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Netra Business Gcse OCR 9-1 > Topic 5-Finance > Flashcards

Topic 5-Finance Flashcards

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1
Q

Why is finance important?

A

Without it finance can restrict business activity.

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2
Q

What is revenue?

A

The money made from sales.

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3
Q

What does sources of finance mean?

A

Where a business gets its money from.

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4
Q

What is break-even?

A

The number of products a business needs to sell in order to cover its costs.

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5
Q

What is cash flow?

A

A record of the money coming in and out of a business.

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6
Q

What is the purpose of the finance function?

A

To manage the money that businesses need to operate.

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7
Q

Why might a business need finance?

A
  • To expand.
  • Run the business.
  • Recruitment.
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8
Q

What is a loan?

A

Money borrowed from a bank which is paid back with interest.

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9
Q

What is an advantage to a loan?

A

Repayment is spread over time.

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10
Q

What is a disadvantage to loans?

A

Interest has to be payed.

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11
Q

What is an overdraft?

A

An arrangement between a bank and a business so that a business can spend more money than it has in its account.

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12
Q

What is an advantage of an overdraft?

A

It can meet short term cash flow problems.

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13
Q

What is a disadvantage to an overdraft?

A

Interest is charged.

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14
Q

What is trade credit?

A

When the payment to suppliers is delayed.

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15
Q

What is an advantage to trade credit?

A

It is usually interest free.

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16
Q

What is a disadvantage to trade credit?

A

The goods must be paid for even if they do not sell.

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17
Q

Give two ways a business can increase its revenue…

A
  • Increase selling price as long as they don’t lose many customers.
  • Increase output.
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18
Q

What is the equation for revenue?

A

Revenue=Price x Quantity

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19
Q

Give two examples of fixed costs…

A
  • Rent.

- Heating bills.

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20
Q

What are the two types of costs?

A

Fixed and variable.

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21
Q

What is the equation for total variable cost?

A

Total variable cost=Amount produced x variable cost per unit.

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22
Q

How can a business reduce costs?

A
  • Lower it’s cost location.
  • Store closures.
  • Cheaper materials.
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23
Q

What is the equation for profit?

A

Profit= total revenue- total cost.

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24
Q

What is the equation for margin of safety?

A

Margin of safety= actual sales- break even level of sales.

25
Q

What is the equation for break-even?

A

Fixed costs/(selling price-Variable cost per unit)

26
Q

What is variable cost per unit also known as?

A

Contribution.

27
Q

What is the equation for gross profit?

A

Revenue- cost of sales(variable)

28
Q

What is the equation for net profit?

A

Gross profit -Fixed costs.

29
Q

What are two uses of break even?

A

May help to get a loan from the bank and helps to make judgements about prices and costs.

30
Q

Why is break even useful for a start up business?

A

It lets them see how much they need to sell to make a profit.

31
Q

What are two limitations of break even?

A

The forecast figures could be different in reality and it only works for one product.

32
Q

Why may forecast figures be different in reality?

A

The number of competitors may change.

33
Q

What is a way to overcome the forecast figures issue with break even?

A

By updating as the costs or prices change to ensure its accurate.

34
Q

Why would increased competition affect break even?

A

Because they may have to lower prices therefore making the break even point higher.

35
Q

What is capacity utilisation?

A

A measure of the extent to which the products capacity has been used.

36
Q

How do you work out capacity utilisation?

A

Actual level of sales/maximum possible output X100

37
Q

Why do businesses need cash?

A
  • To pay employees wages.

- To pay for stock.

38
Q

What is cash flow?

A

The amount of money flowing into and out of a business.

39
Q

What is positive cash flow?

A

When there is more money flowing into ,than out of a business.

40
Q

What is negative cash flow?

A

When there is more money flowing out of a business rather than into.

41
Q

What are two causes of negative cash flow?

A
  • Opportunity cost.

- Seasonal businesses.

42
Q

What is opportunity cost?

A

When a business spends too much cash because they thought it would be better invested rather than saving.

43
Q

What happens if a business doesn’t have enough cash?

A

They become insolvent.

44
Q

What is a cash flow forecast?

A

A statement showing the expected flow of money into and out of a business over a period of time.

45
Q

Give an example of an inflow…

A

Payment from customers.

46
Q

Give an example of an outflow…

A

Advertising costs.

47
Q

Why should businesses forecast cash flow?

A
  • To help plan for the future.

- Avoids cash flow problems.

48
Q

What are some limitations of forecasting cash flow?

A

The figures are only estimates and figures may change.

49
Q

How can a business make cash flow forecasts more accurate?

A

By basing in on past experience.

50
Q

The further ahead the cash flow forecast is…

A

The less likely it is to be accurate.

51
Q

What is the term used to describe a business going bankrupt?

A

Liquidation.

52
Q

When can negative cash flow become a serious problem?

A

When it contributes over consecutive months.

53
Q

Give two ways a business can solve a cash flow problem…

A
  • Cut costs.

- Overdraft.

54
Q

What could be an impact on cutting costs?

A

If it is cheaper supplies it could impact of quality.

55
Q

What does ARR stand for?

A

Average rate of return.

56
Q

How do you calculate average rate of return?

A

Profit/number of years
THEN
annual average profit/Initial cost X100.

57
Q

When is ARR useful?

A

When comparing different investments.

58
Q

What is average rate of return?

A

The amount you receive from making an investment.

59
Q

What is the ARR given as?

A

A percentage.

Netra Business Gcse OCR 9-1 (6 decks)

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