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IB BUSINESS HL > Unit 3. Finance & accounts > Flashcards

Unit 3. Finance & accounts Flashcards

1
Q

What is the role of finance?

A
  • Capital and revenue expenditure
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2
Q

What is capital expenditure?

A
  • Finance spent on fixed asses that will assist in the production of other goods for long-term
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3
Q

What is revenue expenditure?

A
  • Fiannce spent in the daily running of the business
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4
Q

What are the internal sources of finance?

A
  1. Personal funds: own money
  2. Retained profit: profits kept by the business
  3. Sale of assets: sale of assets
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5
Q

What are the external sources of finance?

A
  1. Shared capital: company sales shares.
  2. Loan capital: obtained form commercial lenders
  3. Overdrafts: allows to take abit more money thatn it has in the account.
  4. Trade credit: buy now pay later
  5. Grants: governmetn financial gifts
  6. Subsides: government reduces cost to enusre survival.
  7. Debt factoring: getting money from its debtors
  8. Leasing: rental income to hire assets
    9.Venture capital: capital in the form of loans and shares.
  9. Business angles: wealthy individuals who invest.
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6
Q

What is cost?

A

expenditure in production

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7
Q

What is price?

A

amount paid by the customer when product is sold.

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8
Q

What are fixed costs?

A

Costs that are indpeendent form the output and payable regardeless of the leves of production.

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9
Q

What are variable costs?

A
  • Costs prportional to the outpu or sales.
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10
Q

What are semi-variable costs?

A
  • Fixed and varaibale costs at different extents.
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11
Q

What are direct costs?

A
  • Costs especifically related to individual project.
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12
Q

Indirect costs?

A
  • Costs that can’t be traced to the production or sale.
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13
Q

What is revenue?

A
  • Money flowing into a business from the sales of goods and services.
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14
Q

What is profit?

A

the positive difference between total revenue and total costs.

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15
Q

What is break even analysis?

A

managent tool that determines how many units must be sold to cover all costs of production and be profitable.

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16
Q

What is the formula of contribution per unit?

A

CPU= P - AVC

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17
Q

What is the formula for total contribution?

A

Total contibution= (P - AVC) x Q or Gross profit

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18
Q

What is the formula for profit?

A

Profit= Total contribution - TFC

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19
Q

When does a company achieve break even?

A

Total contribution = TFC

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20
Q

What is the Break even quantity formula?

A

BEQ= TFC / P - AVC

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21
Q

What is the formula for Margin of safety Qantity?

A

MofS= Quantity demanded - BEQ

22
Q

What is the formula for Target profit output?

A

FC + Target profit / Price - AVC

23
Q

What are the final accounts?

A
  • Profit and loss.
  • Balance sheet.
  • Cash flow.
24
Q

What is the iportance of final acoounts?

A

show the performance of the business over a financial period.

25
Q

What is the profit and loss acoounts?

A

Show the profit or loss of a business over a trading period after assesing its financial position

26
Q

What is the order of the profit and loss accounts?

A
  1. Sales revenue
  2. Opening stock
  3. Purchases.
  4. Closings
  5. Costs of goods sold.
  6. Groos profit.
  7. Expenses.
  8. Net profit before interest and tax.
  9. Interests.
  10. Net profit before tax.
  11. Tax
  12. Overall net profit
  13. Dividends
  14. Retained profit.
27
Q

What is the balance sheet?

A

Shows the value of an organization’s assets and liabilities.

28
Q

What is the formula for working capital?

A

Current assets - Current liabilities

29
Q

How is the balance sheet divided like?

A
  1. Fixed assets
    - Net fixed assets.
  2. Current assets
    - Total current assets
  3. Current liabilities
    - Total current liabilities
  4. Net currrent assets
  5. Total assets less current liabilities
  6. Net assets
  7. Owner’s equity
30
Q

What is ratio analysis?

A

Management tool for analyzing and judging business performance

31
Q

What are the types of intangible assets?

A
  • Brand recognition
  • Patents
  • Goodwill
  • Trademark
32
Q

What are profitability ratios?

A

Examine profit in relation to other figures.

33
Q

What is the efficiency ratio?

A

Shows how well resources have been used.

34
Q

How to improve gross profit margin?

A
  • Raising sales revenue
  • Increasing order prices
  • Marketing
  • Reducing direct costs
35
Q

How to imporve net profit margin?

A
  • Reducing indirect costs
  • Negotiate cheaper rent
  • Examine redundant costs
36
Q

What is ROCE?

A

Returned of capital employeed

37
Q

What does ROCE do?

A

Measures the financial performance of a firm compared to the capital invested.
- should be higher than bank investment rates

38
Q

How to improve ROCE?

A
  • Increasing sales revenue
  • Reduce cost of production
  • Sell unproductive assets for better liquidity.
39
Q

What is liquidity ratio?

A
  • Ability of a firm to pay its short term liabilities, by comparing working capital to short term debts.
40
Q

How to improve current ratio?

A
  • Encourage customers to pay cash
  • Negotiate with suppliers for extended credit period
  • Deposit unused cash to hiugh interest accountants.
41
Q

Hot to improve the acid test ratio?

A
  • Use dome methods as current ratio
  • Encourage cash payments.
  • Negotiate extended credit period with suppliers.
  • Improve stock control management system.
42
Q

What is the difference between cash and profit?

A

Cash: is a current assset used to keep a business functioning
Profit: is the possitive difference between total sales and total costs pf production.

43
Q

What is cash flow forecast?

A

A financial document that shows the expected movement of cash in and out of a business per time period.

44
Q

What are the causes for cash flow problems?

A
  • Overtrading: exapnding too quicly
  • Overborrowing
  • Overstocking
  • Poor credit control
  • Unforeseen changes.
45
Q

What are strategies to lower cash flow problems?

A
  • Alternative suppliers
  • Better stock control
  • Reducing unnecessary expenses
  • Leasing or renting capital
46
Q

What is investment appraisal?

A
  • Quantitive decision making tool to assess wheter the investment or capital expenditure of a firm will be financially worthwhile.
47
Q

What is invesment?

A
  • Refers to purchase of an asset with the potential to yield future financial benefits.
48
Q

What is payback period?

A
  • Amount of time needed for an ivestment project to ern enough profit to repay the initial cost.
49
Q

What is the formula of payback period?

A

PBD= Initial investment cost / Contribution per month

50
Q

What is ARR?

A

The average rate of return is the average profit on an investment project as a percentage if the amount invested

IB BUSINESS HL (6 decks)

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