papaer 2 Flashcards
1
Q
internal finance
A
finance from insiode the business
2
Q
external finance
A
finance from outside the business
3
Q
pros of internal finance
A
no loss of control
no interest paid
4
Q
pros of external finance
A
usually greater sums of finance can be generated b
5
Q
cons of internal finance
A
oppurtunity cost
6
Q
cons of external finance
A
loss of control
pay interest
7
Q
personal savings
A
when an entreprenuer uses personal finances to finance the business
8
Q
what is personal savings used for
A
long term finance
internal finance
new/start up business
9
Q
pros of personal finance
A
no financial cost
easiest and quickest source of finance
10
Q
cons of personal finance
A
likely to be limited
if business does not immedialey make profits there will be pressure
10
Q
retained profits
A
when a business uses historical profits from previous years to invest
11
Q
why use retained profit
A
long term finance
internal finance
usually established business
12
Q
pros of retained profirs
A
no financial cost
no control given up
safe low risk approach
13
Q
cons of retained profit
A
may create conflict
usualyy finite profit
no “expertise added”
14
Q
selling fixed assets
A
raising cash via the sale of surplus of fixed assets
15
Q
cons of selling fixed assets
A
only a finite amounts of times you can do it
risk in not being able to find the buyer or a fair value
16
Q
pros of fixed assets
A
not a form of debt
no control given up
quick form of cash
17
Q
why use bank loans
A
external finance
commonly used for new businesses
18
Q
bank loan
A
when a business borrows a sum of money and pays it back with interest over an agreed period of time
19
Q
pros for loans
A
no shares in business given up
interest rates lower than overdraft
may improve credit score
20
Q
cons of a bank loan
A
assets will be taken if you fail to repay
no flexibility
fail to pay will worsen credit score
21
Q
how to calculate interest
A
total payment - borrowed amount divided by borrowed amount x 100
21
Q
pros of crowd funding
A
no payments need to be made
excellent exposure
good feedback
21
Q
crowdfunding
A
raising finance from a large amount of people all receiving a small amount of shares
22
cons of crowd funding
if profits are made they will be shared
risk of reputation if failure
investors may have limited expertsise
23
new share issues
when a plc issues shares in exchange for a payment
24
pros of new share issue
no interest
stock exchange
25
cons of selling shares
give up share of business
expected to pay shareholders dividends
26
vanture capital
a type of finance offered by a vc fund to high risk high reward firms in exchange for shares in business
27
pros of venture capital
makes expansion possible
no repayment
reduce personal risk
28
cons of venture capital
given up share of business
may lose control if more than 50% is given up
29
overdrafts
when a business withdraws more cash than it holds (gone negative)
30
pros of overdarfts
quick and simple to organise
can be tailored to the business
31
cons of overdrafts
banks could cancel overdarft at any time
higher interest rates than loans
32
trade credit
when you buy raw materials from suppliers today but pay later
33
pros of trade credit
simple to arrange and maintain if credit terms are met
34
cons of trade credit
risk of spoiling relationship
large fine if you pay late
35
grants
financial award given by the government. local council or charity
36
pros of grants
non repayable
no control given up
37
cons of grants
time consuming process
grant tied to certain conditions
38
unlimited liability
owner and business is the same legal entity, therefore the owner is responsible for all debts the business incures
39
limited liability
owner and business are different legal entities therefore assets are not at risk in the event of the business incurring debts
40
budgeting
compare against actual figures, showing an adverse or favourable situation
41
pros of budgeting
gives seniors spending guidance
helps increase chance of finance
42
cons of budegeting
