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GCSE Business Studies > Y11 Finance > Flashcards

Y11 Finance Flashcards

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1
Q

What is Sales Revenue?

A

The money a business receives for selling the goods and services it produces - the money from customers.

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2
Q

Give the formula for Sales Revenue:

A

Sales Revenue =Quantity Sold X Selling Price.

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3
Q

What are the 3 main methods of Increasing Sales:

A

1) Increase the selling price (to make more revenue) 2) Decrease the selling price (more will be sold)3) Increase the quantity sold without changing the price.

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4
Q

The effect of a price change on Sales Revenue depends on…This is known as…

A

The amount sold - the demand.This is known as “the price elasticity of demand.”

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5
Q

Products are either….(2)

A

Price ELASTIC.OrPrice INELASTIC.

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6
Q

What are Inelastic Products? Give an example.

A

Essential things e.g. milk.

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7
Q

What are Elastic things?Give an example.

A

Luxury things e.g. a holiday.

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8
Q

For a PRICE ELASTIC product, a change in price will result in…

A

A greater proportional change in demand.

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9
Q

For a PRICE INELASTIC product, a change in price will result in…

A

A smaller proportional change in demand.

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10
Q

How do you make more revenue with a Price ELASTIC product? (Remember: Elastic products are luxury products)

A

You put the price down. As the luxury becomes cheaper, the demand for it rises - more people will buy it and more sales revenue will be made.

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11
Q

How do you make more revenue on a PRICE INELASTIC product?(Remember: Inelastic products are essential products)

A

You put the price up. People still need this essential product so they will still buy it = more sales revenue as you are charging more.

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12
Q

Deciding whether to raise/lower prices depends on…

A

The effect on Sales - the price elasticity.

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13
Q

3 factors that a business needs to consider before raising/lowering prices:

A

1) The number of competitors.2) Is the product necesitarte or a luxury?3) How much people spend on the product out of their whole income.

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14
Q

What are ‘Fixed Costs’?

A

The money spent on items that are needed no matter how many goods or services you sell.

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15
Q

Do Fixed Costs change with output (the amount of things a business produces)?

A

No - they are FIXED.

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16
Q

Give 2 examples of Fixed Costs:

A

1) Rent.2) Salaries.

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17
Q

What are Variable Costs?

A

The money spent on items that are directly linked to the number of items made and sold.

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18
Q

Do Variable Costs change with output?

A

Yes.

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19
Q

Give 2 examples of Variable Costs:

A

1) Ingredients.2) Raw materials.

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20
Q

What is the variable cost per unit?

A

It is the variable cost of making ONE product.

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21
Q

Give the equation for ‘Total Variable Cost’:

A

Total Variable Cost =Quantity Produced x Variable Cost Per Unit.

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22
Q

Give the equation for ‘Total Cost’:

A

Total Cost =Total Fixed Cost + Total Variable Costs.

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23
Q

Give the formula for ‘Average Costs’:

A

Average Costs =Total Cost divided by Number Produced.

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24
Q

Why is it important to a business to calculate average cost? (2)

A

1) It helps to decide what price to charge.2) To make a profit, the price of the product must be more than the average cost.

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25
Q

Why might a business set a price lower than the average cost? (2)

A

1) To Charge a low price to gain market share from competitors.2) To maintain production when demand is low.

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26
Q

Give the 2 formulas for Profit:

A

Profit =Total revenue - Total CostORProfit =Margin of safety x Contribution.

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27
Q

As a business produces more products, what happens to the average costs?

A

The average costs fall because the fixed cost is shared between more units and the business is using its fixed assets more efficiently.

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28
Q

Why is reducing average costs good for a business? (2)

A

1) The lower costs means higher profits.2) Lower Costs means the price can be lowered = more sales and the business will still make a profit.

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29
Q

How could a business reduce Average Costs? (4)

A

1) By spreading Fixed Costs = Increase Production.2) By reducing variable costs per unit = find cheaper raw materials.3) Increase the efficiency of labour = more jobs per hour.4) Achieve economies of large scale production.

