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business - unit 3 > personal and business finance > Flashcards

personal and business finance Flashcards

1
Q

what is a cost and give two examples of a cost

A

its an expense to a business eg. paying employees, utility bills, marketing and advertising

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2
Q

define a running cost and give an example

A

everyday cost which a business incurs once its up and running eg. paying employees, loan repayments , paying for advertising

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3
Q

define a start up cost and give an example

A

a cost incurred before a business starts running eg. paying for the shop, paying for raw materials

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4
Q

define a fixed costs and give examples

A

even if the output is nothing the fixed costs remain the same as there’s only one overall figure eg. salary, rent, insurance

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5
Q

define a variable cost and give examples

A

these change according to the output of a business eg. hourly based wage, raw materials, utility bills

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6
Q

what happens if there is more then one fixed cost

A

just add all the fixed cost together to get one overall figure

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7
Q

equation for total variable costs

A

variable cost(s)per unit x the number of units

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8
Q

equation for total costs

A

fixed costs + total variable costs

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9
Q

define revenue which can also be known as turnover, sales revenue

A

total amount of money a company receives from selling its product

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10
Q

equation for total revenue

A

quantity sold x selling price

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11
Q

equation for profit

A

total revenue - total costs

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12
Q

define profit

A

amount of money made by a company once all of its costs have been subtracted from it revenue (basically the equation for profit)

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13
Q

how can you increase profit

A

by creating demand and attracting more customers to your business, sell goods at a higher price

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14
Q

how can you decrease costs

A

having accurate inventory, negating discounts with suppliers to have cheaper raw materials

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15
Q

define cashflow and give examples of inflow and cashflow

A

money flowing in or out over a period of time
- inflow = start up capital, loans, sales revenue, grants, rent FROM the premises
- outflow= taxes, advertising/promotion, electricity bills, raw material costs, rent FOR the permise

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16
Q

what dose the term mean when more cash is flowing in then out

A

positive cashflow and flow/surplus

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17
Q

what dose the term mean when more cash is flowing out then in

A

cash flow deficits

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18
Q

what dose a cash flow forecast mean

A

estimates the timings and amount of cash inflow and outflow over a period of time (usually a year)

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19
Q

equation for net cash flow

A

INflow -OUTflow

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20
Q

why make a cashflow forecast

A

it shows firms if it needs to borrow - how much and when they need to repay a loan
helps business if they have a lot of cash left each month
tracks the finance of a business and helps direct money better

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21
Q

define credit sales

A

products that have been sold on tradeline credit (a record of activity for any type of credit extended to a borrower and reported to a credit reporting agency)

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22
Q

What are the benefits and limitations of cash flow forecasts

A

Benefits-
Encourages a business to plan ahead as it identifies times of negative closing balance and allow you to see inflow and outflows
Enables cash flow to be monitored and take action when needed
Limitations -
Takes time to produce a cash flow forecast
Can be used as a business plan to help raise finance from bank / investors

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23
Q

How can trade credit impact a cash flow forcecast

A

It can lead to a loss of repayments causing a loss of revenue that needed to stabilise a business outflows

24
Q

What are the solution to mitigate cash flow problems

A

Slow down money flowing out the business - trade credit
Reduce the amount of money flowing out - spend less on outflows eg promotion
Speed up money flowing in - create more demand for your products
Increase money flowing in - take a bank loan and price goods at a higher price

25
Q

Define debt factoring and what are the pros and cons

A

Sell your debt to a third party company for a % fee
Pros - eases cash flow as u get money instantly
Cons - you lose 5-10% in value

26
Q

What is the equation for contribution and total contribution

A

Contribution = Selling price - variable cost per unit (bottom half of break even)
Total contribution = contribution per unit x no. of units sold

27
Q

What is the equation for break even

A

Fixed costs / ( selling price - variable costs per unit )

Sometime the figure for break even might be negative

28
Q

What is the rule of 3 you need to remember

A

Selling price increase = break even decreases= margin of saftey increases

Outflow sources increase = break even increases = margin of safety decreases

29
Q

What happens to the margin of safety if the fixed cost goes up

A

Margin of safety decrease

30
Q

Why is the left of the break even a loss

A

The total revenue is Lower then the total costs

31
Q

Why is the right of break even a profit

A

The total revenue is higher then the total costs

32
Q

Explain why the margin of safety is important to be wide as possible

A

The more profit the more wider a margin of safety becomes allowing a greater safety net for bussines when there is turbulence eg. sales decrease they can still make profit