who set the budget? - no expertise]over ambitious targets
historical budgets are based on previous years
how frequently are they reviewed
43
adverse
profits are lower than expected
revenues are lower than expected
costs are higher than expected
44
favourable
profits are higher than expected
revenues are higher than expected
costs are lower than expected
45
business plans
a document explaining what a business intends to do
46
what does the business plan include
summary
aims and objectives
operations
finances
47
pros of business planning
helps understand finances
increases chances of loans
allows closer inspection of business areas
48
cons of business plan
only a plan, reality is different
who did the plan and do they have expertise
49
cash flow forecasts
helps predict when you may have a liquidity problem
50
pros of cash flow forecasts
useful to see if you do or don't have a good amount of cash
anticipate cash flow issues
manage cash flow issues
51
why poor cash flow happens
poor sales
over trading
poor business management
52
why poor cash flow is an issues
not enough cash for 2 day expenses
cannot pay wages
indicates need for finance
53
solutions to cash flow problems
rescheduling payments
increase cash inflows
decrease cash inflows
sources of finance (overdraft)
54
break even output calculation
fixed costs divided by sales price- variable cost per unit
55
revenue at break even point caluclation
break even output x sales price
56
pros of break even analysis
useful tool for management
highlights the importance of fixed costs
data generated can be used in a business plan
57
cons of break even analysis
based on predicted data not actual data
many unrealistic assumptions-
.one price used
.no waste
.all units produced are sold
58
gross profit margin calc
gross profit divided by revenue x 100
59
statement of finacial position
a snapshot of a companys equity, assets and liabilities at a single point
60
pros of a positive cash flow
able to pay suppliers on time
employees on time
handle unforseen events
expansion
61
consequences of a poor cash flow
cant pay on time
cant handle externalities
less growth
62
gross profit
revenue - direct costs
63
operating profit
gross profit - indirect costs
64
net profit =
operating profit - interest and taxes
65
current ratio
current assets divided by current liabilities
66
types of current assets
cash
stock
67
operational objectives
reducing unit costs
increase quality
response speed + flexibility
dependability
environmental
created added value
68
job production
one off production to meet the customers needs
69
examples of job production
ship building
personal tainer
tailored suit
70
pros of job production
higher quality
unique to customer
workers aren't bored so motivation high
71
cons of job production
cost per unit is high
need high% of labour
72
batch production
batch production into groups- limited quantities of identical products
73
pros of batch production
productivity up
economies of scale up
flexibility up
risk down
74
flow production
continuous production to produce many identical products. usually on an assembly line for mass market
75
pros of flow production
produce more to meet demand
workers can specialise in one activity
eos
76
cons of flow production
need to buy capital
workers bored of repetitive work
not as flexible
77
average unit costs calc
totals costs divided by units sold
78
labour productivity
amount of output produced per unit of labour output
79
labour productivity calculation
output over a time period divided by number of employees
80
how to increase labour productivity
new capital
train employees
motivational theories
adapt management style
81
importance of higher labour productivity
efficicny up
cpu down
prices down
competetivness up
82
barriers to labour productivity
resistance from employees
cost of training
motivation impacts
quality impacts
83
buffer stock level
stocks the business intends to hold
84
pros of buffer stocks
manage uncertainty
negotiate a better deal with suppliers
85
cons of buffer stock
high storage costs
wastage ?
