer 1

size of the business
phase of the business cycle
future plans for growth and development
capacity to source finance

Question 2

what are operating budgets

Answer 2

budgets relating to the main activities of a business

Question 3

what are financial budgets

Answer 3

Budgets that relate to the financial data of the business

Question 4

what types of record keeping are there (2)

Answer 4

manual record keeping

Electric record keeping

Question 5

advantages of using a manual record keeping (2)

Answer 5

less expensive

less chance of data loss

Question 6

disadvantages of using manual record keeping (2)

Answer 6

manually enter data

time consuming

Question 7

advantages of using electric record keeping (2)

Answer 7

more efficient

more organised

Question 8

disadvantages of using electrical record keeping (2)

Answer 8

data loss risk

expensive

Question 9

what is financial control

Answer 9

financial policies and procedures that ensure the plan of the business is achieved

Question 10

what ways can you finance a business (2)

Answer 10

debt

equity

Question 11

what is an example of debt (2)

Answer 11

overdraft

mortgage

Question 12

what is an example of equity (2)

Answer 12

retained profits

owners equity

Question 13

advantages of debt (2)

Answer 13

funds can be acquired on short notice

doesn’t require selling share

Question 14

disadvantages of debt (2)

Answer 14

Regular payments must be made and cause stress

debt is expensive (intrest)

Question 15

advantages of equity (2)

Answer 15

no pressure from banks and lenders

low gearing

Question 16

disadvantages of equity (2)

Answer 16

slow growth

ownership can be diluted

Question 17

what the rule with debt

Answer 17

use long term debt for long term assets and short term debt for short term assets

Question 18

what do cash flow statements indicate (2)

Answer 18

The movement of cash into and out of the business

Firms ability to pay its debts

Question 19

how are the businesses activities split up (3)

Answer 19

operating activities
investing activities
financing activities

Question 20

what are operating activities and
list examples(3)

Answer 20

The main cash inflows and outflows relating to the Business. e.g.

• bills
• rent
• stock

Question 21

what are investing activities and
 list examples (2)

Answer 21

The cash inflow and outflows relating to the purchase of non current assets. e.g.

• new equipment
• renovation

Question 22

what are financing activities and
list examples (3)

Answer 22

the cash inflows and outflows relating to borrowing activities of the business e.g.

• debt
• mortgage
• overdraft

Question 23

what do income statements indicate

Answer 23

the profitability of the business

Question 24

what is gross profit

Answer 24

the amount earned from production

Question 25

what is net profit

Answer 25

the take home profit

Question 26

how to calculate COGS

Answer 26

opening stock + purchases - closing stock

Question 27

how to calculate gross profit

Answer 27

sales revenue - COGS

Question 28

how to calculate net profit

Answer 28

gross profit- expenses

Question 29

what do balance sheets do (2)

Answer 29

Give a snapshot of what the business owns at a specific time

Shows the businesses financial stability (gearing)

Question 30

what is owners equity

Answer 30

funds contributed by the owner

Question 31

what does owners equity represent

Answer 31

the net worth of the business

Question 32

how to calculate assets on a balence sheet

Answer 32

liabilities + owners equity