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buisness flashcards (Y9, Y10, Y11) > Buisness unit 5.1, 5.2, 5.3, 5.4, 5.5 > Flashcards

Buisness unit 5.1, 5.2, 5.3, 5.4, 5.5 Flashcards

(90 cards)

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1
Q

what are main reasons why the businesses need finance? 3

A
  • for start up capital
  • for capital for expansion
  • for additional working capital
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2
Q

what is working capital?

A

money needed for paying for day to day activities

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3
Q

what is capital expenditure?

A

money used for long term finance needs

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4
Q

what is revenue expenditure?

A

money needed for day to day expenses

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5
Q

what are the two sources of finance? 2

A
  • internal finance
  • external finance
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6
Q

what is internal finance?

A

money raised from within the buisness

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7
Q

what is external finance?

A

money raised from sources outside the business

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8
Q

what are examples of internal finance? 4

A
  • retained profit
  • sale of existing assets
  • sale of inventory to reduce inventory levels
  • owners savings
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9
Q

what is retained profit?

A

profit reinvested back into the business, after owners have taken their share of profit

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10
Q

what are the benefits and drawbacks of retained profit? 2,2

A

benefits =
- no interest has to be sold–> lower costs
- does not have to be repaid –> lower cash outflow
drawbacks =
- not suitable for a new buisness, no profit last year
- shareholders may not be happy if profit is used as retained profit and not given to them as dividens

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10
Q

what are sales of existing assets?

A

the buisness could sell items of value that they own but are no longer needed

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11
Q

what are the benefits and drawbacks of the sales of existing assets? 2,2

A

benefits =
- makes better use of unused things and gaining money for them
- money does not have to be repaid unlike loan
drawbacks =
- may not get so much money as the value will decrease over time
- not suitable for new buisness as they have no unused assets yet

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12
Q

what are the sales of inventory to reduce inventory levels?

A

inventory are the stock/raw materials used by a buisness to make a finished product

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12
Q

what are the benefits and drawbacks of sales of inventory to reduce inventory? 2,1

A

benefits =
- can reduce the costs of storing raw materials
- reduces amount of money in inventory
drawbacks =
- if they sell too much inventory, they may not have enough money to produce enough products –> reducing customer satisfaction

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13
Q

what are the benefits and drawbacks of owners savings? 2,2

A

benefits =
- no interest needs to be paid –> lower costs
- does not have to be repaid –> lower cash outflow
drawbacks =
- not enough money
- owners may not want to risk their savings if the buisness fails

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13
Q

what are examples of external sources of finance? 9

A
  • bank loans
  • sale of shares
  • grants from government
  • crowdfunding
  • selling debts to a debt factoring company
  • micro finance
  • debentures
  • overdraft
  • trade credit
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14
Q

what are the benefits and drawbacks of bank loans? 2,2

A

benefits =
- can pay them back in installments
–> improving cashflow
- larger companies can negotiate lower interest rates
drawbacks =
- interest needs to be paid, leading to higher costs
- id loan is not repaid the house can be repossessed by bank –> risky for owners

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15
Q

what are bank loans?

A

money borrowed from the banks and has to be repaid

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16
Q

what are the benefits and drawbacks of selling shares? 2,2

A

benefits =
- no interest had to be paid leading to lower costs
- can obtain large amount of finance of expansion
drawbacks =
- shareholders will be expected to be paid dividends, reducing the amount of profit left over retained profit
- if many shares are sold, the original owners may lose control of the company

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17
Q

what are the benefits and drawbacks of getting grants from the government? 1,1

A

benefits =
- no interest, and does not have to repaid
drawback =
- may have to meet a certain criteria to obtain the loan

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18
Q

what is crowd funding?

A

raising money for a project via the internet from a large number of people

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19
Q

what are the benefits and drawbacks of crowd funding? 2,2

A

benefits =
- no initial fees needed, only if you receive money from investments
- allows the to see the public reaction of the product initially
drawbacks =
- publicising the buiness idea could allow competitoes to copy the idea and procue it ad get it onto the market before them
- if the total amount requested has not been raised, they will have to return all donate money, wasting time

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19
Q

what are the benefits and drawbacks of micro finance? 1,1

A
  • suitable for entrepreneurs who do not have any assets to offer to a bank for a regular loan ​
    drawbacks =
  • may not get enough finance from micro finance ​
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20
Q

what is debt factoring?

A

business selling off their debts to a debt factoring company, the debtor will then now pay the debt factoring company

