Managment of Finance

Question 1

Short Term sources of finance?

Answer 1

Bank overdraft
Debt Factoring
Trade Credit

Question 2

Bank Overdraft?

Answer 2

Take out more money than you have in your account that you need to pay back

Question 3

ADV/ DISAD of bank overdraft?

Answer 3

+ Simple to arrange
- Can be expensive if used long term due to interest rates
- Bank can reduce limit or cancel overdraft anytime

Question 4

Debt Factoring?

Answer 4

Business can sell their debts to factors for a reduced price, so they can chase it up

Question 5

Trade credit?

Answer 5

Business can buy supplies then pay later

Question 6

ADV/ DISAD of trade credit

Answer 6

+ improves cash flow
- if not paid in set period suppliers might be reluctant to relate sale

Question 7

Medium Term Sources of finance?

Answer 7

Leasing
Gov Grant
Bank Loan
Hire purchase

Question 8

Leasing?

Answer 8

Assets and equipment is rented for a time period

Question 9

ADV/ DISAD of leasing

Answer 9

+ Equipment can be changed regularly to stay up to date
+ doesn’t own asset which has warranty meaning business don’t have to pay for any breakdowns
- leasing over a long period of time is expensive

Question 10

Gov Grant?

Answer 10

Loan given by the government which doesn’t need to be repaid

Question 11

Bank Loan

Answer 11

Money given to business by bank which needs to be repaid with interest

Question 12

Hire purchase?

Answer 12

How businesses pay for expensive assets
Deposit is paid then rest is paid with interest in instalments

Question 13

Long term sources of finance?

Answer 13

Mortgage
Share capital
Debentures
Sale & Leaseback
Venture Capital
Crowdfunding

Question 14

Mortgage

Answer 14

Bank loan that is paid back over a large period of time eg. 25 years
Deposit is required

Question 15

Share Capital

Answer 15

Money raised through selling shares

Question 16

Sale and Leaseback

Answer 16

business sell assets/ property which they will then rent back

Question 17

Venture Capital?

Answer 17

Loan money to new startup company’s with a risky trade credit with strong potential

Question 18

Crowdfunding

Answer 18

Those who believe in the business will invest in the business
People invest in exchange for value of assets

Question 19

Liquidity?

Answer 19

Business has enough money to pay bills

Question 20

Cash budget

Answer 20

Estimation of the cash flow over a period of time
Allows planning of any extra cash that can be invested in new assets

Question 21

Cash flow issues?

Answer 21

Capital tied up in stock
High interest rates
Low sales
Expensive raw materials
Changes in demand

Question 22

Cash flow solutions?
Capital tied up in stock
High interest rates
Low sales
Expensive raw materials
Changes in demand

Answer 22

1. reduce stock levels, sell stock, use JIT
2. Change bank
3. Increase advertising
4. Change suppliers
5. Have a sale, rebrand product

Question 23

Income Statements?

Answer 23

financial statements that show a businesses income and expenses

Question 24

Purpose of income statement

Answer 24

shows profit/ loss made by company
can be used to compare growth profit and annual profit over several years
comparisons can be made with similar companies

Question 25

Statements of financial position?

Answer 25

shows a businesses financial value

Question 26

what does a statement of financial position show?

Answer 26

asset - what the business owns
liabilities - what the business owes

Question 27

working equity?

Answer 27

money business has access to immediately which isn’t tied up in assets etc

Question 28

who uses financial information?

Answer 28

rivals - interested in profits of business
banks- helps to determine if they choose to lend
gov - to calculate tax rates
owners - to ensure company is running successfully

Question 29

Limitations of ratio analysis

Answer 29

doesn’t take into account external factors
other companies may use different methods to value stock
comparisons with other firms can be difficult
information used is historical (past info)

Question 30

Profitability rates eg

Answer 30

Gross profit
Profit of the year

Question 31

Liquidity ratios eg

Answer 31

current ratio
asset test ratio

Question 32

Efficiency ratio

Answer 32

Rate of inventory turnover

Question 33

technology in finance

Answer 33

powerpoint can be used to make spreadsheets which show financial figures
internet banking
word can be used to send emails etc about bills etc
Apple Pay etc can be used to electronically pay for materials