schedule E Flashcards
financial objectives (6 points)
- revenue objectives
- cost objectives
- profit objectives
- cash flow objectives
- capital expenditure objectives
- capital structure objectives
internal factors affecting financial objectives (4 points)
- functional objectives e.g. new leadership
- characteristics of the firm
- focuses of the owners and directors
- public or private sector
external factors affecting financial objectives (3 points)
- competition
- number of consumers
- economic environment
sources of finance: retained profit
profit kept by a business to finance future events
advantages of retained profit (2 points)
- avoids interest payments
- doesn’t dilute the business ownership
disadvantages of using retained profit as a source of finance (3 points)
- 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
sources of finance: overdraft
the facility to overspend on an account up to an agreed sum
advantages of an overdraft (2 points)
- only borrowed when required allowing flexibility
- quick and easy to arrange
disadvantages of an overdraft (3 points)
- bank can call it in at any time
- interest payments
- bank can seize the business assets to get money back
sources of finance: loans (3 points)
- bank loan: sum borrowed from the bank
- mortgage: a long term loan used ot purchase property
- debenture: fixed loan, no repay date
advantages of loans (5 points)
- 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.
disadvantages of loans (3 points)
- 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
sources of finance: venture capitalist
investment from an established business in return for a percentage equity in the business
advantages of venture capitalist (4 points)
- 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
disadvantages of venture capitalist (3 points)
- a long and complex process
- expert financial projections are likely to be required
- partial loss of ownership
sources of finance: share capital
finance raised from the sale of shares
advantages of share capital (3 points)
- only need to pay dividends if profit is being made
- possible to raise large amounts of finance
- no interest repayments
disadvantages of share capital (3 points)
- loss of ownership
- risk of hostile takeover
- complex and costly process of issuing shares, especially for PLC
sources of finance: debt factoring definition
selling the debts of the business to a financial institution, the business will receive the debt owed to them quicker but for a fee.
advantages of debt factoring (3 points)
- receives a large amount of debt immediately
- good source of short term finance to address cash flow problems.
- saves managers time
disadvantages of debt factoring (2 points)
- reduces profitability due to fee payed
- may damage reputation of firm as they appear in need of short term finance.
sources of finance: crowd funding
raising finance from a large number of people investing small amounts of money
advantages of crowd funding (3 points)
- 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
disadvantages of crowd funding (3 points)
- 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
budgets definition
forecast or plans for the future finances of a business
types of budgets (3 points)
- income budgets
- expenditure budget
- profit budget
benefits of budgeting (3 points)
- control income and expenditure
- monitor performance
- direction and coordination
drawbacks of budgeting (4 points)
- 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
favourable variance
difference between actual figure and expected figure is positive
adverse variance
difference between the actual figure and the expected figure is negative
