Unit 6 Finance

Question 1

Asset

Answer 1

Something owned by a business.

Question 2

Profit Margin

Answer 2

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

Question 3

Gross Profit

Answer 3

Total Revenue – Cost of Sales

Question 4

Interest Rates

Answer 4

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 5

Liability

Answer 5

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 6

Cash flow

Answer 6

The money moving into and out of the business.

Question 7

Net Cash flow

Answer 7

The difference between cash inflows and outflows. Net Cash Flow = Cash Inflows – Cash Outflows

Question 8

Share issue

Answer 8

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 9

Average rate of return

Answer 9

The average amount of profit made from an investment, as a percentage of the initial cost. AAR (%) = average profit per year ÷ initial cost x 100

Question 10

Profit Maximisation

Answer 10

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

Question 11

Retained Profit

Answer 11

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

Question 12

Operating Profit Margin

Answer 12

Operating Profit ÷ Revenue x 100

Question 13

Net Profit

Answer 13

Operating Profit – Tax and Finance Costs

Question 14

Cash

Answer 14

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

Question 15

Government Grants

Answer 15

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

Question 16

Cash Inflow

Answer 16

Money coming into the business.

Question 17

Profit

Answer 17

Income is greater than expenditure.

Question 18

Revenue

Answer 18

Income from sales.

Question 19

Closing Balance

Answer 19

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

Question 20

Cash Outflow

Answer 20

Money going out of the business.

Question 21

Break-even Output

Answer 21

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

Question 22

Margin of Safety

Answer 22

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

Question 23

Gross Profit Margin

Answer 23

Gross Profit ÷ Revenue x 100

Question 24

Opening Balance

Answer 24

How much money is in the account at the beginning of a month or year.

Question 25

Raising Finance

Answer 25

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

Question 26

External Finance Source

Answer 26

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

Question 27

Operating Profit

Answer 27

Gross Profit - Overheads

Question 28

Internal sources of finance

Answer 28

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

Question 29

Loss

Answer 29

Expenditure is greater than income.

Question 30

Fixed Costs

Answer 30

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

Question 31

Variable Costs

Answer 31

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

Question 32

Hire Purchase

Answer 32

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

Question 33

Loans

Answer 33

An amount of money borrowed for a period of time, with an agreed rate of interest and deadline, repaid in instalments.

Question 34

Statement of Financial Position

Answer 34

Also called a Balance Sheet – a document that summarises the assets, liabilities, and equity of a business. Total Costs All costs a business must pay in order to operate.

Question 35

Overdraft

Answer 35

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

Question 36

Cash flow forecast

Answer 36

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

Question 37

Break-even Chart

Answer 37

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 38

Income Statement

Answer 38

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

Question 39

Sale and Leaseback

Answer 39

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 40

Mortgage

Answer 40

A special type of loan, for more money paid back over a longer time in order to buy property.