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Business UNIT 3 revision > Unit 3.3 revision > Flashcards

Unit 3.3 revision Flashcards

1
Q

What is Cash flow?

A

The flow of capital into and out of a business

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2
Q

What does destocking mean?

A

Reducing the levels of stock by getting rid of unwanted stock you won’t probably get more of

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3
Q

What does Trade credit mean?

A

Where a supplier gives a customer a period of time to pay for a bill (or invoice) for goods or services once
they have been delivered.

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4
Q

Name 4 ways a business can change to improve cash inflow

A

De-stocking
Delaying paying invoices(increasing trade credit)
Reduce trade credit with customers
Leasing rather then buying.

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5
Q

What is a advantage of Destocking?

A

Less money tied up in stock – lower

storage costs, room for new stock

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6
Q

What is a disadvantage of Destocking?

A

May not receive the full amount for

the stock if sold at sale prices.

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7
Q

What is the advantage of Delaying paying invoices?

A

Keeps cash in the business for longer

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8
Q

What is the disadvantage of Delaying paying invoices?

A

No discounts for prompt payments

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9
Q

What is an advantage of Reducing trade credit with customers?

A

The business receives money quicker.

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10
Q

What is a disadvantage of reducing trade credit with customers?

A

Customers may not be happy and use

a competitor instead

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11
Q

What is an advantage of leasing not buying?

A

Businesses can afford to have better and more up to date equipment

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12
Q

What is a disadvantage of leasing not buying?

A

If it’s a long term lease it could work out to be more expensive

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13
Q

Name 4 ways a business can change to improve cash outflow.

A

Cutting labour costs
Cutting investment
Use cheaper suppliers
Reduce stock levels

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14
Q

What is a advantage of Cutting labour cost?

A

Keeps costs lower

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15
Q

What is a disadvantage of cutting labour costs?

A

Could affect motivation of current staff

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16
Q

What is an advantage of Cutting investment?

A

Will save large sums of money

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17
Q

What is a disadvantage of Cutting investment?

A

Will make it harder for the business to grow

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18
Q

What is an advantage of using cheaper suppliers?

A

Costs will be lower

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19
Q

What is a disadvantage of using cheaper suppliers?

A

Quality of products not the same

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20
Q

What is an advantage of reducing stock levels?

A

Cuts costs

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21
Q

What is a disadvantage of reducing stock levels?

A

Cannot react with the sudden changes in demand

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22
Q

What is Profit?

A

Occurs when the revenue of a business products are greater than its costs over a period of time

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23
Q

What is the formula of profit?

A

Total revenue-total costs

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24
Q

What is Revenue?

A

The amount of capital received from selling goods or services over a period of time.

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25
Q

What is the formula for Revenue?

A

Number of products sold * Average price

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26
Q

Name 2 ways business might cut their costs

A

JIT stock control

Cheaper raw materials and labour costs

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27
Q

Name 3 ways businesses can increase its profits

A

Cutting material costs
Increasing prices
Cutting labour costs

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28
Q

What is the break even point?

A

Where the total costs equal total revenue so not profit or loss is being made

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29
Q

What is the formula of contribution

A

Selling price - variable costs

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30
Q

How do you calculate break even point ?

A

Fixed costs/ Contribution

31
Q

What does Margin of safety mean?

A

is the amount of sales the business can lose before they make a financial loss.

32
Q

What is the formula for Margin of safety?

A

Actual sales - break even sales.

33
Q

If you increase the Fixed costs what happens to the BEP?

A

It increase meaning Margin of safety decreases

34
Q

If you decrease the Fixed costs what happens to the BEP?

A

It will decrease meaning margin of safety increases.

35
Q

If you lower fixed and variable cost what does it mean for BEP and margin of safety?

A

It will decrease the point meaning margin of safety increases.

36
Q

Name 3 uses of Break even analysis

A

Launching a new product
Understanding the past (were past decisions on price correct)
Important part of a business plan-Good B/E charts can be used to help gain funds from banks

37
Q

Name 2 benefits of BEA?

A

Illustrates the importance of keeping Fixed costs lower and higher FC means higher BEP.
Encourages banks to give business loans

38
Q

Name 2 drawbacks of BEA

A

Assumes all the products are sold

Analysis doesn’t take into account economies of scale

39
Q

Name 3 short term sources of finance

A

Overdraft
Trade credit
Government funds

40
Q

Name 9 long term sources of finance

A 
Personal savings
Retained profit
Share capital
Loans
Mortgage
Leasing
Venture capital
selling assets  
Bonds
41
Q

What is Retained profit?

A

Capital saved from all expenses after total costs have been paided

42
Q

What is an advantage of retained profit?

A

No interest involved

43
Q

What is a disadvantage of Retained profit?

A

Business may not make enough

profit to recover back

44
Q

What is an advantage of a loan?

A

Large amount of money can be borrowed

45
Q

What is a disadvantage of a loan?

A

Interest paid back if and get a bad credit score

46
Q

What is an Overdraft?

A

Borrowing money when balance is 0 which has a limit

47
Q

What is an advantage of an Overdraft?

A

Very quick to get

48
Q

What is a disadvantage of an Overdraft?

A

Only can get small amounts of money

49
Q

What is share capital?

A

Allows people to buy into the company in return for dividends.

50
Q

What is an advantage of share capital?

A

can raise large amounts of money

51
Q

What is a disadvantage of share capital?

A

the original owners may lose control of the business

52
Q

What is a Government grant?

A

Money given by the government to support the business, usually if the business is for a good cause.

53
Q

What is an advantage of Government grant?

A

Don’t have to pay it back

54
Q

What is a disadvantage of a Government grant?

A

Won’t have freedom on what to spend it on.

55
Q

What is leasing?

A

Renting equipment instead of buying

56
Q

What is the advantage of leasing?

A
  • No need to find a lump-sum of money

to purchase it

57
Q

What is the disadvantage of leasing?

A

The business doesn’t own the asset.

58
Q

What is an advantage of selling assets?

A

Gain money from unwanted items.

59
Q

What is a disadvantage of selling assets?

A

Might sell an item you will need in the future.

60
Q

What is trade credit?

A

Period of days a supplier will give the business to pay for the good that have been purchased

61
Q

What is an advantage of trade credit?

A

Gives the business more cash to use in

the immediate future

62
Q

What is a disadvantage of trade credit?

A

it’s a short term only and has to be paid in a couple of months.

63
Q

What is an advantage of hire purchase?

A

Don’t have to pay for now

64
Q

What is a disadvantage of hire purchase?

A

Only used for certain equipment and machinery

65
Q

What is an advantage of Venture capitalists?

A

Mentoring, help, contacts

66
Q

What is a disadvantage of Venture capitalists?

A

Have to pay back dividends.

67
Q

What is a Mortgage?

A

A large loan from the bank usually to fund a property

68
Q

What is an advantage of Mortgage?

A

Pay back over a long time

69
Q

What is a disadvantage of Mortgage?

A

Large sums of interest charged

70
Q

What are the steps of drawing a break even chart?

A

Draw fixed costs line
Draw total costs line
Draw total revenue line

71
Q

Where does the total revenue line start?

A

0,0

72
Q

Where does the total cost line start?

A

On the fixed costs line

73
Q

List 4 reasons why business use Break even analysis.

A

1) Developing a business plan
2) Launching a new product
3) Setting and achieving production tasks
4) Starting a new business

74
Q

Name 3 ways a business could increase revenues.

A

Improved marketing
Better products
Increasing its selling price (depending on how sensitive demand is)

Business UNIT 3 revision (7 decks)

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