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Business > Unit 5- finance > Flashcards

Unit 5- finance Flashcards

1
Q

Name three reasons why businesses need cash

A 
.Pay off debts
.Satisfy shareholders
.Enough to pay staff members
.To buy stock
.Up keep of premises
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2
Q

Name the two purposes of the financial functional area.

A

.Purpose 1- provide financial information to management

.Purpose 2-To support business planning and decision making

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3
Q

How does finance affect a businesses decision making?

A

.The finance department will double check to see if the business has enough funds or if the decision is financially viable.

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4
Q

What is retained profit?

A

Capital kept by a business from profit made the previous year.

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5
Q

Name an advantage of retained profit to the business

A

.It is their own money so there is no interest or any future repayments on the capital

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6
Q

How can retained profit be a disadvantage to the business?

A

It is usually in small amounts in relation to what they need, this could lead to the business still needing external sources of finance.

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7
Q

When may retained profit be used by a business?

A

This could be used to expand the business or help run it on a day-to-day business

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8
Q

Why might the use of the Owners funds be an advantage to the business?

A

.No need to repay the money
.No interest has to be paid
.No cost to raise the finance

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9
Q

Why might using owners funds be a disadvantage to the business?

A

.If the owner(s) do not have enough savings they will have to use another source of finance as well.

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10
Q

When might the use of Owners funds be used by a business?

A

.Used for start up costs, expansion or replacing capital

.Can be used for day to day running expenses

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11
Q

Why might sale of assets be an advantage to the business?

A

.Good if the asset is of no use to the business

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12
Q

Why might sale of assets be a disadvantage to the business?

A

.Can take time to sell the asset

.May not be possible to find a buyer

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13
Q

What is overdraft?

A

An arrangement with a bank that the business can spend more money than it has in the account.

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14
Q

Why might the use of overdraft be useful to a business?

A

.Can meet short term cash flow problems
.The business can continue trading in the short term
.the size of the overdraft varies monthly and interest is paid only on the amount borrowed

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15
Q

Why might an overdraft be a disadvantage to the business?

A

.Can be high interest fees and charges

.Can be penalties if you go over the limit

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16
Q

When may a business use an overdraft?

A

.If a business is making a big purchase

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17
Q

What is a Share Issue?

A

.When new shares are sold, raising money for the business

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18
Q

Why might share issue be an advantage to the business?

A

.A lot of finance can be raised from many investors
.Money does not have to be paid back
.No interest is payable

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19
Q

When might share issue be a disadvantage to the business?

A

.Dividends may have to be paid to the shareholders

.Shareholders are entitled to have a say in the running of the company

20
Q

When might share issue be used by a business?

A

When opening a new branch/store

21
Q

Name an advantage to a business when they take on a new partner

A

.A new partner may bring new skills to the business

22
Q

Name a disadvantage to a business when a new partner has been taken on

A

.Losses will be shared even if the new partner has incurred them
.May not get on with new partner

23
Q

When may taking on a new partner be useful to a business?

A

.Can also bring new skills when launching a new product

24
Q

How can taking a loan be an advantage to the business?

A

This is suitable for the purchase of fixed assets as businesses can access large sums of money

25
Q

What is a disadvantage caused by taking out a loan?

A

.It can be difficult to obtain
.May be time consuming
.If the debt cannot be repaid they may be able to take fixed assets.

26
Q

When may a loan be used by a business?

A

.If the business is expanding
.If the business needs to buy new machinery
.If the business needs to buy new property.

27
Q

What is trade Credit?

A

.This is when the business does not need to pay the supplier for the goods
.Usually over a period of 30 days however longer terms can be agreed

28
Q

Why might trade credit be an advantage to the business

A

.Allows the business to buy the goods to sell them onto a customer
.Helps businesses that may have a temporary shortage of funds
.

29
Q

Why might trade credit be a disadvantage to the business?

A

The goods must be paid for even if they do not sell

Interest is charged if the credit is not repaid within the time limit

30
Q

When might trade credit be useful to a business?

A

.If the business is struggling financially yet have orders this allows them to meet the demands of the customer

31
Q

Name a short term internal source of finance

A

.Owners capital

.Sale of Assets

32
Q

Name a short term external source of finance

A

.Overdraft

.Trade Credit

33
Q

Name a medium term internal source of finance

A

.Retained profit
.Sale of assets
.Owners Capital

34
Q

Name a medium term external source of finance

A

.Bank Loan

.Crowdfunding

35
Q

Name a long term internal source of finance

A

.Retained profits
.Sale of Assets
.Owners capital

35
Q

Name a long term internal source of finance

A

.Retained profits
.Sale of Assets
.Owners capital

36
Q

Name an external source of finance that is long term

A

.Bank Loan
.Taking on new partner
.Share Issue
.Crowdfunding

37
Q

What is the equation to calculate revenue?

A

Quantity sold x selling price

38
Q

What do profit and loss accounts show?

A

They show how much profit or loss a business has made over the course of 1 year

39
Q

What is the equation for gross profit?

A

Sales-Cost of sales

40
Q

What is the equation for percentage change?

A

Final Value-Initial Value

Initial Value

41
Q

How do you calculate gross profit margin?

A

Gross profit x 100

Sales revenue

42
Q

How do you calculate the Net Profit margin?

A

Net profit x 100

Sales Revenue.

43
Q

What are variable costs?

A

These are costs that change depending on the number of items produced

44
Q

List two benefits of a break even chart

A

.Helps set prices and choose pricing strategies
.Knowing the margin of safety helps manager assess the impact of external factors
.Shows how much profit or loss will be made at a given output
.Can work out how many products need to be sold to cover costs

45
Q

Name a drawback of a breakeven chart

A

.Assumptions are made on the fact that all of the stock is going to be sold at the same price
.Businesses could be unrealistic in their calculations
.Variable costs could change regularly

46
Q

Name two benefits of cash flow forecasting

A

.They help anticipate cash shortages
.Help to remedy/fix cash shortages
.They help businesses plan
.Help protect the business when they are holding too much cash

Business (2 decks)

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