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30
Q

What is Economies of Scale?

A

The advantages of producing large quantities of output. These advantages should reduce unit costs.

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31
Q

Give the formula for the percentage change in Economies of Scale:

A

Difference/Change————————— X100Original

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32
Q

Give 3 advantages of small scale production:

A

1) You can offer a personal service.2) Specialised products can be supplied.3) You can be flexible if the demand for products change.

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33
Q

Give an advantage of large scale production:

A

Your average unit cost of producing products will be lower which will lead to higher profits per product sold.

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34
Q

Types of Economies of ScaleWhat is ‘Technical Economies’?

A

A business saves on production costs by using better methods and equipment.

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35
Q

Types of Economies of ScaleWhat is ‘Managerial Economies’?

A

A business can employ specialist managers who improve efficiency.

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36
Q

Types of Economies of ScaleWhat is ‘Financial Economies’?

A

A business does not have to pay out as much money to raise finance.

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37
Q

Types of Economies of ScaleWhat is ‘Risk-Bearing Economies’?

A

A business had a range of products or services, so it is not dependent on one produce.

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38
Q

Types of Economies of ScaleWhat is ‘Purchasing Economies’?

A

A business Is given a discount for buying large quantities.

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39
Q

Types of Economies of ScaleWhat is ‘Marketing Economies’?

A

A business saved on advertising and transport costs.

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40
Q

What is DISECONOMIES of Scale?

A

A business could become too big and average costs start to rise.

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41
Q

How would Diseconomies of Scale happen? (3)

A

1) Communication and co-ordination becomes difficult.2) Management and Control problems = decisions take a long time.3) Workers may lack motivation.

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42
Q

Give the formula for Contribution:

A

Contribution =Price - Variable Cost per unit.

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43
Q

Margin of Safety =

A

Margin of Safety =Actual sales - breakeven level of sales.

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44
Q

Give the formula for Breakeven:

A

Breakeven =Fixed Costs—————————————(Selling price - Variable Cost per unit)

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45
Q

A business will breakeven when…

A

It sells enough products so that it’s total sales revenue is equal to its total costs (it is not making a profit or a loss.)

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46
Q

What happens if a business sells more than its breakeven level?

A

It will make a profit.

47
Q

What happens if a business sells less than its breakeven level?

A

It will make a loss.

48
Q

How is Breakeven Analysis useful? (3)

A
  • It helps them set sales targets.
  • helps to work out whether forecast sales will be enough to make a profit.
  • make judgements about price and costs.
49
Q

What is Margin of Safety?

A

How much sales can fall before breakeven point is reached.

50
Q

Give the 4 main reasons why a business may need finance:

A

1) During Internal growth - buying new manufacturing equipment because of increased demand.2) Starting up a new business.3) Replacing old machinery and equipment.4) Research and development - e.g. pharmaceutical company seeking finance to fund development of a new drug.

51
Q

What finance was offered by the council to new businesses opening or expanding in Bowton? (Case Study)

A

Grants.

52
Q

What do we know about the finance that may have been available to GG Toys Plc over time?

A

They are a PLC, they have shareholders who can buy shares from the stock exchange - they get money from selling shares.

53
Q

What have GG Toys Plc done in the past that may have required additional finance?

A

When they moved their factory to China - for the premises and for making some workers redundant.

54
Q

Give 3 things GG Toys Plc need additional finance for:

A

1) They are developing an online presence - pay for the website&advertising.2) For the warehouse where they will keep all the stock before shipping to customers.3) Workers needed which will require training.4) May choose to install technology.

55
Q

Define INTERNAL FINANCE:

A

The finance that comes from within the business - there is usually no cost to the business as they are using its own money.

56
Q

What cost is involved with Internal Finance?

A

Opportunity cost - the business cannot use the money for another purpose anymore.

57
Q

Define EXTERNAL FINANCE:

A

The finance that comes from outside the business - there is usually a cost for example interest or giving some of the ownership of the business to the provider.

58
Q

What is offered in some cases with External Finance?

