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Business > schedule E > Flashcards

schedule E Flashcards

1
Q

financial objectives (6 points)

A
  • revenue objectives
  • cost objectives
  • profit objectives
  • cash flow objectives
  • capital expenditure objectives
  • capital structure objectives
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2
Q

internal factors affecting financial objectives (4 points)

A
  • functional objectives e.g. new leadership
  • characteristics of the firm
  • focuses of the owners and directors
  • public or private sector
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3
Q

external factors affecting financial objectives (3 points)

A
  • competition
  • number of consumers
  • economic environment
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4
Q

sources of finance: retained profit

A

profit kept by a business to finance future events

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5
Q

advantages of retained profit (2 points)

A
  • avoids interest payments
  • doesn’t dilute the business ownership
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6
Q

disadvantages of using retained profit as a source of finance (3 points)

A
  • only an option if sufficient retained profit exists in the business
  • may make shareholders unhappy if it means no dividends
  • opportunity cost with that money
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7
Q

sources of finance: overdraft

A

the facility to overspend on an account up to an agreed sum

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8
Q

advantages of an overdraft (2 points)

A
  • only borrowed when required allowing flexibility
  • quick and easy to arrange
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9
Q

disadvantages of an overdraft (3 points)

A
  • bank can call it in at any time
  • interest payments
  • bank can seize the business assets to get money back
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10
Q

sources of finance: loans (3 points)

A
  • bank loan: sum borrowed from the bank
  • mortgage: a long term loan used ot purchase property
  • debenture: fixed loan, no repay date
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11
Q

advantages of loans (5 points)

A
  • quick and easy to secure
  • if the loan has a fixed interest rate it allows firms to budget
  • improved cash flow
  • business ownership not diluted
  • some lenders provide additional support to help business succeed.
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12
Q

disadvantages of loans (3 points)

A
  • interest must be paid regardless of financial performance
  • a firm that is highly geared may seem high risk
  • often more expensive than other sources of finance
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13
Q

sources of finance: venture capitalist

A

investment from an established business in return for a percentage equity in the business

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14
Q

advantages of venture capitalist (4 points)

A
  • potential for large sums of money for investment
  • expertise to help the business
  • makes it easier to attract other sources of finance
  • provides the required capital for expansion
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15
Q

disadvantages of venture capitalist (3 points)

A
  • a long and complex process
  • expert financial projections are likely to be required
  • partial loss of ownership
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16
Q

sources of finance: share capital

A

finance raised from the sale of shares

17
Q

advantages of share capital (3 points)

A
  • only need to pay dividends if profit is being made
  • possible to raise large amounts of finance
  • no interest repayments
18
Q

disadvantages of share capital (3 points)

A
  • loss of ownership
  • risk of hostile takeover
  • complex and costly process of issuing shares, especially for PLC
19
Q

sources of finance: debt factoring definition

A

selling the debts of the business to a financial institution, the business will receive the debt owed to them quicker but for a fee.

20
Q

advantages of debt factoring (3 points)

A
  • receives a large amount of debt immediately
  • good source of short term finance to address cash flow problems.
  • saves managers time
21
Q

disadvantages of debt factoring (2 points)

A
  • reduces profitability due to fee payed
  • may damage reputation of firm as they appear in need of short term finance.
22
Q

sources of finance: crowd funding

A

raising finance from a large number of people investing small amounts of money

23
Q

advantages of crowd funding (3 points)

A
  • can also act as advertising for a business
  • relatively cheap
  • may be able to raise a large amount depending on how attractive the business looks
24
Q

disadvantages of crowd funding (3 points)

A
  • may not raise as much as needed
  • time has to be spent on creating info to attract funding
  • may need to offer incentives to encourage contributions
25
Q

budgets definition

A

forecast or plans for the future finances of a business

26
Q

types of budgets (3 points)

A
  • income budgets
  • expenditure budget
  • profit budget
27
Q

benefits of budgeting (3 points)

A
  • control income and expenditure
  • monitor performance
  • direction and coordination
28
Q

drawbacks of budgeting (4 points)

A
  • takes a lot of time and money
  • external environment could change
  • data may be inaccurate
  • information may be difficult to maintain if operating in niche market
29
Q

favourable variance

A

difference between actual figure and expected figure is positive

30
Q

adverse variance

A

difference between the actual figure and the expected figure is negative

Business (14 decks)

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