Finance-5 Flashcards
Advantages and disadvantages of a share issue
Advantages:
– high amounts of money can be made
– there is no interest
Disadvantages:
– shares can only be sold by private limited companies
– new shareholders have a say in the business
Advantages and disadvantages of a new partner
Advantages:
– bringing new skills
– no interest
– no need to reply
Disadvantages:
– loss of ownership
– loss of revenue
What are the nine ways of raising finance
Share issue Crowdfunding New partner Alone Trade credit Overdraft Owners capital Retained profit Sale of assets
Advantages and disadvantages of a loan
Advantages:
Money is Available quickly and it can be paid in monthly instalments
Disadvantages:
– High interest
Advantages and disadvantages of trade credit
Advantages:
-Can help with cash flow problems
Dash
-Business can have goods to sell before they pay
Disadvantages:
– Goods must be paid for even if I don’t so
– interest is paid if payment is late
Advantages and disadvantages of an Overdraft
Advantages:
Meets short-term cash shortages
– interest is paid on the amount owned
Disadvantages:
Can be expensive if not paid back quickly
Advantages and disadvantages of owners capital
Advantages: is no need to repay
-No interest
– does not affect ownership or control
Disadvantages:
– owner risk savings
– owner may not have enough
Advantages and disadvantages of sale of assets
Advantages:
– no need to pay
– no interest
– good if selling off all the Quitman
Disadvantages:
– maybe difficult
– may take a long time
Advantages and disadvantages of retained profit
Advantages: no interest
– no need to pay
Disadvantages: business might not have profits
Reasons for needing finance
-Initial capital to buy machinery or wrong materials for a new company
– day-to-day costs
– marketing
– funding expansion: more goods requires higher costs
Role of the finance function
– Calculating ARR -Arranging finance e.g. loans or shares – managing the payment e.g. wages bills and receipts of money from Sales –Forecasting cash flow – important for decision-making
Usefulness of a cash flow forecast
– Providing targets
– dealing with negative cash flow
– anticipating shortages of finance
– are planning tool
Usefulness of a breakeven forecast
– Planning how much to charge for product
– planning how much to produce
Limitations of forecasts
It’s only a forecast
– price at which products are sold may vary
– doesn’t anticipate shortages of cash in the business
What is revenue
The sum of all the money the business earns from all the sales
