B6 - Finance

Question 1

What is retained profit?

Answer 1

Profit that’s been earnt by a business in the previous year

Its been retained by the business

Question 2

What is New Share Issue?

Answer 2

Where a business releases new shares for people to buy into the business

Question 3

What is a loan?

Answer 3

An amount of money borrowed from a bank or other lender

Question 4

What is a mortgage?

Answer 4

A longer term loan that’s used to buy a property

Question 5

What is an Overdraft?

Answer 5

A short term lending of smaller amounts of money, may be organised by the bank

Question 6

Whta is Trade Credit?

Answer 6

Where a business pays suppliers at a later date - buy now, pay later

Question 7

What is Hire Purchase?

Answer 7

When a business pays for something in installments

Question 8

What is a government grant?

Answer 8

A sum of money awarded to a business from the government that doesn’t have to be paid back

Question 9

What is Cash Flow?

Answer 9

Movements of cash in and out the business

Question 10

What is Cash Inflow?

Answer 10

Cash into the business appears at the top of the cash flow forecasl

This is called Income

Question 11

What is Cash outflow?

Answer 11

Cash that’s being spent in the business.

This is known as expenditure

This will be on bill such as wages and advertising

Question 12

What are solutions to cash flow problems?

Answer 12

• Overdrafts
• Reducing cash outflow
• Increasing cash inflow
• Re-schedullimg payments
• Finding new sources of finance

Question 13

What is the formula for Net Cashflow?

Answer 13

Cash Inflows - Cash Outflows

Question 14

What are fixed costs?

Answer 14

Costs that don’t vary with the level of output in a business

Question 15

What are some examples of fixed costs?

Answer 15

• Rent

- Salaries of Managers

Question 16

What are Variable Costs?

Answer 16

Costs that vary with the level of trade

Question 17

What is the formula for Total Costs?

Answer 17

Total Costs = Fixed Costs + Variable Costs

Question 18

What is the formula for Sales revenue?

Answer 18

Sales revenue = price of product x quantity of product

Question 19

What is the formula for Profit?

Answer 19

Profit = Total Revenue - Total Costs

Question 20

What is Average Rate of Return?

Answer 20

The annual percentage profit that an investment makes compared to the cost of the investment

Question 21

What is the formula to calculate Average Rate of Return?

Answer 21

( Average annual profit / initial capital outlay ) X 100

Question 22

What is Break-Even?

Answer 22

The point where a business is no longer making a profit or a loss

Question 23

What are the uses of Break Even

Answer 23

• Used to write a business plan
• Used as a ‘ what if tool ‘ to work out what happens if price goes up
• Used by start ups to work out when they’ll stop making a loss

Question 24

What is Margin of Safety?

Answer 24

The difference between the actual level of output and the breakeven output.

Question 25

How do you calculate margin of safety?

Answer 25

Actual Output - Breakeven Output

Question 26

What does the Margin of Safety show?

Answer 26

How many units less you can make before you start making a loss

Question 27

What are Financial Statements?

Answer 27

Written records that convey the business activties and the financial performance of a business

Question 28

What are the 3 Finacial Statements

Answer 28

- Income Statement - Statement of Financial Position - Cashflow Statement

Question 29

What are 3 examples of Internal Stakeholders?

Answer 29

- Owners - Managers - Employees

Question 30

What is Gross Profit?

Answer 30

Profit after deducting costs of Sales

Question 31

What is the formula for Gross Profit?

Answer 31

GP = Sales Revenue - Cost of Sales

Question 32

What is Gross Profit Margin?

Answer 32

A financial measure used to asses a Business' finacial health and business model

Question 33

What is the formula for Gross Profit Margin?

Answer 33

( Gross Profit / Sales Revenue ) X 100

Question 34

What is Net Profit?

Answer 34

The money left after paying all your bills?

Question 35

What is the Formula for Net Profit?

Answer 35

NP = Operating Profit - Interest

Question 36

What is Net Profit Margin.

Answer 36

Helps a Business measure how well they're controlling their expenses

Question 37

What is the Formula for Net Profit Margin?

Answer 37

( Net Profit / Sales Revenue ) X 100

Question 38

What is Economies of Scale?

Answer 38

when Average cost FALLS as output GROWS

Question 39

What is Diseconomies of Scale?

Answer 39

Once Economies of Scale have been reached if the output grows, the average cost per unit INCREASING

Question 40

What is Outsourcing?

Answer 40

Getting another business to provide the service for you

Question 41

What are 4 examples of Outsourcing

Answer 41

- Production : some car manufactures may oursource some parts - Payroll - Delivery - Purchasing

Question 42

What are reasons to DisEconomies of Scale occuring

Answer 42

- Business has too many employees | - Employees become less motivated

Question 43

What are benefits of a business franchising out?

Answer 43

- Speeds up growth : franchisee pay billss - Less HR costs : employees - Less operational costs : franchisee deals with it

Question 44

What are cons of a business franchising out?

Answer 44

- Reduced Control | - Profit sharing