Managment of Finance Flashcards

1
Q

Short Term sources of finance?

A

Bank overdraft
Debt Factoring
Trade Credit

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2
Q

Bank Overdraft?

A

Take out more money than you have in your account that you need to pay back

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3
Q

ADV/ DISAD of bank overdraft?

A

+ Simple to arrange
- Can be expensive if used long term due to interest rates
- Bank can reduce limit or cancel overdraft anytime

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4
Q

Debt Factoring?

A

Business can sell their debts to factors for a reduced price, so they can chase it up

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5
Q

Trade credit?

A

Business can buy supplies then pay later

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6
Q

ADV/ DISAD of trade credit

A

+ improves cash flow
- if not paid in set period suppliers might be reluctant to relate sale

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7
Q

Medium Term Sources of finance?

A

Leasing
Gov Grant
Bank Loan
Hire purchase

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8
Q

Leasing?

A

Assets and equipment is rented for a time period

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9
Q

ADV/ DISAD of leasing

A

+ Equipment can be changed regularly to stay up to date
+ doesn’t own asset which has warranty meaning business don’t have to pay for any breakdowns
- leasing over a long period of time is expensive

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10
Q

Gov Grant?

A

Loan given by the government which doesn’t need to be repaid

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11
Q

Bank Loan

A

Money given to business by bank which needs to be repaid with interest

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12
Q

Hire purchase?

A

How businesses pay for expensive assets
Deposit is paid then rest is paid with interest in instalments

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13
Q

Long term sources of finance?

A

Mortgage
Share capital
Debentures
Sale & Leaseback
Venture Capital
Crowdfunding

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14
Q

Mortgage

A

Bank loan that is paid back over a large period of time eg. 25 years
Deposit is required

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15
Q

Share Capital

A

Money raised through selling shares

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16
Q

Sale and Leaseback

A

business sell assets/ property which they will then rent back

17
Q

Venture Capital?

A

Loan money to new startup company’s with a risky trade credit with strong potential

18
Q

Crowdfunding

A

Those who believe in the business will invest in the business
People invest in exchange for value of assets

19
Q

Liquidity?

A

Business has enough money to pay bills

20
Q

Cash budget

A

Estimation of the cash flow over a period of time
Allows planning of any extra cash that can be invested in new assets

21
Q

Cash flow issues?

A

Capital tied up in stock
High interest rates
Low sales
Expensive raw materials
Changes in demand

22
Q

Cash flow solutions?
Capital tied up in stock
High interest rates
Low sales
Expensive raw materials
Changes in demand

A
  1. reduce stock levels, sell stock, use JIT
  2. Change bank
  3. Increase advertising
  4. Change suppliers
  5. Have a sale, rebrand product
23
Q

Income Statements?

A

financial statements that show a businesses income and expenses

24
Q

Purpose of income statement

A

shows profit/ loss made by company
can be used to compare growth profit and annual profit over several years
comparisons can be made with similar companies

25
Q

Statements of financial position?

A

shows a businesses financial value

26
Q

what does a statement of financial position show?

A

asset - what the business owns
liabilities - what the business owes

27
Q

working equity?

A

money business has access to immediately which isn’t tied up in assets etc

28
Q

who uses financial information?

A

rivals - interested in profits of business
banks- helps to determine if they choose to lend
gov - to calculate tax rates
owners - to ensure company is running successfully

29
Q

Limitations of ratio analysis

A

doesn’t take into account external factors
other companies may use different methods to value stock
comparisons with other firms can be difficult
information used is historical (past info)

30
Q

Profitability rates eg

A

Gross profit
Profit of the year

31
Q

Liquidity ratios eg

A

current ratio
asset test ratio

32
Q

Efficiency ratio

A

Rate of inventory turnover

33
Q

technology in finance

A

powerpoint can be used to make spreadsheets which show financial figures
internet banking
word can be used to send emails etc about bills etc
Apple Pay etc can be used to electronically pay for materials