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Business > Unit 3 > Flashcards

Unit 3 Flashcards

1
Q

Capital expenditure

A

finance spent on fixed assets such as building, machinery, equipment etc.

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2
Q

Revenue expenditure

A

Finance spent on the daily running of a business such as wages, raw materials, insurance, bills etc.

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3
Q

Name the types of internal sources of finance

A

Personal funds, retained profits and sale of assets

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4
Q

Personal funds

A

personal savings/ money from family and friends

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5
Q

Sale of assets

A

Selling unnecessary equipment and/ or premise

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6
Q

Retained profits

A

Profits which remain/ are reinvested after all dividends and costs are paid

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7
Q

Advantages and disadvantages of Personal funds

A

Advantages: no interest rate, full control, easy access
Disadvantages: insufficient, risky

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8
Q

Advantages and disadvantages of retained profits

A

Advantages: No interest rate, full control
Disadvantages: Not available to startups, insufficient

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9
Q

Advantages and disadvantages of sale of assets

A

Advantages: no interest rate, full control
Disadvantages: insignificant and takes a long time

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10
Q

When would personal funds be suitable

A

Unlimited liability companies such as sole traders and partnerships

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11
Q

When would retained profits be suitable

A

Limited liability organizations that can retain profits without upsetting shareholders

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12
Q

When would sale of assets be suitable

A

When a business is about to shut down or relocate

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13
Q

Name 5 external sources of finance

A

Any 5 of these: Share capital, loan capital, overdrafts, trade credit, crowdfunding, leasing, microfinance providers and business angels

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14
Q

Share capital

A

funds raised through the sale of shares

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15
Q

Loan capital

A

Finance obtained from commercial lenders (bankers)

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16
Q

Overdrafts

A

when a business uses more money than it has in its account

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17
Q

Crowdfunding

A

Obtaining a small amount of money from a large group of people

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18
Q

Trade credit

A

Opportunity to back back the creditor at a later date (“buy now pay later”)

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19
Q

Leasing

A

When a lessee hires an asset from a lessor

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20
Q

Microfinance provider

A

An organization that provides microcredit to low-income individuals/ businesses

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21
Q

Business angels

A

Wealthy individuals who invest in a business with high growth potential

22
Q

Advantages and disadvantages of share capital

A

Advantages: large sum of money with no interest
Disadvantages: loss of control, bureaucracy and requirement to pay dividends

23
Q

Advantages and disadvantages of Loan capital

A

Advantages: no loss of control
Disadvantages: interest rate, required collateral

24
Q

Advantages and disadvantages of overdrafts

A

Advantages: easy to acquire
Disadvantages: high interest rates

25
Q

Advantages and disadvantages of trade credit

A

Advantages: Business has time to process raw materials and pay back the creditor
Disadvantages: if payments are late, businesses can be charged with a fee

26
Q

Advantages and disadvantages of crowdfunding

A

Advantages: market research, advice from potential investors, no risk, can be rewarding
Disadvantages: commission fee, a lot of competition

27
Q

Advantages and disadvantages of microfinance providers

A

Advantages: accessibility to finance for the impoverished, creation of jobs
Disadvantages: unethical lending practices, limited eligibility, limited sums of finance, high interest rates

28
Q

Advantages and disadvantages of leasing

A

Advantages: no maintenance, lower tax, business expense
Disadvantages: no ownership rights and is way more expensive in the long run

29
Q

Advantages and disadvantages of business angels

A

Advantages: No interest rates
Disadvantages: loss of control, high competition, not common/ hard to find

30
Q

Where would Share capital be most suitable

A

Limited liability organizations that have shares (publicly and privately held companies)

31
Q

Where would loan capital be most suitable

A

When a large sum of money is needed in exchange for long term payments

32
Q

Where would overdrafts be most suitable

A

When there are minor cash flow issues

33
Q

Where would Trade credit be most suitable

A

When there is a good relationship between the business/ debtor and the supplier/ creditor

34
Q

Where would crowdfunding be most suitable

A

when a small business has no start-up capital but has outstanding business ideas

35
Q

Where would leasing be most suitable

A

when the business needs an asset for a short amount of time but cannot afford to purchase it

36
Q

Where would microfinance providers be most suitable

A

In less developed economies with businesses that do not have access to finance from traditional lenders

37
Q

Where would business angels be most suitable

A

when there are businesses that have a high growth potential

38
Q

Name the short term sources of finance

A

Personal funds, retained profits, overdrafts (sale of fixed assets, trade credit and crowdfunding)

39
Q

Name the long term sources of finance

A

Share capital, Business angels, Loan capital, Debentures, leasing (sale of fixed assets, trade credit and crowdfunding)

40
Q

Debenture

A

Long term loans issued by a business

41
Q

examples of loan capital

A

Mortgages, debentures, bank loans etc.

42
Q

Gearing ratio

A

borrowing as a percentage of its total capital employed

43
Q

Hire purchase

A

When you pay for an asset in instalments and claim ownership once the last payment is made

44
Q

Sale and leasback

A

when you sell some of your assets and immediately lease the assets you just sold

45
Q

What is the duration of something labelled as “short-term”

A

In the next 12 months (less than a year)

46
Q

what is the duration of something labelled as “long-term”

A

1-5 years +

47
Q

What are MNCs

A

Multinational companies are companies that operate in two or more countries or is legally registered in two or more countries

48
Q

What is a host country

A

Any country which allows an MNC to set up on its territory

49
Q

Reasons companies become MNCs

A

Increased customer base, cheaper production costs, global EOS, Spreading risks, avoiding protectionism

50
Q

Globalization

A

a trend/ process of integration of local economies into one global economy, whereby companies, organizations and people think globally but act locally.

51
Q

name 5 Impacts of globalization

A

cultural diversity, level of competition, ability to meet customer expectations, number of customers, EOS, external growth opportunities, more sources of finance.

Business (4 decks)

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