Topic 4 - Finance

Question 1

What does it mean by internal sources of finance

Answer 1

Money sourced from within the business e.g. owners capital, retained profit and selling assets

Question 2

What does it mean by Owners capital (internal)

Answer 2

Money put into the business by its owners

Question 3

What does it mean by Retained Profit (internal)

Answer 3

Profit made by the business in earlier years

Question 4

What does it mean by Selling assets (internal)

Answer 4

Selling something that is owned by the business but no longer used e.g. machinery, building

Question 5

What does it mean by External sources of finance

Answer 5

Money sourced from outside the business e.g. bank loan, overdraft, venture capitalist

Question 6

What does it mean by Family and friends

Answer 6

Borrowing money from family and friends

Question 7

What does it mean by Trade credit

Answer 7

Trade credit is a period of time which suppliers allow customers before payment for supplies must be made. It is usually a period of 30, 60 or 90 days before payment has to be made

Question 8

What does it mean by Leasing

Answer 8

Renting an asset, never owning them. This allows them to be updated regularly. However, the business are permanently paying for them.

Question 9

What does it mean by Hire purchase

Answer 9

Purchasing an asset and paying in instalments. The asset is owned at the end of the agreement. It is an expensive way of buying something

Question 10

What does it mean by Government grants

Answer 10

A grant is a sum of money given to an entrepreneur or a business for a specific reason e.g. job creation

Question 11

What does it mean by Share issue

Answer 11

LTD’s and PLC’s selling shares in their business

Question 12

What does it mean by New partners

Answer 12

Partnerships can invite new partners to join the business

Question 13

What does it mean by Venture capitalists

Answer 13

Wealthy people or organisations that provide finance to businesses that are thought to be risky

Question 14

What does it mean by Business angels

Answer 14

Tend to invest in smaller amounts of money into newly established businesses

Question 15

What does it mean by Bank loan

Answer 15

Involves giving a business a large sum of money in return for the business agreeing to repay the amount in instalments over a number of years

Question 16

What does it mean by Overdraft

Answer 16

A special form of short term loan. It allows a business to borrow money from the bank by going overdrawn in their bank account

Question 17

What does it mean by Sales revenue and what is the formula

Answer 17

All the money generated from sales

Sakes revenue = price x quantity sold

Question 18

What does it mean by Fixed costs

Answer 18

Costs that do not change according to sales / output e.g. rent

Question 19

What does it mean by Variable costs

Answer 19

Costs that do change according to sales / output e.g. materials

Question 20

How do you work out total costs

Answer 20

Fixed costs + variable costs

Question 21

What does it mean by Profit and what is the formula

Answer 21

Surplus money left over after all costs have been paid

Profit = Sales revenue – total cost

Question 22

What does it mean by Break even

Answer 22

Break-even is the level at which a businesses total costs and total revenue from sales are even

Question 23

What is the Break even formula

Answer 23

Fixed costs divided by contribution per unit

Question 24

What is the formula for Contribution

Answer 24

Contribution is the revenue a business receives from the sales of the product, minus the variable cost of the product
(revenue - variable costs)