A

‘Security’. This means that in the event of the business being unable to pay back the finance, ownership of the asset transfers to the lender who may then sell it.

59
Q

Why is sources of finance such an important issue for businesses?

A

Most sources of finance represent a long term commitment for the business. The business won’t be able to grow and develop if it ‘gets it wrong.’

60
Q

Bank LoanExternal or Internal?Time period?

A

An amount of money borrowed from a bank, usually for a stated purpose. The loan is usually got a fixed period of time.External & Medium.

61
Q

What could a bank loan be used for?

A

To help finance some form of business development for the purchase of new equipment. It may also be used to help a new business start up.

62
Q

Give 2 advantages of Bank Loans:

A

1) Small manageable regularly payments can be made which is affordable for the business.2) Especially good as profits have been falling.

63
Q

Give a disadvantage of Bank Loans:

A

1) If interest rates increase as Sundeep predicts, the repayments will be higher and the costs for the business will increase and the profits have already been falling.

64
Q

OverdraftExternal or Internal?Time period?

A

An arrangement with the bank with the business will be able to withdraw more money from his bank account than it actually has.External and short.

65
Q

What is an overdraft usually used for?

A

To help the business overcome a short term or temporary shortage of funds.

66
Q

Give an advantage and disadvantage of an Overdraft:

A

1) Adv - it can be set up in advance and can be used to overcome cash shortages quickly.2) Disadv - Usually there are very high interest rates.

67
Q

Trade CreditExternal or Internal?Time period?

A

When a business sells goods it sometimes allows the other business to take the goods away without paying for them immediately. External and short.

68
Q

Give an advantage and disadvantage of using Trade Credit:

A

1) Adv - it will avoid cash flow shortages as he won’t have to pay till Toys have been sold.2) Disadv - Tom’s Toys may lose out on discounts.

69
Q

Hire PurchaseExternal or Internal?Time period?

A

A system of obtaining items in return for a monthly payment over a given period of time. The business does not own the item.External and short.

70
Q

What can Hire Purchase be used for?

A

Company cars, computer equipment etc.

71
Q

Give 2 advantages of using Hire Purchase:

A

1) It will save money when they can pay monthly instead of lots upfront.2) Machinery will be replaced if something happens to them.

72
Q

LeaseExternal or Internal?Time period?

A

The method of obtaining items for a stated period of time – this is like renting. External and medium.

73
Q

What can Leasing be used for?

A

Company cars, photocopiers and buildings.

74
Q

Give an advantage and disadvantage of Leasing:

A

1) Adv - the technology will be replaced very often so they won’t break down and the business will gain newer models.2) Disadv - They are paying more often and more money than if they just bought it upfront.

75
Q

Owners InvestmentExternal or Internal?Time period?

A

The existing owners of the business may invest more money in it. Internal and Long.

76
Q

What can Owners Investment be used for?

A

This source may be used to help pay for a major business development such as a takeover of another business or to pay off some long-term debts.

77
Q

Give an advantage and disadvantage of Owners Investment:

A

1) Adv - there is no cost involved.2) Disadv - the ownership structure of the business may change.

78
Q

Cash in Bank
External or Internal?
Time period?

A

The money owed by the business and built up over time following successful trading. Internal and short.

79
Q

What can Cash in Bank be used for?

A

To help with the day-to-day operation of the business.

80
Q

Give the only disadvantage of Cash in Bank:

A

There is an opportunity cost.

81
Q

Taking a new partner
External or Internal?
Time period?

A

Partnerships can obtain additional finance by selling off part of the business to a new partner. External and long.

82
Q

What can the finance from Taking a new Partner bring?

A

The finance may be used to buy new equipment or premises or to buy another business.

83
Q

Give 2 disadvantages and 1 advantage of Taking a new Partner:

A

1) The Partner will have a say in the running of the business.
2) Will be entitled to a share of any profits.
1) Advantage - they may bring new skills to the business.

84
Q

Share IssueExternal or Internal?Time period?

A

Source of finance used by limited companies to raise finance in return for a “share “in the business. External and Long.

