Revision Practise Flashcards
What is the definition of Average Rate Of Return?
A quantitative method of deciding whether an investment is likely to be worthwhile
Formula for Average Rate Of Return
(Average Annual profit / initial investment) x 100
Definition of Breakeven
Total costs are equal to revenue
Breakeven Output Formula
Total Fixed costs / (selling price per unit - variable costs per unit)
What is Limited Liability?
When a business owner’s personal funds are protected from being used to pay business debt’s.
What is a sole trader?
An individual who owns and operates a business as a self-employed entity.
What are the advantages of being a sole trader?
They don’t have to share profit, freedom and the business is easy to set up with low startup costs.
What are the disadvantages of being a sole trader?
Sole responsibility, unlimited liability, barriers to finance
What is a partnership?
A business legally owned by 2 or more people which requires a partnership agreement.
What are the advantages of a partnership?
Shared expertise/teamwork, no need to share financial info to public, low start up
What are the disadvantages of a partnership?
Shared profits, unlimited liability, potential for conflict
What is a Private Limited Company?
An incorporated business owned by shareholders. These shareholders are decided by the owners
Advantages of private limited companies
Limited liability, more tax efficient than sole trader or partnership.
Disadvantages of private limited companies
Assets and profits all belong to the company, more complex to get paid in comparison to sole trader or partnership, public disclosure of info is required.
What is a Public Limited Company?
A more prestigious business owned by public shareholders and run by directors
Advantages of a Public Limited Company
Better financial opportunities by selling more shares to public via stock exchange, limited liability.
Disadvantages of a Public Limited Company
Increased legal requirements/paperwork, original owners can lose control, complex/expensive to set up.
