teacher 1 - task 11

Question 1

What is cash

Answer 1

The money the business holds in physical form as well as money in electronic form

Question 2

2 examples of cash

Answer 2

• money in the till
• cash in a business bank

Question 3

What is profit

Answer 3

Profit is a calculation

TR - TC

Question 4

Two ways to increase profit

Answer 4

• Increase total revenue
• decrease total costs

Question 5

Why are cash and profit not the same thing

Answer 5

Because they act different, somethings can affect cash but not profit and vice versa

Question 6

Example why cash and profit aren’t the same

Answer 6

Business takes out a loan
- Cash increases
- TR and TC stays the same - profit doesn’t change
—> because haven’t sold anything and costs loan hasn’t been needed to pay yet …

Question 7

What is one of the biggest reasons a business fails

Answer 7

It runs out of cash. doesn’t mean they aren’t profitable, but they run out of cash and can’t pay wages and suppliers

Question 8

Lack of profit (eg losses) is like a cancer

Answer 8

it will kill you slowly

Question 9

lack of cash is like a heart attack

Answer 9

It will kill you quickly

Question 10

What does cash give you

Answer 10

Cash gives you power over your resources, you can actually do something

Question 11

cash cycle definition

Answer 11

the time it takes between the outflow of cash to pay for labour and raw materials, and the receiving of cash from the sale of the product

Question 12

example of long cash cycle

Answer 12

shell oil company, have a long cash cycle, can take years to discover and retrieving oil and gas

therefore, important for shell to manage its cash carefully so it doesn’t run out

Question 13

companies with cash flow objectives

Answer 13

oil companies - have a long cash cycle
banks - need cash otherwise cannot give loans and lend and then bank fail
expanding businesses - need cash to purchase increasing inputs (labour and raw materials, capital…)

Question 14

investment

Answer 14

the purchase of assets such as property, vehicles and machinery that will be used for a considerable time by the business

Question 15

non-current assets

Answer 15

items that a business owns and which it expects to retain for one year or longer,
e.g property and vehicles

Question 16

capital expenditure

Answer 16

spending undertaken by businesses to purchase non-current assets, it is another term for investment

Question 17

return on investment calculation

Answer 17

profit from investment
——————————————- x100
capital invested in the project

Question 18

capital structure

Answer 18

refers to the way in which a business has raised the capital it requires to purchase its assets

Question 19

Businesses with capital structures with high levels of borrowing (50% +)

Answer 19

are at risk of rising costs if interest rates rise.

Question 20

internal factors affecting financial objectives and decisions

Answer 20

• overall business objectives, profit maximisation -> objective could be cost minimisation
• nature of the product sold, shell oil -> cash flow objective cause long cash flow
• objectives of senior managers, hold large number of shares so increase profit could be an objective

Question 21

External factors affecting financial objectives and decisions

Answer 21

• competitive environment
• economic environment
• technological environment
• political and legal environment

Question 22

how does the competitive environment affect financial objectives

Answer 22

shop industry, competitor drops prices, financial objective could be to decrease costs to produce to also drop prices

Question 23

how does economic environment affect financial objectives

Answer 23

if a business is having difficulty in raising capital because bad economic environment then financial objectives are more likely centred on profits

Question 24

how does technological environment affect financial objectives

Answer 24

advancements in technology allow for an overall costs minimisation, don’t need a cashier anymore etc …

so financial objective would be increase technology decrease costs and increases long term profits

Question 25

how does political and legal environment affect financial objectives

Answer 25

e.g brexit causes a huge decrease in migration, so costs of labour for unskilled jobs increases -> less people to fill the jobs

businesses objective would be to find employees and increase staff retention -> increase wages to do so

Question 26

why is taking a £20,000 loan a cash inflow but not counted as revenue

Answer 26

because cash increases by £20,000
but total costs and total revenue (haven’t sold anything) haven’t changed yet
so profit stays the same

Question 27

How many seasonal factors disrupt the cash flow of a profitable business

• delete after lesson

Answer 27

Christmas season may increase the cash flow for many businesses, causing them to want to expand and produce more, however, summer season the business is still profitable but cannot afford to pay all the new quantities like more labour and the supplies.

cash flow is largely increased and decreased depending on the season based on the business product, this can lead to bad business decisions for the long run and overall business failure

Question 28

Why should an overdraft be a last resort if a company faces a cash flow problem

• delete after lesson

Answer 28

because then a higher percentage of their capital structure would be from borrowing, this puts them in risk of increased interest rates - higher costs and business failure