Finance

Question 1

Advantages of a overdraft

Answer 1

useful as a short term source of finance to overcome cash flow problems.

there is no agreements which would require to be paid back over several years.

Question 2

Advantages of a Mortgage

Answer 2

the amount of money can be paid back over lots of years.

Question 3

Advantages of a grant

Answer 3

the money given does to need to be repaid.

A lot of money can be received at one time.

Question 4

Advantages of re-invested profits

Answer 4

there is not any extra costs that need to be paid like a interest to be paid.

Question 5

Advantages of hire purchase

Answer 5

it allows for businesses to buy assets with small payments.

once all the payments have bee made the business own that asset.

Question 6

Advantages of leasing

Answer 6

you can obtain a asset without a large amount of money being spent on it.

any repairs are carried out by the leasing company with no extra costs.

any upgrades can be obtained once the lease runs out

Question 7

Advantage of trade credit

Answer 7

can buy goods and sell them on before payment is required

provided payment is made within the agreed number of months then no interest is charged

Question 8

Advantages of factoring

Answer 8

allows the business to receive an amount of money very fast

remove the inconvenience of chasing up late payments

Question 9

Advantages of issue shares

Answer 9

large amounts of money can be raised quickly

Question 10

Advantage of owners capital

Answer 10

money doesn’t need to be repaid

there isn’t any interest that needs to be paid

Question 11

Advantage of bank loan

Answer 11

all the money will be obtained in one large amount

any repayments can be spread throughout a long time

Question 12

Disadvantage of a overdraft

Answer 12

very expensive way to borrow money with very high interest rates

Question 13

disadvantage of a mortgage

Answer 13

repayments are high because of high interest rates

property can be repossessed if the repayments are not made

Question 14

disadvantage of a grant

Answer 14

there will be certain restrictions to what the money can be spent on

Question 15

disadvantage of re-invested profits

Answer 15

there may not be enough money to fund the business

Question 16

disadvantages of hire purchase

Answer 16

the assets is not owned until the final payment is made

the total amount paid is more than the price of the assets

Question 17

disadvantages of leasing

Answer 17

the business will not own the assets at the end of the payment scheme

the rental costs can build up and in the long term may be better to just outright buy the asset

Question 18

disadvantage of trade credit

Answer 18

any discounts from prompt payment are lost

suppliers will be reluctant to continue to offer credit if a business does not pay within allocate time span

Question 19

disadvantages of factoring

Answer 19

the business has to sell the customer debt for a reduced amount

factoring companies are often only interested in large amount of debt

Question 20

disadvantages of issue shares

Answer 20

dividends have to be paid to shareholders

can be expensive and time consuming to advertise and organise the sale of shares

Question 21

what is an income statement

Answer 21

an income statement calculates the profit made from buying ans selling, known as a gross profit and the profit made after the expenses have been deducted from the gross profit which is known as the profit for the year.

Question 22

what is a statement of financial position

Answer 22

A statement of financial position shows the items the business owns which are known as assets, and the items which they owe which are known as liabilities and finally the overall of the business.

Question 23

what is a current liablity

Answer 23

Current liability is an item which is owed for less than a year

Question 24

what does it mean for a business to stay liquid

Answer 24

this refers to liquidity which is the cash-flow situation, business must stay liquid so that they have funds to pay off any of their debts

Question 25

how to fix the cash flow problem:

too much money tied up in stocks

Answer 25

one possible way to fix this problem would be to use the stock management technique called just in time.

-Another way to fix this problem would be to put on sales to move the excess stock.

Question 26

how to fix the cash flow problem:

too many credit sales

Answer 26

A way to fix this problem would be to offer discounts to encourage the customers to pay

Question 27

how to fix the cash flow problem:

too long a payment period for the credit sale

Answer 27

a way to fix this problem would be to charger a higher interest rate on the credit sales as it will encourage the customers to pay sooner

Question 28

how to fix the cash flow problem:

not enough credit purchases

Answer 28

this could be fixed by the business switching their suppliers to companies that offer interest free credit purchases

Question 29

how to fix the cash flow problem:

high amounts of finance spent on non-current assets

Answer 29

this problem could be fixed by paying for non-current assets in installments

Question 30

how to fix the cash flow problem:

increasing amounts of drawings from the owner

Answer 30

this could be fixed by the charging a higher interest rate on drawings so that it will discourage the owner to withdraw money from the business

Question 31

how to fix the cash flow problem:

not enough sales revenue

Answer 31

this could be fixed by the business making changes to there current marking mix to encourage more sales

Question 32

how to fix the cash flow problem:

too many unpaid debts

Answer 32

this could be fixed by the business selling debts to debt factoring companies

Question 33

what are the ratio analysis used for

Answer 33

• it allows the business to compare the performance of the business with previous years
• allows for comparisons to be made with the businesses performance and others in the market
• the business can use it to compare against industry averages
• it highlights areas of the business that needs more improvement and attention
• it can help the business in future decisions making

Question 34

what are the limitations of ratio analysis

Answer 34

• the information from the ratios can be out of date so they may not be relevant to the current position of the business
• ratios do not take into account external factors like recessions
• the don’t take into internal factors like low staff morale
• the business find it difficult to find competitors which are similar to there size and type for valid comparisons.