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21
what are the benefits and drawbacks of debt factoring? 2,1
benefits = - cash is now immediately available for the business as they have received in from the debtor company - the business no longer has to waste time following up the debtors for the money drawbakcs = - business does not receive the full 100% of the value of its debts from the debtor company. Therefore. less revenue for the business ​
22
what is micro finance?
providing financial services, including small loans to poor people, not served by traditional banks. these are usually in developing countries​
23
what are debentures?
long term loans issued by limited companies
24
what are the benefits and drawbacks of debentures? 1,1
benefits = - allows the business access to large amounts of finance that can be paid over a long period of time, helps slow down cash outflow drawbacks = - interest must be paid on these loans, increasing costs
25
what is leasing?
leasing an asset allows the business to use an asset without having to purchase it
26
what are the benefits and drawbacks of leasing? 2,1
benefits = - the business does not have to find a large cash sum to purchase the asset to to start with so they need to take out a bank loan.​ - the costs will be higher in the long run than purchasing the asset drawbacks = -the maintenance of the asset will be carried out by the leasing company, reducing costs for a business ​
27
what is trade credit?
an agreement between a supplier and a business, the business can receive the raw materials they ordered straight away and pay for them at a later date
28
what are the benefits of trade credit? 1,1
benefits = - cash flow improves as cash out flows are delayed in the short run, improving net cash flow in the short run drawbacks = - suppliers often offer businesses discounts to pay straight away, meaning the business will miss out on this, increasing costs
28
what is an overdraft?
arranged by a bank, the bank gives the business the right to ‘overdraw’ from their account. (Take out more money than they have in their bank account.) ​
29
what are the benefits and drawbacks of overdrafts? 1,2
benefits = - allows the business to be able to pay day to day bills drawbacks = - interest will be charged on the overdraft ​ - the bank can ask for the overdraft to be repaid on very short notice​
30
what will a business not be able to do if they run out of cash? 2
- pay its employees --> employees going on strike and output is stopped - pay its suppliers --> cannot product their products
31
what is a cash flow forecast?
a prediction of a firms cash inflows and out flows
32
what is cash inflow (receipts)?
cash received by a buisness (money from sales, money from bank loans)
33
what are cash outflows (payments)?
money paid out by the business (paying suppliers, creditors, paying rent)
34
how do you calculate net cash flow?
inflow - outflow
35
what is an opening balance?
money the business has at the start of the month
36
how do you calculate closing balance?
net cash flow + opening balance
37
why is cashflow important for a business? 2
- important when starting a new business - managing cashflow
38
how do you solve cash flow problems? 4
- increase/overdraft bank loans - delaying payment to suppliers - ask debtors (creditors) - cancel purchasing equipment
39
working capital is important so the business can pay: 2
- suppliers - loans
40
what is an example of working capital? 3
- suppliers - bills - rent
40
what is working capital?
capital available in the ST to pay day to day expenses
41
what is the formula for working capital?
current assets - current liabilities
42
what is the importance of profit for private sector businesses?
- a reward for risk - an use this reward to pay more dividends to shareholders to keep them satisfied​ - a source of finance - profit can be used as retained profit so that the business doesn’t need to get a bank loan and pay interest - indicator of success - high profitability will attract future investors to invest in the company. This money can be used for machinery, advertising or R & D
43
what is profit?
money made after all costs have been paid. It is used for dividends and retained profit. ​
44
what is cash?
money used and needed for day to day expenses
45
what are income statements?
shows business owners and managers whether the business has made a profit or a loss. ​
46
what are the key features of income statements? 6
- revenue - cost of sales/goods sold - gross profit - expenses - net profit - retained profit
47
what sis the formula for revenue?
price x quantity
48
what is revenue?
money made from sales
49
what are the costs of sales/goods sold?
costs to make the product and are made up of variable costs
50
what is the formula for net profit?
gross profit - expenses
50
what are expenses?
these are all other expenses of the business (fixed costs)
51
52
what is retained profit?
the amount of profit that is reinvested back into the business, after dividends and taxes are paid
53
what is a statement of financial position?
shows the value of a business assets and liabilities at a particular time
53
what are assets?
items of value which are owned by the business
54
what are non current assets? (examples too)
the items owned by the business for more than one year (buildings, vehicles, land, machinery)
55
what are current assets? (examples too)
items owned by a buisness and used within one year (stock, cash, accounts receivables)
56
what are liabilities?
debts the business owns
57
what are non current liabilities? (examples too)
debts that do not have to be paid within one year (mortgage, long term bank loans)
57
what is total shareholders equity?
total sum of monye invested into the business by the owners of the company
58
what is share capital?
money put into the buisness by shareholders
59
what are P & L reserves?
profit reserved from the previous years profit and put back into the business aka retained profit
60
60
what are the two ways the total shareholders equity can be invested in? 2
- share capital - P&L reserves
61
what is profitability? 2
is the measurement of profit made relative to either: - the value of sales achieved - the capital invested in the buisness
62
profitability is measured in percentage and its important to: 2
- investors when deciding where to invest - directors and managers to assess whether the business is becoming more or less successful
63
63
what is the formula for gross profit margin?
gross profit/revenue x 100
64
if gross profit increases what would that suggest? 2
- prices have risen - costs of sales have reduced
65
what is the formula for net profit margin?
net profit/revenue x 100
66
the higher the net profit is...
the more successful managers are a making prift from sales
67
when net profit increases, what would this suggest?
this may mean that managers are more efficient by cutting expenses
68
what is the formula for return on capital employed?
net profit/capital employed x 100
69
70
what is capital employed?
is the money invested into the business usually from shareholders and loans
71
what is the formula for acid test ration?
(current assets - inventories)/current liabilities
71
what is the number that is acceptable for acid test ratio?
one and above
72
which stakeholders are interested in the accounts of a business?
- managers - shareholders - creditors - banks - government - employees
73
what is the interest a manger has towards the accounts of a buisness?
will help a manager assess whether the business is profitable and has strong liquidity. If not, they can then find solutions
74
what is the interest a shareholder has towards the accounts of a buisness?
shareholders will want to see the GPM, NPM and ROCE. They want to see if they will get a good return on their investment
75
what is the interest a creditor has towards the accounts of a buisness?
they will want to see the business liquidity ratios. They will want to see if is a business is able to pay back its debts on time. If the business has a low liquidity ratio, the supplier may not trade with the business.
76
what is the interest a bank has towards the accounts of a buisness?
the bank will want to see the liquidity ratios. They will not lend to a business that is at risk of being illiquid and can not pay debts
76
what is the interest governments has towards the accounts of a buisness?
will want to see a business Income statement as they will want to see how much corporation tax they will be receiving
77
what is the interest employees has towards the accounts of a buisness?
employees may want to see a business Income statement to see if they business is very profitable If so then they could try to negotiate a pay rise. ​

buisness flashcards (Y9, Y10, Y11) (6 decks)

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