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Business > Unit 5 Finance > Flashcards

Unit 5 Finance Flashcards

1
Q

5.2
What is a loan?

A

A business borrow a sum of money from a bank or another lender

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2
Q

5.2
What is an overdraft?

A

A bank allows a business to spend more money than there is in its current account.

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3
Q

5.2
What is crowdfunding?

A

Money raised by a business by nviting sponsors to contribute money, provide a loan, or buy equity in the business

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4
Q

5.2
What is share issue?

A

Money raised by selling shares of the business

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5
Q

5.2
What is Trade credit?

A

Goods are obtained from another business without immediate payment being made

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6
Q

5.2
What is Retained profit?

A

Money is earned by the business but not paid to the owners

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7
Q

5.2
What is sale of assets?

A

Money is received following the sale of capital items owned by the business

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8
Q

5.2
What is owners’ capital?

A

The owner or owners use their own savings to provide capital for the business

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9
Q

5.2
Owners capital -
advantage + disadvantage

A

Advantage:
-No need to repay the money
-No interest has to be paid

Disadvantage:
-If the owner(s) don’t have enough savings, they will need to use another source of finance

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10
Q

5.2
Retained profit -
advantage + disadvantage

A

Advantages:
-No interest has to be paid
-No cost to raise the finance

Disadvantages:
-Only available to businesses who have profit
-Can be limited amount

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11
Q

5.2
Sale of assets -
advantage + disadvantage

A

Advantages:
-Good if the asset is no longer of use to the business

Disadvantages:
-Can take time to sell asset
-May not be possible to find buyer

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12
Q

5.2
Overdraft -
advantage + disadvantage

A

Advantages:
-Can meet short term cash flow problems
-The size of the overdraft varies monthly and interest is paid only on the amount borrowed

Disadvantages:
-Interest is charged on the daily amount of money the business owns the bank. Can be expensive

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13
Q

5.2
Trade credit -
advantage + disadvantage

A

Advantages:
-Allows the business buying goods to sell to the customer before payment is made to supplier
-The period of credit usually interest free

Disadvantages:
-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

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14
Q

5.2
Taking a new partner -
advantage + disadvantage

A

Advantages:
-A new partner could bring new skills to the business
-No cost to raise finance

Disadvantages:
-The new partner will have a say in how the business is run
-The new partner will be entitled to a share of profits

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15
Q

5.2
Loan -
advantage + disadvantage

A

Advantages:
-Repayment is spread over time
-Business knows the amount to be paid in instalments, helping with budgeting

Disadvantages:
-Interest has to be paid
-Business may need to risk an asset as colateral

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16
Q

5.2
Share issue -
advantage + disadvantage

A

Advantages:
-Money does not have to be paid back
-A lot of finance cna be raised from many investors

Disadvantages:
-Dividends may have to be paid to shareholders
-Shareholders are entitled to have a say in running of the company

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17
Q

5.2
Crowdfunding -
advantage + disadvantage

A

Advantages:
-A lot of money can be raised from contributors
-No security needed for loans

Disadvantages:
-There is no guarantee the business will raise the amount of money it needs
-It takes time and effort to promote the crowdfunding.

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18
Q

5.3
What is revenue?

A

-Income that comes into a business from the sale of products and services
-Calculated by quantity sold x selling price

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19
Q

What is the importance of revenue to a business?

A

If a business wanted to increase revenue they could:
-Increase price of product
-Reduce price to increase sales
-Increase sales by increasing advertising, selling a wider range of products etc.

20
Q

Why does a business want to minimise its costs?

A

-Increase profits
-Reduce prices to become more competitive without cutting profits
-Save money in order to expand or update machinery

21
Q

How does a business reduce costs?

A

-Employing new technology instead of workers
-Finding cheaper supplies of materials or goods to sell (have to maintain quality and reliability though)
-Asking a supplier to reduce its prices or asking workers to take a pay cut.

22
Q

Total cost calculation

A

Total fixed cost + Total variable cost = Total cost

23
Q

Gross profit calculation

A

Sales (total revenue) - cost of sales = Gross profit

24
Q

Net profit calculation

A

Gross profit - expenses = net profit

25
Q

Gross profit margin calculation

A

(Gross profit x 100) ÷ Total revenue = gross profit margin

26
Q

Net profit calculation

A

(Net profit x 100) ÷ Total revenue = net profit margin

27
Q

If gross profit margin rises…

A

-Total revenue rose faster than cost of sales
-Total revenue fell but cost of sales fell more
-Total revenue rose and cost of sales fell

28
Q

If net profit margin rises…

A

-Gross profit rose faster than expenses
-Gross profit has fallen but expenses fell more
-Gross profit rose and expenses fell

29
Q

If gross profit margin falls…

A

-A fall in total revenue and a rise in the cost of sales
-A rise in total revenue but a bigger rise in cost of sales
-A fall in total revenue but a smaller fall in cost of sales

30
Q

If net profit margin falls…

A

-A fall in gross profit and a rise in expenses
-A rise in gross profit but a bigger rise in expenses
-A fall in gross profit but a smaller fall in expenses

31
Q

Calculating ARR

A

1) Total revenue from investment - cost of the investment = profit over the life of investment

2) Total profit ÷ Life of the investment (years) = Average annual profit

3) (Annual average profit ÷ cost of investment) x 100 = Annual rate of return (ARR)

32
Q

Why do most businesses prepare Profit and Loss accounts?

A

-The law (legally obliged)
-To help the business managers/owners
-To gain investors
-For employees job security (knowing they won’t be made redundant)

33
Q

What is revenue?

A

The income received by a business from selling its goods and services

34
Q

What is cost of sales?

A

These are the costs involved directly with supplying the good or service - also known as variable costs

35
Q

What is gross profit?

A

This is when you subtract the cost of the sales from the sales revenue

36
Q

What is overhead?

A

These are the general costs of running a business and are sometimes called expenses

37
Q

Advantages of ARR

A

-provides a percentage return which can be compared with a target return
-looks at the whole profitability of the project, key issue for shareholders

38
Q

How do you calculate break even from a table of output, revenue and cost figures?

A

-Look down the total cost and total revenue columns to see which are equal
-This will show you the break-even output

39
Q

How to calculate break even from a graph?

A

-look where the total revenue line crosses the total cost line
-this will show you the break even output

40
Q

Disadvantage of Cash flow

A

Doesn’t take into account external factors that can affect the business (e.g inflation)

41
Q

What is cash flow?

A

The movement of cash in and out of the business

42
Q

What is cash inflow?

A

Any money received by a business including:
-Revenue
-Income
-Receipts
-Sales

43
Q

What is cash outflow?

A

Any money spent by the business

44
Q

How to calculate break even

A

Fixed costs / selling price - variable cost unit = break even

45
Q

What is contribution price?

A

The gross profit made when taking away the cost of making a product from the selling price

46
Q

What is the margin of safety?

A

The amount of units you are selling above the break-even point.

47
Q
A

Business (6 decks)

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