Revenue & Finance Flashcards
What is sales revenue?
Money from selling products.
How is sales revenue calculated?
Quantity sold x selling price
Give two ways in which businesses can increase sales revenue.
- Change the selling price
- Increase the amount sold
Give three factors that a business should consider when deciding to change prices.
- Number of competitors
- What competitors do.
- Whether the product is a necessity.
What is price elasticity of demand?
Measure of change in level of demand caused by change in price.
What are fixed costs?
Costs that don’t change with output.
Give four examples of fixed costs.
- Rent
- Salary
- Business rates
- Interest on loans
What are variable costs?
Costs that change with output.
Give four examples of variable costs.
- Energy
- Tax
- Wages
- Raw materials
What are total costs?
fixed + variable costs
What are average costs?
Cost of each unit produced
How is average cost calculated?
total cost / amount sold
Give four ways in which a business can reduce average costs.
- Spreading fixed costs.
- Reducing the cost of raw materials.
- Increasing efficiency of labour.
- Achieving economies of large scale production.
What is the “short run”?
Approx. 12 months
What are fixed assets?
Items owned by a business of which value doesn’t change daily.
What is the “long run”?
Over 2 years
What is capacity?
Amount that a manufacturing facility is designed to produce.
What is above capacity?
When the level of production is above the capacity.
What is excess capacity?
When the level of production is below the capacity.
What are economies of scale?
When the average cost of production decreases as the output increases.
What are technical economies of scale?
The business reduces production costs by using better equipment.
What are managerial economies of scale?
Business employs specialist managers to improve efficiency.
What are financial economies of scale?
Business reduces the cost of loans.
What are risk-bearing economies of scale?
Business has a range of products so is less dependent on one product.
What are purchasing economies of scale?
The business is given a discount when buying in large quantities.
What are marketing economies of scale?
Business saves money on marketing and transport.
What are diseconomies of scale?
When average cost increases as production increases.
What is break-even level of output?
Level of output at which the business neither makes a profit or loss.
What is a break-even forecast?
Prediction of break-even level output based on estimated selling price and costs.
What is the margin of safety?
Amount by which a business’ output is greater than its break-even output.
Give five factors which affect the size of a business.
- Size of the market
- Amount of capital needed.
- Economies and diseconomies of scale.
- Motives of the owner(s).
- Co-operation by firms.
Give three reasons why a break-even analysis should be treated with care.
- Forecast figures may change.
- Figures only relate to one product.
- It presumes all output is sold.
Which lines start at the origin on a break-even graph?
- Variable costs
- Sales revenue
Which line is parallel to the x-axis on a break-even graph?
-Fixed costs
Which line starts at the total fixed cost line on a break-even graph?
Total costs
How is break-even calculated?
fixed costs / (selling price - variable cost per unit)
What is a business sponsor?
A business which pays money to another organisation.
What is an opportunity cost?
The cost of missing out on something else.
What is internal finance?
- Finance from within the business.
- Finance with no cost.
- Money that cannot be used for anything else.
What is external finance?
- Finance from outside the business.
- Usually a cost.
- Assets are provided as security.
What is interest?
The amount of money that is paid for borrowed money.
What is an asset?
Item of value owned by the business.
What is security?
Something of value offered to the lender as a guarantee of payment.
Give seven reasons why a business might need finance?
- Starting up costs.
- Internal growth.
- Takeover of another company.
- Replacing old equipment.
- Moving to new premises.
- Cash-flow problems.
- Research and development.
Give one short term internal source of finance.
Cash in the bank
Give two medium term internal sources of finance.
- Retained profit
- Sale of assets
Give two long term internal sources of finance.
- Retained profit
- Owners’ investment
Give two short term external sources of finance.
- Overdraft
- Trade credit
Give four medium term external sources of finance.
- Bank loan
- Lease
- Hire purchase
- Grants
Give six long term external sources of finance.
- Bank loan
- Mortgage
- Taking a new partner
- Share issue
- Lease
- Hire purchase
What is an overdraft?
- An arrangement with the bank whereby a business is able to withdraw more money than it has in an account.
- Used to overcome short term shortage of funds.
- Overdrafts usually have a set cost.
What is trade credit?
- The business buys goods but doesn’t have to pay immediately.
- Usually interest free.
What is retained profit?
- Profit made by the business kept for later use.
- No cost.
- Opportunity cost.
What is sale of assets?
- Selling something the business owns.
- No cost.
- Opportunity cost.
What is a bank loan?
- Money borrowed from the bank.
- Interest payable.
What is a lease?
- Items property of the business for a set period of time.
- Monthly payments made.
What is hire purchase?
- Obtaining items for a monthly fee.
- Property of the business after full cost paid.
What are grants?
- Amount of money made available for a specific purpose buy the government.
- Doesn’t need to be repaid.
- Money has to be used for specific purpose.
What is the owners’ investment?
- Owner invests money into the business.
- No cost to the business.
What is cash in the bank?
- Money owned by the business.
- Only opportunity cost.
What is a mortgage?
- Long term method of finance (25 years or more)]
- Requires security.
- Used to buy property.
- Lower interest rates.
What is taking a new partner?
- New person invests.
- Extra finance and skills available.
- New partner has a say in business running.
- Profits split with new partner.
What is share issue?
- Source only for limited companies.
- Investors pay for a share in the business.
- Dividends paid to shareholders.
- Shareholders have a say in the business.
How are public corporations funded?
- Income tax
- VAT
- Excise duty
What is profit?
Money left from sales after costs are paid.
What is gross profit?
sales revenue - cost of sales
What is a profit margin?
Difference between selling price and cost of the item.
What is net profit?
gross profit - fixed costs
What is a mark-up?
Amount added to purchase price to give selling price.
What is return on investment?
Amount that the business receives for providing finance to business.
What are drawings?
Business profits paid to owners of sole trader/partnership.
What is retained profit?
Profit kept by the business for its own use.
What is a trading profit and loss account?
Details of costs and revenue of a business used to calculate profit.
What is break-even analysis?
Technique used for estimating costs, revenue and profit/loss.
How is profit margin calculated?
(gross profit / buying price) x 100
Give six factors that affect the amount of profit/loss.
- Type and size of business
- Objectives of the business
- Demand for product
- The price consumers are willing to pay
- The way costs are controlled
- Amount of competition
What is income?
Money the business receives.
What is expenditure?
Money the business pays out.
What is a cash-flow forecast?
Statement showing flow of money in and out of the business.
What is balance carried forward?
Amount of cash left over at the end of the month.
What is positive cash flow?
More cash coming into the business than leaving.
What is negative cash flow?
More cash leaving the business than coming in.
What is total income?
Balance brought forward + income
How is balance carried forward calculated?
total income - total expenditure
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