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business gcse > Finance > Flashcards

Finance Flashcards

(79 cards)

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1
Q

What are internal sources of finance?

A

a source of money that comes from within the business

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2
Q

What is owner’s capital?

A

the money invested by the owner into their business

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3
Q

What is retained profit?

A

when a business makes profit, it can either leave some or all of its profit and use it to reinvest into the business to expand

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4
Q

What is selling assets?

A

involves selling products the business have, for example unused machinary

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5
Q

What are external sources of finance?

A

a source of money that comes from outside of the business

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6
Q

What is family and friends?

A

money obtained to a business from family or friends

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7
Q

What is a bank loan?

A

money that is given from a bank which then needs to be paid off often with interest over a certain period of time

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8
Q

What are overdrafts?

A

when a business decides to use more money than they currently have in their bank account

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9
Q

What is a venture capitalist and business angels?

A

refers to an individual or group of people who are willing to invets money into a new or growing business in return foran agreement to share the profits

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10
Q

What are new partners?

A

when a new person is added to a businessas a partner

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11
Q

What is share issue?

A

a business may sell more of their shares to raise money

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12
Q

What is a trade credit?

A

allows a business to obtain raw materials and stock but pay for them at a later date

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13
Q

What is leasing?

A

a way for a business to rent out machinary that they require by paying monthly upkeeping costs

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14
Q

What is hire purchase?

A

it is used to purchase an asset and are not owned until the business pays back all of the money they owe

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15
Q

What are government grants?

A

a fixed amount of money that is given by the governement to a business

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16
Q

advantages of owners capital

A

-quick and convinent
-no interest required
-doesn’t require a loan

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17
Q

disadvantages of owners capital

A

-the owners may not have enough money
-once the money is used, it is gone

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18
Q

advantages of retained profits

A

-quick and convinent
-easy to gain
-no interest

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19
Q

disadvantages of retained profits

A

-once the profits are used then they are gone and therefore there is no backup for future unexpected problems

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20
Q

advantages of selling assets

A

-can create space
-quick
-easy way to make money

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21
Q

disadvantages of selling assets

A

-might have to sell below the original purchase price
-may need in the future

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22
Q

advantages of family and friends

A

-low interest
-may not to be paid back

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23
Q

disadvantages of family and friends

A

-money may be lost
-can cause arguments

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24
Q

advantages of bank loans

A

-easy to get
-can obtain large amounts of money

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25
disadvantages of bank loans
-pay interest -hard to obtain for new businesses
26
advantages of overdrafts
-quick to access -allows emergency purchases
27
disadvantages of overdrafts
-high interest rates -only short term
28
advantages of venture capitalists and business angels
gain money quickly potential to raise lots of money -may offer advice and help
29
disadvantages of venture capitalists and business angels
-owner must give away part of their business - may have contrasting views which could lead to conflicts
30
advantages of share issue
-can gain money quickly -no interest
31
disadvantages of share issue
-give away part of business -leaves the business to be open for takeover - shareholders receive dividends
32
advantages of new partners
-easy way to gain money -potential to raise huge amounts of finance -offer advice and help
33
disadvantages of new partners
-owner must give away part of the business -may have different visions for the business
34
advantages of trade credit
-access to supplies without immediate payment - no interest
35
disadvantages of trade credit
-short term -small amounts
36
advantages of leasing
-no large upfront payments -leasing company pay for repairs and maintenance
37
disadvantages of leasing
-can be expensive -assets aren't owned by the business
38
advantages of hire purchase
-expensive assets can be purchased then paid back over time
39
disadvantages of hire purchase
-interest -equipment is not owned until all the money is paid off
40
advantages of government grants
-does not need to be paid back -available to small businesses
41
disadvantages of government grants
-needs to meet certain criteria -time consuming to complete paperwork
42
What is revenue?
revenue is any money that a business makes from selling goods and services
43
What are costs?
anything that a business pays for
44
calculation for revenue
revenue = selling price x quantity sold
45
what are fixed costs?
costs that do not change, no matter what the output for the business is
46
what are variable costs?
costs that change depending on the output of a business
47
equation for total costs
total costs = fixed costs + variable costs
48
What is profit?
any revenue that is left after a business has paid all of its costs
49
equation for profit
profit = revenue - total costs
50
What is break even?
the point at which revenue and total costs are the same meaning that the business is making neither a profit or loss
51
equation for contribution per unit
selling price per unit - variable costs per unit
52
equation for break even point
break even point = fixed costs / contribution
53
how to draw a break even chart?
step 1: fixed cost line step 2: variable cost line step 3: total cost line step 4: total revenue line
54
why is an increase in revenue positive?
if revenue increases, it is likely that profit will also increase
55
why is a decrease in revenue bad for a business?
if revenue is decreasing then a business is at risk of not breaking even or having very low profit margins
56
why are increasing costs bad for a business?
likely to reduce the business' profit margins
57
why are decreasing costs good for a business?
allows the business to access more profit as long as their quality remains the same
58
ARR step 1 equation
average annual profit = total profit / number of years
59
ARR step 2 equation
ARR = (average annual profit / cost of investment) x 100
60
What does a profit and loss account show?
the revenue and costs of a business to work out if the business has made a profit
61
Gross profit equation
gross profit = revenue - cost of sales
62
Net profit equation
net profit = gross profit - expenses
63
Gross profit margin equation
gross profit/sales revenue x 100
64
Net profit margin equation
net profit/sales revenue x 100
65
how can changing prices improve a business?
-by increasing their prices they can maintain the same level of demand after this they will make more profit -by reducing prices more people could potentially buy their product or service
66
how can reducing costs improve a business?
-reducing costs of raw materials would reduce cost of sales but could affect quality -reducing labour costs by introducing technology - reducing labour costs without rducing quality of product or service
67
68
What is meant by cash?
cash refers to the physical money a business has in note and coins along with any money it has in the bank
69
What is cash flow?
cash flow is the movement of money in and out of a business over a period of time
70
What is cash flow forecasting?
it involves predicting the future flow of cash in and out of a business’s bank account
71
Equation for closing balance
Closing balance = net cash flow + opening balance
72
Equation for net cash flow
net cash flow = cash inflows - cash outflows
73
why are cash flow forecasts good for shareholders/owners?
- they will be able to see whether the business is likely to succeed - can be used to make key business decisions
74
how do cash flow forecasts help managers?
- can impact the decisions they make - managers may have to work with owner to manage money
75
how do cash flow forecasts help employees?
- maya want to know the cash flow position of a business to see if their job is secure
76
why are cash flow forecasts important for bank?
- used to decide whether they should give out a loan or not
77
how do cash flow forecasts help suppliers?
- may want to know if a business is in a financially secure position before offering trade credit
78
when could a business suffer with cash flow issues?
- at start up when large amounts are invested - during rapid growth when the business is growing quickly but can’t keep up with the cash being paid out - a sudden drop in the level of demand
79
how can a business improve their cash flow?
- increase revenue - reduce costs - delay payments - extra funding

business gcse (6 decks)

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