86
lean production
about reducing waste which increases efficiency and productivity
87
types of waste
too much stock held
high defects
high fluctuation
too large a factory
88
just in time
exact , stock arrives when needed
89
kaizen continuous improvement
keep improving bit by bit in production process
90
cell production
teams of workers completing whole tasks in close proximity
91
quality control
a system to ensure a final good or service meets a certain level of quality
92
pros of quality control
avoids selling defect goods
checks occur after production process
93
cons of quality control
increases costs
doesnt help prevent waste
94
quality assurance
when systems are used to prevent defects from occurring
95
pros of quality assurance
decreased defects and wastage
lower defects means better reputation
96
cons of quality assurance
costs higher
may slow down production
demotivating potentially
97
tqm
improving the product quality by being customer focused
98
pros of tqm
improve quality of end product
increase cutomer loyalty
increase employee motivation
99
con of tqm
takes time to see real impact
resistance
100
inflation
sustained increase in prices in an economy
101
impact of inflation on finance
real value of debt eroded
assets appreciate in value
102
inflation effect on marketing
higher revenues
brand down
103
inflation on operations
cost of raw materials likely to inncrease
suppliers may increase
increase prices= qd down
104
inflation on human resouces
workers real wage may fall
105
pros of just in time
reduce waste
greater productivity
106
cons of just in time
higher average unit cost
very reliant on supplier
risk of failing to meet unexpected demand
107
capacity utilisation
actual output diivded by max output x 100
108
mission statement
written description about the organisation so stakeholders know intent
109
examples of mission statements
aims, corporate aims, values, mission
110
corporate objectives
define overqall objectives of the business eg. prof max sales max break even
111
functional objectives
define objectives of each department
112
why have heirarchy of objectives
measure of sucess
coordination in layers
113
4 parts of ansoffs matrix
market penetration
product development
market development
diversification
114
market penetration
ezisting product
existing products
115
product development
new prodct
existing market
116
market development
new market
existing product
117
diversification
new product
new market
118
external enviroment
influences on cost and demand
119
external influences
competition
market conditions
interest rates
demographic factors
enviromental issues
120
swot analysis
a strategic planning tool used before a business uses a strategy
121
what does swot stand for
strengths
weaknesses
opportunities
weaknesses
threats
122
key points of swot
unique to each business
constantly changing
regular updates
not a grantee of success
123
pestle analysis
help recall the external factors that may impact a business
124
porters 5 forces
threat of entry
buyer bargaining power
threat of substitutes
supplier bargaining power
rivalry
125
porters generic strategies
tool to help managers to strategically position themselves within the market
126
what are porters generic strategies
low cost - differentiation
broad- narrow competition
127
avaerage unit costs calculation
total costs divided by units sold
128
economies of scale
as output increases average costs decreases
129
diseconomies of scale
once a business gets pasta certain point, output increases causes average cost to increase
130
reasons for diseconomies of scale
laziness and wastage
131
correlation
understanding the strentgh of a relationship
132
extrapolation
using historical trends to predict future trends
133
pros of extrapolation
usefull ton predict future
aids decision making
134
cons of extrapolation
external factors may change
135
confidence intervals
a range of values that data suggests something is likely to occur within
136
external growth
growth from outside the business
137
mergeres
consolidstion of two entities
138
takeovers
one business takes control of another
139
why do a merger or takeover
gain economies of scale
increase market share
secure supplies
reduce risk
acquire knowledge
access to more consumers
140
backward vertical intergration
expanding operations by moving closer to its suppliers or sources of raw materials
141
why backwards integration
more control of supply chain
reduce dependency on external suppliers
142
forward vertical intergration
expanding operations by moving closer to the consumer
143
pros of forward vi
more control of outlets
more control off distribution
144
horizontal intergration
expanding by merging in same industry with same product
145
pros of horizontal v
increase market share
achieve economies of scale
146
conglomerate intergrationn
expanding into unrelated industries
147
internal growth
growth from within the business
148
decision trees
tools helping business to make a decision
149
dividends
a distribution of the profits to shareholders
150
corporate social responsibility
the responsibilities of an organisation to put initiatives in place to benefit society
151
reasons for corporate social responsibility
improved brand image
incrased sales
improved economic performance
152
reasons against csr
costs are high
less profitable for smaller orgaisations
153
stakeholder
aytone with an interest in the business
154
shareholders
anyone who owns a share of the company
155
consumer spending
the total amount of household expenditure on goods and services in the economy
156
liquidity ratio
measures the ability of a business to pay off its current liabilities without using its inventory
157
gearing ratio
how much of a firms capital employed is made up of non-current liabilities
158
profitablity ratio
how efficiently finance is being used
159
Power culture
decisions made by a select few people
160
role culture
formalised roles, jobs and procedures
161
task culture
focus on specific tasks
162
person culture
workers have freedom to act independently
