Topic 1.3 Flashcards
Examples of businesses financial aims
Survival
Maximise profit
Increase market share
Maximise share
Achieve financial security
Examples of non-financial aims for a business
Personal challenge
Personal satisfaction
Independence and control
Doing what’s right for society
What are aims
The general direction a business wishes to go in
What are objectives
The smaller, measurable goals that the business must reach to achieve their aims
What factors affect the aims and objectives of a business
Size and age of the business
Owners
Level of competition
Equation for revenue
Revenue = quantity sold x price
What are fixed costs
Costs that don’t vary with output and they have to be paid even if the firm produces nothing
What are variable costs
Costs that will increase as the firm expands output
e.g. factory labour, raw materials and running machinery
Equation for total costs
Total costs = total variable costs + total fixed costs
Equation for interest
(Total repayment - Borrowed amount / Borrowed amount) x 100
Equation for profit
Revenue - costs
Equation for units to breakeven
Fixed costs/ sales price - variable costs per unit
Equation for break even in revenue
Break-even point in units x sales price
Equation for margin of safety
Actual sales - break even sales
Why does a business need cash
To pay employees, suppliers and overheads
What is cash flow
The flow of all money into and out of the business
Equation for net cash flow
Cash inflows - Cash outflows for a given period of time
What do cash flow forecasts help to do
Anticipate problems
What are credit terms
How long after agreeing to buy the product the customer has to pay
Why do firms need finance
Start-up capital
Poor initial cash-flow
Sometimes customers delay payment
To meet day-to-day running costs
Expand
2 sources of start-up finance
Trade credit
Overdrafts
Sources of long term finance
Loans
Personal savings
Share capital
Venture capital
Retained profit
Crowd funding
