Unit 6: Finance

Question 1

Asset

Answer 1

Something owned by a business

Question 2

Average rate of return

Answer 2

The average amount of profit made from an investment, as a percentage of the initial
cost.

Question 3

Break-even Chart

Answer 3

A graph showing costs and revenue, and the point where they cross is the break-even point, this shows the output required to break-even

Question 4

Break-even Output

Answer 4

How many units must be sold in order to break-even. At this point, total costs and total revenue are the same

Question 5

Cash

Answer 5

Money that the business has in cash or in the bank available to spend

Question 6

Cash flow

Answer 6

The money moving into and out of the business

Question 7

Cash flow forecast

Answer 7

A prediction of how much money will flow into and out of the business. It is a planning tool

Question 8

Cash Inflow

Answer 8

Money coming into the business

Question 9

Cash Outflow

Answer 9

Money going out of the business

Question 10

Closing Balance

Answer 10

How much money still in the bank account at the end of a month / year

Question 11

External Sources of Finance

Answer 11

Getting money from business, people, or other organisations outside the business. Formexample, loans from banks, selling shares to private investors, subsidies from the Government

Question 12

Fixed Costs

Answer 12

Costs that do not change when our output changes. For example, rent

Question 13

Government Grants

Answer 13

Money given to businesses by the Government in exchange for them operating in a particular place or way. They must be applied for

Question 14

Gross Profit / GP Margin

Answer 14

Gross Profit = Total revenue - Total costs

Question 15

Hire Purchase

Answer 15

Buying items by making an initial payment, then paying the remaining money owed over a longer period of time

Question 16

Income Statement

Answer 16

A document that summarises the money moving into and out of the business. Showing whether a profit or loss is being made

Question 17

Interest Rates

Answer 17

The reward for saving, the cost of borrowing. A percentage added to the balance (of the savings or loan) for a given period of time – such as each month

Question 18

Internal sources of finance

Answer 18

Funding the business using the owners’ own money, by selling assets belonging to the business, or by making use of Sale & Leaseback

Question 19

Liability

Answer 19

The responsibility for debts of a business. If a business takes out a loan, it becomes a liability – the business is responsible for repaying

Question 20

Loans / Mortgages

Answer 20

An amount of money borrowed for a period of time, with an agreed rate of interestand deadline, repaid in instalments. Mortgages are a special type of loan, for more
money paid back over a longer time in order to buy property

Question 21

Loss

Answer 21

Where expenditure is greater than income

Question 22

Margin of Safety

Answer 22

How many more sales are being made than necessary to break-even

Question 23

Net Cash flow

Answer 23

The difference between cash inflows and outflows.

Net Cash inflow = Cash Inflows - Cash Outflows

Question 24

Net Profit

Answer 24

Net profit = Operating profit - Tax and finance costs

Question 25

Operating Profit / OP Margin

Answer 25

Operating profit = Gross profit - Overheads

Operating profit margin (%) = Operating Profit divided by Revenue x 100

Question 26

Overdraft

Answer 26

Agreed amount that can be spent when the balance of a bank account if £0, this allows the balance to be negative

Question 27

Profit

Answer 27

Where income is greater than expenditure

Question 28

Profit Margin

Answer 28

What percentage of revenue is being kept by the business after different costs have been paid

Question 29

Profit Maximisation

Answer 29

Setting out to make the most profit possible, even if it means not achieving, or having to put on hold, other goals

Question 30

Raising Finance

Answer 30

Getting the money to invest in machinery etc. to start or grow a business

Question 31

Retained Profit

Answer 31

Profit from previous years that has been kept for future projects. This is an internal source of finance

Question 32

Revenue

Answer 32

Income from sales. Sales revenue = cost of product x quantity sold

Question 33

Sale & Leaseback

Answer 33

A business sells an asset and then leases it back from the new owners. An internal source of finance that allows a business to release money tied up in buildings or expensive equipment

Question 34

Share issue

Answer 34

The business is divided into more shares, the new shares are made available for the public to buy, and the business receives the money. An external source of finance

Question 35

Statement of Financial Position or Balance Sheet

Answer 35

Also called a Balance Sheet – a document that summarises the assets, liabilities, and equity of a business

Question 36

Total Costs

Answer 36

All costs a business must pay in order to operate

Question 37

Statement of Financial Position or Balance Sheet

Answer 37

Also called a Balance Sheet – a document that summarises the assets, liabilities, and equity of a business

Question 38

Total Costs

Answer 38

All costs a business must pay in order to operate

Question 39

Variable Costs

Answer 39

Costs that change depending on the level of production. For example, when more units are produced, more raw materials are consumed.