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Business IGCSE > Business: Unit 5- Finance > Flashcards

Business: Unit 5- Finance Flashcards

1
Q

Finance department functions(5)

A
  • record financial transactions
  • prepare final accounts
  • produce accounting inforation
  • forecast cashflows
  • important financial decisions
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2
Q

businesses need finance for

A
  1. starting-up a business
    - start- up capital
  2. expanding an existing business
    - takeover
    - development of new product
  3. additional capital
    - long-term
    - short-term
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3
Q

start-up capital

A

finance needed by a new bs to pay for essential fixed and current assets before it can begin trading

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4
Q

long-term additional capital

A

Capital Expenditure-> money spent on a fixed asset(which will last for more than one year)

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5
Q

short-term additional capital

A

Working Capital-> finance needed by a business to pay its day-to-day costs
Revenue Expenditure-> money spent on day-to-day expenses

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6
Q

internal sources of finance

A
  • retained profit
  • selling existing assets
  • selling exisitng inventory
  • owners’s savings
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7
Q

retained profit(2+,3-)

A

+doesn’t have to be repaid
+no interest

  • new bs odesnt have retained profits
  • small businesses don’t have enough retained profits
  • reduces payment to owner
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8
Q

sale of existing assets(+2,-2)

A

+better use of capital tied up in business
+no increase in debts

  • have to have assets to sell
  • amounts are not certan until the asset is sold
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9
Q

sale of inventory(1+,1-)

A

+reduced costs of high inventory levels

-risk against unexpected orders

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10
Q

owners’ savings(2+,2-)

A

+time efficient
+no interest

  • savings may be too low
  • increased risk taken by owners
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11
Q

external sources of finance

A
  • issue of shares
  • bank loans
  • selling debentures
  • factorising of debts
  • grants& subsidiaries
  • micro-finance
  • crowd funding
  • debentures
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12
Q

issue of sahers (2 +, 2 -, 2 issues)

A

+permanent souce of income->doesn’t have to be paid back
+no interest

  • dividends are paid after tax
  • ownership of the company could change hands

rights issue-same shareholders, bigger percentage-higher value of shares
news issue-more shares, new shareholders

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13
Q

crowd funding

A

funding a project by raising money from a large number of people who each contribute , typically via the internet

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14
Q

debentures(definition, 1 +, 1-)

A

-long-term loan certificates issued by limited companies

+can be used to raise very long-term finance
-must be repaid with interest

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15
Q

micro-finance

A

financial services to low-income individuals in developing countries not offered by conventional banks

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16
Q

bank loans(3+, 2-)

A

+usually quick to arrange
+they can be for varrying lengths of time
+large companies might have access to better interest rater

  • a bank loan will have to be rapaid with interest
  • security/collateral is needed
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17
Q

factoring of debts(definition, 2 +, 1 -)

A

debt factors-agencies specialised in buying the claims on debtors of firms for immediate cash

+immediate cash
+risk transferred

-firm receives less than the value of its debt

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18
Q

short term finance (definition+3 types)

A

provides working capital needed by business for
day-to-day operations

  • overdraft
  • trade credit
  • factoring of debts
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19
Q

overdraft(short term source of finance)(2+,2-)

A

bank gives business the right to overdraw its account
+fliexible
+interest only payed for amount overdrawn

  • interest rates are variable
  • bank can ask for the overdraft to be repaid at very short notice
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20
Q

trade credit(short term source of fincance)(1+,1-)

A

+interest free loan for the length of time payment is delayed for
-supplier may refuse discounts or supplying the goods

21
Q

long-term sources of finance(definition and 7 types)

A

funding obtained for a time-frame exceeding one year

  • owner’s savings
  • bank loans
  • share capital
  • debentures
  • grants
  • leasing
  • hire purchase
22
Q

hire purchase(definition, 2 disadvantages)

A

buying a fixed asset over a long period of time with monthly payments including interest change

  • cash deposit is payed at the beginning
  • interest payments can be high
23
Q

leasing(not owning)(definition, 2 + , 1 -)

A

allows firm to use an asset without puchase with monthly payments and can be purchased at the end of the period

+firm doesn’t have to find a large cash sum
+maintenance is carried out by the leasing company

-total cost will be higher

24
Q

How does the business choose between sources of finance?

A
  • purpose&time period
  • amount needed
  • legal form
  • control
  • risk&gearing(does the bs already have loans)
25
Q

How do financiers decide on sources of finance?

A
  • cash flow
  • income statement
  • existing loans
  • bs plan
  • share price
  • dividends
26
Q

cash inflows(4 e.g)

A 
sums of money received by a business during a period of time
\+clients
\+borrowing money
\+sale of assets
\+investors
27
Q

cash outflows(4 e.g)

A

sums of money payed out by a business during a period of time

  • suppliers
  • paying wages
  • purchasing assets
  • repaying loans
28
Q

good cashflow management(4)

A
  • good forecasting
  • getting money in the business quicker
  • getting goods to the market quicker
  • getting paid as quickly as possible
29
Q

insolvency

A

business runs out of cash and cannot pay its suppliers or workers

30
Q

account

A

financial records of a firm’s transactions

31
Q

accountants

A

profesionally qualified people who have responsability for keeping accurate accounts& producing final accounts

32
Q

final accounts

A

-at hte end of year, gives details about the profit or loss made over the year and the worth of the loss

33
Q

depreciation(capital consumption)

A

-the fall in value of a fixed asset over time

34
Q

why is profit important

A
  • reward for enterprise
  • reward for skills
  • reward for risk-taking
  • source of finance
  • indicator of success
35
Q

income statement(profit&loss)

A

document that records the income of a business and all costs incurred to earn that income over a period of time

36
Q

equation for profit, after-tax profit and retain profit

A

sales revenue - operating expenses
= GROSS PROFIT MARGIN

+other incomes

  • depreciation
  • overheads

=PROFIT (pre-tax)
-tax
= PROFIT(after-tax)
-dividends

= retained profits for the year

37
Q

balance sheet

A

shows worth of a business at one moment in time

38
Q

assets(def, 2 types)

A

items of value which are owned by a business

FIXED ASSETS(land,buildings)
SHORT-TERM ASSET(stocks,cash)
39
Q

liabilities(def and 2 types)

A

debts owned by the business

NON-CURRENT LIABILITIES(loans)
CURRENT LIABILITIES(bank overdraft)
40
Q

shareholder’s equity

A

total sum of money invested into the business by owners

  • > SHARE CAPITAL: money put into the business when shareholders buy newly issued shares
  • > RETAINED PROFITS: profit owned by shareholders but hasn’t been payed in dividends
41
Q

liquidity

A

ability of a business to pay back its short-term debts

42
Q

capital employed

A

long-term permanent capital invested in a business

43
Q

profitability

A

profit made relative to the value of sales or the capital invested

44
Q

Return on Capital Employed

A

-amount of money received from the capital put into a business over a year ago

-Net Profit
_________
capital employed

45
Q

Gross Profit Margin

A

-amount of gross profit made for every dollar of products sold

gross profit
___________
sales revenue

46
Q

Profit Margin

A

-amount of profit made for every dollar of products sold

net profit
_________
sales revenue

47
Q

Current Ratio

A

current liabilities

48
Q

Acid test Ratio

A

current liabilities

Business IGCSE (5 decks)

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