Unit 3.3 revision Flashcards
What is Cash flow?
The flow of capital into and out of a business
What does destocking mean?
Reducing the levels of stock by getting rid of unwanted stock you won’t probably get more of
What does Trade credit mean?
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.
Name 4 ways a business can change to improve cash inflow
De-stocking
Delaying paying invoices(increasing trade credit)
Reduce trade credit with customers
Leasing rather then buying.
What is a advantage of Destocking?
Less money tied up in stock – lower
storage costs, room for new stock
What is a disadvantage of Destocking?
May not receive the full amount for
the stock if sold at sale prices.
What is the advantage of Delaying paying invoices?
Keeps cash in the business for longer
What is the disadvantage of Delaying paying invoices?
No discounts for prompt payments
What is an advantage of Reducing trade credit with customers?
The business receives money quicker.
What is a disadvantage of reducing trade credit with customers?
Customers may not be happy and use
a competitor instead
What is an advantage of leasing not buying?
Businesses can afford to have better and more up to date equipment
What is a disadvantage of leasing not buying?
If it’s a long term lease it could work out to be more expensive
Name 4 ways a business can change to improve cash outflow.
Cutting labour costs
Cutting investment
Use cheaper suppliers
Reduce stock levels
What is a advantage of Cutting labour cost?
Keeps costs lower
What is a disadvantage of cutting labour costs?
Could affect motivation of current staff
What is an advantage of Cutting investment?
Will save large sums of money
What is a disadvantage of Cutting investment?
Will make it harder for the business to grow
What is an advantage of using cheaper suppliers?
Costs will be lower
What is a disadvantage of using cheaper suppliers?
Quality of products not the same
What is an advantage of reducing stock levels?
Cuts costs
What is a disadvantage of reducing stock levels?
Cannot react with the sudden changes in demand
What is Profit?
Occurs when the revenue of a business products are greater than its costs over a period of time
What is the formula of profit?
Total revenue-total costs
What is Revenue?
The amount of capital received from selling goods or services over a period of time.
What is the formula for Revenue?
Number of products sold * Average price
Name 2 ways business might cut their costs
JIT stock control
Cheaper raw materials and labour costs
Name 3 ways businesses can increase its profits
Cutting material costs
Increasing prices
Cutting labour costs
What is the break even point?
Where the total costs equal total revenue so not profit or loss is being made
What is the formula of contribution
Selling price - variable costs
How do you calculate break even point ?
Fixed costs/ Contribution
What does Margin of safety mean?
is the amount of sales the business can lose before they make a financial loss.
What is the formula for Margin of safety?
Actual sales - break even sales.
If you increase the Fixed costs what happens to the BEP?
It increase meaning Margin of safety decreases
If you decrease the Fixed costs what happens to the BEP?
It will decrease meaning margin of safety increases.
If you lower fixed and variable cost what does it mean for BEP and margin of safety?
It will decrease the point meaning margin of safety increases.
Name 3 uses of Break even analysis
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
Name 2 benefits of BEA?
Illustrates the importance of keeping Fixed costs lower and higher FC means higher BEP.
Encourages banks to give business loans
Name 2 drawbacks of BEA
Assumes all the products are sold
Analysis doesn’t take into account economies of scale
Name 3 short term sources of finance
Overdraft
Trade credit
Government funds
Name 9 long term sources of finance
Personal savings Retained profit Share capital Loans Mortgage Leasing Venture capital selling assets Bonds
What is Retained profit?
Capital saved from all expenses after total costs have been paided
What is an advantage of retained profit?
No interest involved
What is a disadvantage of Retained profit?
Business may not make enough
profit to recover back
What is an advantage of a loan?
Large amount of money can be borrowed
What is a disadvantage of a loan?
Interest paid back if and get a bad credit score
What is an Overdraft?
Borrowing money when balance is 0 which has a limit
What is an advantage of an Overdraft?
Very quick to get
What is a disadvantage of an Overdraft?
Only can get small amounts of money
What is share capital?
Allows people to buy into the company in return for dividends.
What is an advantage of share capital?
can raise large amounts of money
What is a disadvantage of share capital?
the original owners may lose control of the business
What is a Government grant?
Money given by the government to support the business, usually if the business is for a good cause.
What is an advantage of Government grant?
Don’t have to pay it back
What is a disadvantage of a Government grant?
Won’t have freedom on what to spend it on.
What is leasing?
Renting equipment instead of buying
What is the advantage of leasing?
- No need to find a lump-sum of money
to purchase it
What is the disadvantage of leasing?
The business doesn’t own the asset.
What is an advantage of selling assets?
Gain money from unwanted items.
What is a disadvantage of selling assets?
Might sell an item you will need in the future.
What is trade credit?
Period of days a supplier will give the business to pay for the good that have been purchased
What is an advantage of trade credit?
Gives the business more cash to use in
the immediate future
What is a disadvantage of trade credit?
it’s a short term only and has to be paid in a couple of months.
What is an advantage of hire purchase?
Don’t have to pay for now
What is a disadvantage of hire purchase?
Only used for certain equipment and machinery
What is an advantage of Venture capitalists?
Mentoring, help, contacts
What is a disadvantage of Venture capitalists?
Have to pay back dividends.
What is a Mortgage?
A large loan from the bank usually to fund a property
What is an advantage of Mortgage?
Pay back over a long time
What is a disadvantage of Mortgage?
Large sums of interest charged
What are the steps of drawing a break even chart?
Draw fixed costs line
Draw total costs line
Draw total revenue line
Where does the total revenue line start?
0,0
Where does the total cost line start?
On the fixed costs line
List 4 reasons why business use Break even analysis.
1) Developing a business plan
2) Launching a new product
3) Setting and achieving production tasks
4) Starting a new business
Name 3 ways a business could increase revenues.
Improved marketing
Better products
Increasing its selling price (depending on how sensitive demand is)