33
Q

Recipe: if exam question involves the company changing the selling price and changing either the fixed costs and variable costs

A

Impact on the break even of the business
Impact on Mos

34
Q

Define an overdraft

A

Is a facility on your bank account that allows you to go below the bank balance and use a AGREED amount of the banks money

35
Q

What are the pros and cons of an overdraft

A

Pros -
better credit score - increase overdraft money
There’s only interest applied when you use it
The more overdraft you use the higher the interest rate
Cons -
bank can withdraw the overdraft if you exploit it
The interest is much higher then loan
The amount for a overdraft is much smaller then a loan
You can’t compare the cheapest overdraft unlike a loan

36
Q

Examples for definitions of some external sources of finance

A

Credit score - a score which predicts your future financial habits / risks based on your history as it shows current /pervious levels of debt

Credit card = source of finance that is short term and has agreements limit to spend that is issued by the bank

37
Q

define a statement of comprehensive income

A

-tell us if a business has made a profit or a loss by deducting all expenses from sales revenue
-it will give a more accurate picture of the profit by considering gross and net profit

38
Q

define a statement of financial position

A

this calculates the net worth of a business by balancing what the business owns against what it owes

39
Q

what are the calculations needed to calculate and complete a statement
of financial position

A

*revenue= quantity sold x selling price

*cost of goods sold = opening inventory + purchases - closing inventories

*gross profit = revenue - cost of goods sold

*net profit = gross profit - total expenses
- taxes = 20% of net profit
- if you have dividends + tax + retained profit must = net profit

*net assets = (total of non-current assets + total value of current assets ) - (total of current
liabilities + non-current liabilities )
-current liabilities can also be known as less current liabilities
- NET ASSET = CAPITAL EMPLOYED

*if ca is greater then cl = postaive net current assests
*if ca is less then cl = negative current liabilities

*capital employed = (owner funds+shareholder capital + retained profit) - drawings(owners salary)

40
Q

why make a statement of financial position

A
  • A PLC is required to make one
    -look at how much to return in dividends
    -what are the main expense to lower and increase cash sales and credit sales
41
Q

if a business has a higher gross profit but a low net profit figure what does that mean

A

the expenses are really high and there is not a lot of disposable income

42
Q

define a non-current asset

A

an asset that a business owns that is most likey to stay with the business for MORE THAN A YEAR

43
Q

define and explain the two types of non-current assets

A

tangible assets = physical assets that must be given a realistic value so we use depreciation
intangible assests = non physical assest that add value to the bussines eg.logo,tardemark, pattern

44
Q

define amortisation

A

when an intangible assets depreciates in value

45
Q

define a current assets

A

*will be generally owned for less than a year
-the assets value fluctuates - every time the business carry out a transaction
- current assets are ranked in terms of their liquidity ( how quickly the assets can be turned into cash )

46
Q

what are examples of current and non current assets

A

current - cash , credit, debtors , stock
non-current- premises, machinery, vehicles

47
Q

explain and give example of the term current liabilities

A

things owned by the business that are expected to be paid back within the year
eg. salary’s/wages, utility bills , overdraft + mortgages RE-payments

48
Q

explain and give examples of the term non - current liabilities

A

business has to pay it back in more than one year eg. bank loan
however in terms of non current liability funds its usually the initial purchase to start the business such as machinery or property

49
Q

define capital employed

A

is the total amount of capital tied up in the business which is used to fund the net assets

50
Q

what dose retained profit mean

A

profit that is re- invested back into the business

51
Q

share capital

A

money made from selling shares

52
Q

owner capital

A

the amount the owner of a business has invested in it.

53
Q

profit quality

A

how sustainable the profit of a business is over time
- profit that is repeated in a business = good profit quality

54
Q

accruals

A

expense that have not been paid for yet

55
Q

pre-payments

A

item is paid for in advance

56
Q

depreciation

A

cost of the item has decreased in value

business - unit 3 (1 decks)

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