Revision

Question 1

The roles of financial management

Answer 1

Making sure funds are available
Making sure costs are monitored and controlled
Making sure there is cash flow
Maintain profits

Question 3

Long term finance- venture capital

Answer 3

An individual or business loans money to another business. They tend to loan to businesses that banks consider ‘risky’ and because of that they charge higher rates of interest

Question 4

Short finance- debt factoring

Answer 4

Is a business that buys the debt off of another business for less than the value of the debt. This means that the business selling the debt receives most of the cash they need more quickly

Question 5

Short term finance - trade credit terms

Answer 5

Negotiating a longer period between receiving goods from suppliers and having to pay for them can provide a firm with more cash to use in the short term

Question 6

Short term source of finance- What is the bank overdraft

Answer 6

Bank over draft is when the business doesn’t have the money to pay for stuff. It’s simple and cheap to arrange interest will only be charged on the amount of the overdraft that is used. It can be expensive if used for a long time

Question 7

Cash flow solutions

Answer 7

Offer discounts to customers to pay on time
Increase advertising to improve sales
Sell fixed assets that are not needed
Use sources of finance to spend on capital items

Question 8

Medium term- bank loan

Answer 8

The most common way to get funds. They are often used to purchase machinery or other assets.
Advan- repayment is usually payed in fixed instalments
Disadvan- can be charged with high rates of interest

Question 9

Medium term- hire purchase

Answer 9

Used to obtain equipment of vehicles. The cost of the item and interest will be payed over in instalments.
Advan- cost is spread over a period of time, helps cash flow
Disadvan- high rates of interest may be charged

Question 10

Cash budget

Answer 10

It’s a forecast of the money expected to be received and paid out over a period of time. The benefits are: 
Shows were finance is needed 
Helps control expenses 
Helps to make decisions 
Helps measure performance of departments

Question 11

Medium term- leasing

Answer 11

This is often used to finance fixed assets. The assets are rented for a fixed period of time. At the end of the lease the assets are returned
Disadvan- the assets are never owned and the rental charges may be high

Question 12

Cash flow problems

Answer 12

Too much money tied up in stock
Too much time given to customers to pay their debt
Not enough money from sales
Large sums of money being spent on capital items