Unit 5 (Financial information and decisions)

Question 1

Start-up capital

Answer 1

Money required to set up a business and keep the business operating until the business breaks even

Question 2

Working Capital Calculation

Answer 2

Current assets - Current Liablilities

Question 3

Working Capital

Answer 3

Capital available to the business in the short term to pay day-to-day expenses

Question 4

Capital expenditure

Answer 4

Money spent on fixed assets

Question 5

Revenue expenditure

Answer 5

money spent on day-to-day expenses which do not involve the purchase of a long-term asset

Question 6

Internal Profit

Answer 6

the profit obtained from the business itself

Question 7

External Profit

Answer 7

Profit obtained from sources outside of the business

Question 8

Retained Profit

Answer 8

Profit kept in the business after the owners have taken their share of the profits

Question 9

Sale of existing assets

Answer 9

Existing assets that could be sold which are no longer required by the business

Question 10

Bank loan

Answer 10

A sum of money obtained from a bank which must be repaid with interest

Question 11

Debentures

Answer 11

long-term loan certificates issued by limited companies

Question 12

Factoring of debt

Answer 12

when a business sells its accounts receivables to a third party at a discount

Question 13

Micro-finance

Answer 13

Lending small amounts of finance to small businesses to those who can’t access finance from another source

Question 14

Overdraft

Answer 14

Banks allow businesses to take additional money out of their account up to a certain limit

Question 15

Trade Credit

Answer 15

Delaying payment to suppliers for an agreed time period

Question 16

Cash flow

Answer 16

Cash flow in and out of the business over a period of time

Question 17

Cash inflow

Answer 17

Cash going into a business

Question 18

Cash outflow

Answer 18

Cash going out of a business

Question 19

Profit

Answer 19

Sales revenue - total costs of making product/service

Question 20

Cash flow forecast

Answer 20

Estimate of future cash inflows and outflows usually calculated month by month to ensure there is enough cash to pay short-term debts

Question 21

Opening cash balance

Answer 21

The previous months closing balance

Question 22

Closing cash balance

Answer 22

opening balance + net cash flow

Question 23

Net cash flow

Answer 23

total inflow - total outflow

Question 24

Income statements

Answer 24

is a financial statement of a company and shows the company’s revenues and expenses during a particular period.

Question 25

Gross profit

Answer 25

Revenue/Turnover - Costs of sales

Question 26

Revenue

Answer 26

Quantity Sold x Selling Price

Question 27

Costs of sales

Answer 27

Direct costs of a good or service ( variable costs)

Question 28

Net profit

Answer 28

total revenue - total expenses

Question 29

Current assets

Answer 29

Items of value that the business won’t keep for longer than a year, like cash or inventory

Question 30

Non-current assets

Answer 30

Items of value the business will keep longer than one year, for example land, buildings, equipment and vehicles

Question 31

Non-current liabilities

Answer 31

Debts which will last longer than one year, like a long-term loan for new production machinery

Question 32

Liabilities

Answer 32

Debts owed by the business, for example, bank loans

Question 33

gross profit margin

Answer 33

gross profit/sales revenue x 100

Question 34

net profit margin

Answer 34

net profit/sales revenue x 100

Question 35

acid test

Answer 35

(current assets - inventories of stock)/current liablities

Question 36

Current ratio

Answer 36

current assets/current liabiloties

Question 37

Ideal current ratio is…

Answer 37

1.5 to 2.5

Question 38

Ideal acid test ratio is…

Answer 38

above 1

Question 39

If the current/acid test is too low…

Answer 39

the business could run out of cash

Question 40

If the current/acid ratio is too high…

Answer 40

the business is not managing their current assets efficientley