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Business - Theme 1 > Topic 1.3 > Flashcards

Topic 1.3 Flashcards

1
Q

Definitions: Business objectives and aims

A

Business objectives - the steps a business needs to take to meet its overall aims

Business aims - the overall target or goal of the business

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2
Q

Business objectives are created by using the SMART acronym

A

Specific
Measurable
Agreed
Realistic
Time

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3
Q

Financial aims and objectives are…

A
  • Sales/profit
  • Financial security
  • Survival
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4
Q

Non-financial aims and objectives are…

A
  • Independence
  • Social objectives
  • Personal satisfaction
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5
Q

Why business aims may change and differ

A
  • Form of ownership
  • Size
  • Different sectors/markets
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6
Q

Difference between fixed and variable cost?

A

Fixed costs are not linked with the output but variable costs are

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7
Q

Revenue formula

A

Quantity sold x price = revenue

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8
Q

Total costs

A

Total variable costs + total fixed costs = total costs

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9
Q

Interest on loans formula

A

total repayment - borrowed amount ______________________________________
borrowed amount
x 100

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10
Q

Definition: Break - even

A

The point at which revenue and total costs are the same

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11
Q

Break - even formula

A

Break-even = fixed costs ÷ (selling price − variable costs)

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12
Q

BREAK EVEN GRAPH CHECK BOOK

A
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13
Q

Definition: Margin of safety

A

Is the amount sales can fall before the break-even point is reached

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14
Q

Margin of safety formula

A

Margin of safety = actual sales − break-even sales

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15
Q

Why should we calculate break - even ?

A

Businesses should know how many units to sell to cover costs and make a profit

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16
Q

Problems while calculating break - even ?

A

Doesn’t take in external factors: competition, change in economy

17
Q

Definition: Cash flow

A

the money going in and out of a business

18
Q

Difference between positive and negative cash flow?

A

Positive cash flow is when the cash inflow is greater than the cash out flow, negative is when cash inflow is less than outflow

19
Q

Net cash flow formula

A

Cash inflow - cash outflow

20
Q

What is the importance of cash flow ?

A
  • To pay suppliers, overheads, employees
  • Prevent business failure
21
Q

Opening and closing balance

A

Opening balance = closing balance for the previous month

Closing balance = opening balance + net cash flow

22
Q

How do credit terms affect cash flow?

A

Credit terms tell you how long after buying a product the customer has time to pay, it affects the timing of cash flow

23
Q

SHORT-TERM SOURCES OF FINANCE
Trade credit

A

Business to get raw materials/ stock but pay for them at a later date usually 30, 60 or 90 days

PRO: time to earn money to pay debt

CON: large fee if payment is delayed

24
Q

SHORT-TERM SOURCES OF FINANCE
Overdrafts

A

More money out of the bank account than there is in it

PRO: allows the business to make payments on time even if they don’t have the money

CON: higher interest rate than other loans and the bank can cancel it anytime
or take some assets if it hasn’t been paid off

25
Q

LONG-TERM SOURCES OF FINANCE
Bank loan

A

Money lent to a business that is paid off with interest over an agreed period of time

PRO: quick and easy to take out

CON: may need to secure assets against it
pay back in monthly instalments -> increase their fixed costs

26
Q

LONG-TERM SOURCES OF FINANCE
Personal savings

A

Money the business owner has saved up

PRO: doesn’t cost the business

CON: owner could end up losing their money if the business fails

27
Q

LONG-TERM SOURCES OF FINANCE
Share capital

A

Money raised by shareholders through the sale of shares

PRO: there are no dividends to be paid if the business has a poor year

CON: the business is vulnerable to takeover
Dilution

28
Q

LONG-TERM SOURCES OF FINANCE
Venture capital

A

Money invested by an individual or group that is willing to take the risk of funding in exchange for an agreed share of the profits

PRO: usually specialise in giving finance or growing businesses

CON: will expect a return on their investment

29
Q

LONG-TERM SOURCES OF FINANCE
Retained profit

A

Profit that is left in the business after everything is paid out, for reinvestment

PRO: does not incur interest charges or require the payment of dividends

CON: shareholders may want more dividends

30
Q

LONG-TERM SOURCES OF FINANCE
Crowd funding

A

Large number of people investing small amounts of money in a business, usually online

PRO: it provides opportunities

CON: it can be difficult to reach the funding target

Business - Theme 1 (5 decks)

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