Unit 6 - Finance

Question 1

Equation for break-even

Answer 1

break-even = fixed costs / selling price - variable cost

Question 2

Internal Sources of Finance: (3)

Answer 2

1. owner funds
2. retained profits
3. trade credit

Question 3

External Sources of Finance: (7)

Answer 3

1. bank loans
2. mortgages
3. overdraft
4. shares
5. loans from family and friends
6. hire purchase
7. government grants

Question 4

Cash Flow: Solutions (4)

Answer 4

1. reschedule payments (e.g. trade credit)
2. cut costs
3. overdrafts
4. new sources of cash inflows

Question 5

Income Statements:

1. equation for gross profit
2. equation for net profit
3. equation for gross profit margin
4. equation for net profit margin

Answer 5

Gross profit = revenue - cost of sales
Net profit = gross profit - other costs

Gross profit margin = gross profit / revenue
Net profit margin = net profit / revenue

Question 6

Types of Assets: (2)

Answer 6

1. non-current (long term)
2. current (short term)

Question 7

Types of Liabilities and Example: (2 + 2)

Answer 7

1. non-current (paid over more than a year e.g. loan)
2. current (paid within a year e.g. suppliers)

Question 8

Balance Sheet:

1. money going out = ?
2. net assets = ?

Answer 8

1. money that goes out = money that comes in
2. net assets = total equity