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Mr Perry business > perry finance test > Flashcards

perry finance test Flashcards

1
Q

what factors will influence the choice of finance?

A

-credit rating / history
-amount of money required
-amount of time
-company performance
-finance available
-percentage cost of debt

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2
Q

what are financial objectives?

A

refers to the money goals a business will set itself during a certain period of time
they will provide a target to work towards as well as a mechanism to measure performance

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3
Q

why set financial objectives?

A

-measure performance
-provide targets that can provide motivation-potential investors may be able to access the viability of the business

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4
Q

what is objective 1?

A

cost minimisation - when a business attempts to maximise profits by keeping costs low

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5
Q

what is objective 2?

A

cash flow target - a financial objective focused on maintaining a healthy cash flow position

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6
Q

what is objective 3?

A

revenue targets - involves setting minimum levels of revenue

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7
Q

what is objective 4?

A

profit targets - involves setting a satisfactory level of profit that the company would be happy to gain

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8
Q

what is objective 5?

A

return on investment - calculated by
return on investement/capital invested x 100

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9
Q

what is objective 6?

A

capital structure - refers to the long term finance of the business made up of equity and borrowing

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10
Q

what are some financial internal influences?

A

-owners and their motives
-industry sector and the current account
-position of the business

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11
Q

what are some financial external influences?

A

-economic factors (interest rates)
-political factors/government policy
-competition
-technological change

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12
Q

why do businesses need finance?

A

-growth and expansion
-start up funds
-running costs

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13
Q

internal sources of finance

A

-owners savings
-retained profits
-reducing the level of stock
-sale of existing assets

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14
Q

external sources of finance (short term)

A

-overdraft
-trade credit
-debt factoring

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15
Q

external sources of finance (long term)

A

-share capital(equity)
-government grants
-venture capitalists
-loans
-crowdfunding

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16
Q

what is an overdraft?

A

this is a service that lets you have money even if there is none available in your account, it is for an agreed amount of money and an agreed period of time

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17
Q

what is trade credit?

A

when a business will allow customers a period of time to pay their goods and services, buy now pay later

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18
Q

what is debt factoring?

A

when a business sells its customers outstanding debts in return for short term payments from a 3rd party company

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19
Q

what is a venture capitalist?

A

a business that invests in start up companies in return for a share of the business

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20
Q

what is share capital?

A

this is where a business will sell a % of the business in return for investment

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21
Q

what is crowdfunding?

A

an entrepreneur / business can attract investors who provide finance

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22
Q

what are government grants?

A

the business receives a sum of money from the government that does not need to be repaid

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23
Q

advantages and disadvantages of bank loans

A

adv: can spread large amounts over smaller more manageable payments
dis: interest and terms and conditions

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24
Q

advantages and disadvantages of overdrafts

A

adv: flexible and no interest
dis: interest and high charges if deadline is missed

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25
Q

advantages and disadvantages of venture capitalists

A

adv: large amounts, no debt, no interest
dis: can lose control and ownership, dividends

26
Q

advantages and disadvantages of share capital

A

adv: large amounts, no debt, no interest
dis: can lose control and ownership, dividends

27
Q

advantages and disadvantages of trade credit

A

adv: flexible and no interest if paid on time
dis: high costs if not paid on time and fees attached

28
Q

advantages and disadvantages of debt factoring

A

adv: large amounts upfront and money can be accessed straight away
dis: high discounts expected, could potentially lead to a negative brand image

29
Q

advantages and disadvantages of crowdfunding

A

adv: no debt repayments and good PR for the business
dis: can lose some equity depending on the deal and might be limited

30
Q

advantages and disadvantages of government grants

A

adv: does not need to be repaid and no interest
dis: limited availability

31
Q

what is a budget?

A

a forward financial plan that covers all the aspects of a business costs and revenues

32
Q

why prepare a budget?

A

-to exercise financial control within a business
-to provide direction and coordination
-to ensure that no department has an overspend
-sets targets which can motivate workers

33
Q

what is a variance?

A

the difference between the actual and the budget

34
Q

what is a favourable variance?

A

better than expected
-costs are lower than expected
-revenue is higher than expected

35
Q

what is an adverse variance?

A

worse than expected
-costs are higher than expected
-revenue is lower than expected

36
Q

variance equation

A

variance = actual - budget

37
Q

profit equation

A

sales income(revenue) - costs

38
Q

how is budget allocated?

A

-the amount available
-inflation
-extrenal factors

39
Q

what is zero budgeting?

A

-costs and revenue are set to 0
-based on new proposals for cost and sales
-time consuming but can ensure that funds are allocated properly

40
Q

what is historical budgeting?

A

-adds a little for inflation
-quicker and simpler but doesn’t focus on problems
-not efficent

41
Q

benefits of budgeting

A

-control and monitor costs
-inefficiency and waste can be identified
-can be used for motivation
-can be used to set targets and judge performance
-can improve internal communication

42
Q

drawbacks of budgeting

A

-based on assumptions and are not exact
-external factors make it almost impossible to set accurate budgets
-could be demoralising if set incorrectly
-managers rake short term decisions in order to meet budgetary requirements

43
Q

what is a cash flow?

A

a cash flow is the movement of money in and out of a business over a period of time

44
Q

what is a cash flow forecast?

A

a cash flow forecast is the projection of money moving in and out the business

45
Q

what is cash in?

A

money that flows into the business from sales

46
Q

what is cash out?

A

money that flows out of the business via a range of costs

47
Q

how can cash flow be improved?

A

-use a source of finance
-sale and leaseback
-cut costs
-delay payments
-remove any credit for customers
-increase revenue

48
Q

what is break even?

A

the point at which total revenue equals total costs

49
Q

what is break even analysis?

A

it helps a business to make decisions abut price, cost and level of sales

50
Q

equation for total revenue

A

selling price x quantity sold

51
Q

what is total revenue?

A

the money a business recieves from selling its goods or services

52
Q

equation for total costs

A

fixed costs + variable costs

53
Q

what are fixed costs?

A

costs that do not change if output changes

54
Q

what are variable costs?

A

costs that change if output changes

55
Q

what is margin of safety?

A

this is the number of units current output is above the break even point

56
Q

equation for margin of safety

A

current output - break even point

57
Q

break even formula

A

fixed costs / contribution per unit

58
Q

break even formula

A

fixed costs / contribution per unit

59
Q

total contribution equation

A

contribution per unit x output

60
Q

contribution per unit equation

A

selling price - variable cost

61
Q

profit/ loss formula

A

total contribution - fixed costs

62
Q

why is break even useful

A
  • helps business plan costs and identify any potential issues in advance
  • it enables them to analyse the impact of different prices
  • it states how viable the business is and if profits and achievable

Mr Perry business (2 decks)

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