Theme 2: Managing finance

Question 1

Corporation tax

Answer 1

A levy on the incomes of companies, i.e. you pay a percentage of your pre-tax profit

Question 2

Dividends

Answer 2

Annual payments made to shareholders

Question 3

Fixed overheads

Answer 3

The indirect costs that have to be paid however the business is performing, e.g. rent and salaries

Question 4

Contingency finance

Answer 4

Planning for the unexpected by either keeping a cash cushion in the firm’s current account or keeping an overdraft facility little-used

Question 5

Credit period

Answer 5

The length of time a supplier allows a buyer to wait before paying, e.g. 60 days after the bill has been sent

Question 6

Liquidation

Answer 6

Closing the business down by selling of all the assets, paying debts and returning what is left to the shareholders

Question 7

Liquidity

Answer 7

The ability of a business to pay its bills on time, which all depends upon having enough cash in the bank

Question 8

Working capital cycle

Answer 8

How long it takes for a complete cycle from cash out (buying stock) to cash back in from a customer payment. It could vary from one day (for example, for a fruit and veg stall) to one year (for example, a house builder)

Question 9

Administration

Answer 9

When the directors of a business feel forced by the threat of insolvency to hand over management control to an administrator (usually an accountant), who may try to sell the business, or perhaps close it down and sell off the assets

Question 10

Business model

Answer 10

The underlying plan of how the business is going to make a profit in the long term