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Business > Topics 26-36 (Finance) > Flashcards

Topics 26-36 (Finance) Flashcards

1
Q

Methods of internal finance

A
  • Retained profit
  • Sale of assets
  • Owners capital
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2
Q

Advantages of internal finance

A
  • Capital is available immediately
  • Cheap. No interest
  • Not subject to credit checks
  • No third parties
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3
Q

Drawbacks of internal finance

A
  • Limited in terms of amount of capital
  • Cannot be tax-deductable
  • Can be inflexible
  • No inflationary benefits
  • High opportunity cost
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4
Q

Sources of external finance

A
  • Family and freinds
  • Banks
  • Peer-to-peer lending
  • Business angels
  • Crowdfunding
  • Other businesses
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5
Q

What are the four methods of finance that can be sourced from a bank?

A
  1. Bank loans
  2. Mortgages
  3. Debentures
  4. Overdraft
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6
Q

What does it mean to be an unlimited liability business?

A

There is no legal difference between owners and the business. Everything is carried out in the name of the owner.

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7
Q

Factors influencing choosing appropriate method of finance

A
  • Length of time which finance is required
  • Financial position of the business
  • Purpose of the money needed
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8
Q

What is a business plan?

A

A plan for the development of the business, giving details such as the products to be made, resources needed, and forcasts such as costs, revenues and cash flow.

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9
Q

Contents of a business plan

A
  • An executive summary
  • The business opportunity
  • Buying & production
  • Financial forcasts
  • The business and objectives
  • The market
  • Personnel
  • Permits & equipment
  • Finances
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9
Q

Uses of cash-flow forecasts

A
  • Identifying the timing of cash shortages and surpluses.
  • Supporting applications of finance
  • Enhancing the planning process
  • Monitoring cash flow
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10
Q

Limitations of cash-flow forecasts

A
  • All information based on estimates
  • Business activity subject to external forces
  • Uses resources to make
  • Only focusses on cash
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11
Q

What is time series analysis?

A

Involves using past data to try and predict future levels. If trading conditions are stable, this can be a good option.

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12
Q

4 components of time series analysis

A
  1. The trend - pattern or repetitie behaviour
  2. Seasonal fluctuations (over a year)
  3. Cyclical fluctuations (over many years)
  4. Random fluctuations
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13
Q

Benefits of sales forecasting

A
  • Helps businesses avoid suprises
  • Makes finances easier to manage
  • Enables business to ensure it has the correct staffing levels, capacity and to plan its orders of supplies.
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14
Q

Factors affecting sales forecasting

A
  • Consumer trends
  • Seasonal variations
  • Economic variables
  • Actions of competitors
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15
Q

What are fixed costs?

A

These costs stay the same at all levels of output. Examples are rent, insurance etc.

16
Q

What are variable costs?

A

These costs increase directy as output rises. Examples are raw materials, fuel, packaging and salaries.

17
Q

What is a zero-based budget?

A

They are used when costs are hard to quantify. It is appropriate for new businessses

18
Q

What is favorable variance?
What is adverse variance?

A

Favorable = underspending
Adverse = overspending

19
Q

What is a statement of comprehensive income (profit and loss account)?

A

A document to show key information relating to the financial performance of the business. They always show the figures of the current trading year and the previous year, allowing comparison.

20
Q

What is a statement of financial position (balance sheet)?

A

Document provided by a business at the end of the financial year. Provides a summary of assets, liabilities and capital.

21
Q

What are assets?

A

Assets are resources owned by a business that are used to make products or provide services.

22
Q

What are liabilities?

A

Liabilities are the debts of a business.

23
Q

What are current assets / liabilities?

A

Current assets will be changed into cash within 12 months. They are liquid assets. Current liabilities will be repaid within 12 months.

24
Q

What is working capital?

A

The amount of money needed to cover day-to-day tading of a business. It is the amount left over after all current debts have been paid.

25
Q

Ways to improve liquidity

A
  • Use of overdrafts
  • Negotiating additional loans
  • Encourage sales and sell off stocks
  • Only make essential purchases
  • Extending trade credit with suppliers
26
Q

Internal causes of business failure

A
  • Lack of planning
  • Cash-flow problems
  • Relying on a narrow customer base
27
Q

External causes of business failure

A
  • Competition
  • Changes in legislation
  • Changes in consumer tastes
  • Economic conditions
  • Overtrading

Business (11 decks)

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