85
Q

What can Share Issue be used for?

A

Fund a major business development such as a takeover or a extension to a factory.

86
Q

Give 2 disadvantages of Share Issue:

A

1) Dividends May have to be paid.2) Shareholders are entitled to have a say in the running of the company.

87
Q

Retained Profit
External or Internal?
Time period?

A

Profit that is made by the business but kept back for its own use. Internal and medium or long.

88
Q

What can Retained Profit be used for?

A

To help finance the purchase of many things such as equipment or premises.

89
Q

Give an advantage and 2 disadvantages of Retained Profit:

A

1) Adv - it is interest free and no repayments have to be made.
2) Disadv - shareholders may be unhappy as they won’t be receiving dividends.
Disadv - opportunity cost.

90
Q

Mortgage
External or Internal?
Time period?

A

A very long-term method of borrowing a large sum of money from a bank. External and Long.

91
Q

What is a Mortgage used for?

A

To help fund the purchase of property.

92
Q

Give an advantage and two disadvantages of Mortgage:

A

1) Adv - Small regular payments will be made which is affordable for the business.
2)Disadv - interest rates may increase so repayments will increase
Disadv - as they will have provided security for the borrowing, the warehouse could be taken by the bank if re-payments are made.

93
Q

Grant
External or Internal?
Time period?

A

An amount of money usually made available for a specific purpose by the government.
External and Medium.

94
Q

What can Grants be used for?

A

Factories, purchase of new equipment etc.

95
Q

Give an advantage and disadvantage of Grants:

A

1) Adv - Free money for the business that doesn’t have to be paid back.
2) Disadv - the application procedure is a very time consuming process - the council will also restrict what you spend the money on.

96
Q

Sale of assets External or Internal?Time period?

A

This is the selling of asset wheat the business may no longer need. Internal and Medium.

97
Q

What can Sale of Assets be used for?

A

To help finance the purchase of equipment and/or buildings.

98
Q

Give the only disadvantage of Sale of Assets:

A

The opportunity cost of not being able to use the asset again.

99
Q

Limitations of Break Even: (4)

A
  • forecast figures could be different in reality.
  • number of competitiors may need to change prices.
  • assumes fixed costs never change.
  • only works for one product.
100
Q

Cash Flow is…

A

The amount of money flowing into a business (income) and flowing out (expenditure) at only one time.

101
Q

Lack of Cash Flow is…

A

The number one reason why businesses fail.

102
Q

Give 2 examples of Cash Inflows:

A
  • Sales Revenue.

- Interest received.

103
Q

Give 2 examples of Cash Outflows:

A
  • Wages.

- Costs e.g. raw materials.

104
Q

Without cash flow, give 2 examples of things the business would be unable to do:

A
  • Pay debts.

- Buy supplies.

105
Q

Without cash, a business would become…

A

Insolvent.

106
Q

What is Cash Flow forecast?

A

A statement showing the expected flow of money into and out of a business over a period of time.

107
Q

Cash Flow

Balance brought forward =

A

Balance carried forward from previous month

108
Q

Cash Flow

Total Income =

A

Balance brought forward PLUS all income.

109
Q

Cash Flow

Total Expenditure =

A

All expenditure.

110
Q

Cash Flow

Balance carried forward =

A

Total Income - Total Expenditure.

111
Q

What are the advantages of a Cash Flow Forecast? (3)

A
  • To identify when a business is likely to have a short fall or surplus of cash.
  • To avoid cash flow problems.
  • To help plan for the future.
112
Q

What are 2 disadvantages of Cash Flow Forecasts?

A
  • The figures are only estimates.

- Prices of goods sold and costs may change.

113
Q

A Cash Flow statement is more likely to be accurate if…

A

It is based on past experience.

114
Q

How could a business solve a CashFlow problem? (4)

A
  • Speed up timings of inflows.
  • Cut Costs (Expenditure)
  • Arrange an overdraft.
  • Use a debt factoring company to take owed money.

GCSE Business Studies (5 decks)

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