Theme 2💙 Flashcards
What are sources of finance?
The options available of where to raise funds from
Can be internal or external
What is owners capital?
When an entrepreneur invests their personal savings into the business
Three benefits of owners capital:
- Don’t have to repay anyone
- No interest
- Control over what the money is spent on
Two limits of owners capital:
- Large investment needed
- Threat to personal finances (house, family, lifestyle)
What is retained profit
Profit that is left over at the end of the year (for owners use)
Name one benefit and one limitation of retained profit
+ RP is not spent on interest payments
- RP costs dividend payments which leads to shareholder dissatisfaction
What are the sale of assets?
Assets are sold to generate immediate finance
What is break even?
The point that a business is not making a profit or a loss, total costs must be the same as total revenue
What is break even output?
The number of items that a business must sell to reach the break even point
What is contribution?
Each product sold contributes to the profits
What is the contribution formula?
Selling price-variable costs
What is the total contribution formula?
Total sales revenue- total variable costs
Break even formula
Fixed costs / contribution
Break even formula
Fixed costs / contribution
Strengths of break even?
- Target
- Accurate decision making
- Calculate the mini amount of sales needed to reach B-E point
2 weaknesses of break even?
- Unreliable -based on predictions of costs and variables, fixed costs can also change
- Relies on the number of sales needed -not actual sales completed
What is revenue?
The money from the sale of goods and services
Formula for SR, SP and SV
Hint: triangle
Sales revenue/
Selling price x sales volume
What is profit and profit formula?
Profit is money from sales revenue
Total cost - total revenue
P= T-T
What is revenue and revenue formula?
Revenue is the money from sales
Total rev= Selling price x number sold
What are the types of profit?
Gross profit
Operating profit
Profit for the year (Net profit)
Gross profit margin formula
Gross profit / sales revenue x 100
Operating profit margin formula
Operating profit / sales revenue x 100
Net profit margin
Profit for the year / sales revenue x 100
What is Appreciation?
An increase in the value of a currency
What is Depreciation?
A decrease in the value of a currency
What does SPICED stand for?
Strong pound: imports dearer, exports cheaper
What does WPIDEC stand for?
Weak pound: imports cheaper, exports dearer
Some examples of cash outflows
Buying stock
Paying wages
Utility bills
Suppliers payments
Tax
Why are trade creditors a current liability for a business?
Trade creditors are suppliers who has sent your business goods but has not been paid yet
What is foreign direct investment
When a business with a head office in one country sets up factories/offices etc in another country
