Topic 5 - Finance

Question 1

What is finance in the context of business?

Answer 1

The management of money and other assets.

Question 2

True or False: Revenue is the total income generated by a business.

Answer 2

True

Question 3

What is the formula for calculating profit?

Answer 3

Profit = Revenue - Costs

Question 4

Fill in the blank: Fixed costs do not change with _______.

Answer 4

the level of output

Question 5

What are variable costs?

Answer 5

Costs that change with the level of production.

Question 6

What is the purpose of a cash flow forecast?

Answer 6

To predict the future cash inflows and outflows of a business.

Question 7

What is a balance sheet?

Answer 7

A financial statement that shows a company’s assets, liabilities, and equity at a specific point in time.

Question 8

True or False: A business’s liabilities are its debts.

Answer 8

True

Question 9

What does liquidity refer to in finance?

Answer 9

The ability of a business to turn assets into cash

Question 10

What is meant by the term ‘capital’?

Answer 10

The money or assets used to start and operate a business.

Question 11

Multiple Choice: Which of the following is a source of internal finance? A) Loans B) Retained profit C) Share capital

Answer 11

B) Retained earnings

Question 12

What is the difference between gross profit and net profit?

Answer 12

Gross profit is revenue minus the cost of goods sold; net profit is gross profit minus all other expenses.

Question 13

What is meant by ‘break-even point’?

Answer 13

The level of sales at which total revenues equal total costs.

Question 14

Fill in the blank: A business’s _______ is the amount of money it has left after all expenses are paid.

Answer 14

net profit

Question 15

True or False: Creditors are individuals or institutions that lend money to a business.

Answer 15

True

Question 16

What is an income statement?

Answer 16

A financial statement that shows the company’s revenues and expenses over a specific period.

Question 17

What are current assets?

Answer 17

Assets that are expected to be converted into cash within one year.

Question 18

Multiple Choice: Which of the following is a fixed cost? A) Rent B) Raw materials C) Wages

Answer 18

A) Rent

Question 19

What is the formula for calculating Average rate of return?

Answer 19

ARR = (Average annual profit / Cost of Investment) x 100

Question 20

What is the purpose of financial accounting?

Answer 20

To provide financial information to external users.

Question 21

True or False: Equity financing involves borrowing money that must be repaid.

Answer 21

False

Question 22

What is a dividend?

Answer 22

A portion of a company’s earnings distributed to shareholders.

Question 23

Multiple Choice: Which of the following is NOT a source of external finance? A) Bank loans B) Issuing shares C) Retained earnings

Answer 23

C) Retained earnings

Question 24

What is financial risk?

Answer 24

The possibility of losing money on an investment or business operation.

Question 25

Fill in the blank: A _______ is a legal document allowing a business to borrow money.

Answer 25

loan agreement

Question 26

What is meant by 'debt financing'?

Answer 26

Raising funds by borrowing money that must be repaid with interest.

Question 27

True or False: A profit margin measures how much profit a company makes for every pound of sales.

Answer 27

True

Question 28

What does 'financial forecasting' involve?

Answer 28

Estimating future financial outcomes based on historical data and analysis.

Question 29

What is the formula for calculating the break-even point in units?

Answer 29

Break-even point (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

Question 30

Multiple Choice: Which financial statement shows a company's assets and liabilities? A) Income Statement B) Balance Sheet C) Cash Flow Statement

Answer 30

B) Balance Sheet

Question 31

What is 'sourcing capital'?

Answer 31

Finding ways to obtain funds for business operations.

Question 32

Fill in the blank: The _______ is the total amount of money a business owes to its creditors.

Answer 32

total liabilities

Question 33

What is the purpose of a financial audit?

Answer 33

To evaluate the accuracy and fairness of a company's financial statements.

Question 34

True or False: A cash flow statement shows how cash moves in and out of a business.

Answer 34

True

Question 35

What does it mean to 'leverage' in finance?

Answer 35

Using borrowed funds to increase the potential return on investment.

Question 36

What is a financial ratio?

Answer 36

A comparison of two financial figures to assess a company's performance.

Question 37

Multiple Choice: Which of the following ratios measures profitability? A) Current Ratio B) Debt to Equity Ratio C) Return on Equity

Answer 37

C) Return on Equity

Question 38

Fill in the blank: The _______ is the amount of money a business makes from its core operations.

Answer 38

operating income

Question 39

What is 'venture capital'?

Answer 39

Funding provided to startups and small businesses with long-term growth potential.

Question 40

True or False: A sole trader is personally liable for all business debts.

Answer 40

True

Question 41

What is a financial plan?

Answer 41

A strategic plan that outlines how a business will manage its financial resources.

Question 42

What does 'credit rating' refer to?

Answer 42

An assessment of the creditworthiness of an individual or business.

Question 43

Multiple Choice: Which of the following is a benefit of having a good credit rating? A) Lower interest rates B) Higher taxes C) Limited access to loans

Answer 43

A) Lower interest rates

Question 44

Fill in the blank: The _______ is the total value of everything a company owns.

Answer 44

total assets

Question 45

What is the role of a financial manager?

Answer 45

To oversee a company's financial health and make strategic decisions.

Question 46

True or False: A budget helps businesses plan for future financial activities.

Answer 46

True

Question 47

Multiple Choice: Which of the following is a short-term source of finance? A) Mortgages B) Overdrafts C) Bonds

Answer 47

B) Overdrafts

Question 48

Fill in the blank: _______ financing is when a company raises money by issuing stocks.

Answer 48

Equity

Question 49

True or False: All businesses must have a financial plan.

Answer 49

True