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Business Studies GCSE > Finance > Flashcards

Finance Flashcards

1
Q

What are costs?

A

The spending that is necessary to set up and run a business.

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2
Q

What are variable costs?

A

Costs that change directly based on the number produced/output. For example: raw materials, stock, packaging, wages (if based on units produced)

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3
Q

What is the formula for total variable costs?

A

total variable cost=variable cost per unit x amount produced

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4
Q

What are fixed costs?

A

Costs that do not change based on the number produced/output. For example: loan repayment, insurance, salaries.

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5
Q

What is the formula for fixed costs?

A

total fixed costs=sum of all fixed costs

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6
Q

What are total costs?

A

The amount of money spent by a firm on producing a given level of output.

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7
Q

What is the formula for total costs?

A

total costs=total variable costs + total fixed costs

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8
Q

Why should a business calculate their costs?

A
  1. They know their profit margins
  2. They can calculate the best price to sell produce at to cover costs
  3. Forecast how long it will take to make a profit
  4. Budgeting
  5. Break-even analysis
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9
Q

What is revenue?

A

The income a business receives from selling goods and services (turnover).

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10
Q

What is the formula for revenue?

A

revenue= selling price x quantity sold

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11
Q

How can a business maximise its revenue?

A

Increase selling price/increase quantity sold

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12
Q

What is profit?

A

The money left over from total revenue after paying all costs.

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13
Q

What is the formula for profit?

A

profit = total revenue - total costs

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14
Q

What can a business use profit for?

A

To reward owners/save for the future/invest in growth

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15
Q

What is loss?

A

The amount by which a business’ costs are larger than its revenue from all sales.

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16
Q

How can a business reduce losses and increase chances of making a profit?

A

Advertising/sale prices

17
Q

What is an investment?

A

Money put into a business to make improvements to make a business more profitable.

18
Q

What are examples of investments?

A

Land and buildings/machinery and vehicles/new products

19
Q

What is the ARR?

A

Compares the average yearly profit from an investment with the cost of the investment and is stated as a %. Used to determine if investment is worthwhile.

20
Q

ARR formula?

A

ARR=average annual profit/cost of investment x 100

21
Q

What is an advantage of using ARR?

A

It is easy to compare returns from alternative investments (%)

22
Q

What is a disadvantage of ARR?

A

The calculations may not always be accurate.

23
Q

What is the breakeven point?

A

The level of output where the total revenue equals total costs

24
Q

What is the margin of safety?

A

The amount sales can fall before the BEP is reached and the business no longer makes a profit.

25
Q

What are the advantages of breakeven point analysis?

A
  1. Focuses entrepreneur on how long it will take before a start-up reaches probability
  2. Helps understand viability of business proposition
  3. Can help see effects of changes in costs or changes in price
  4. Helps understand level of risk involved
  5. Quick and easy to analyse
  6. Can be used to persuade investors/banks to invest
26
Q

What are the disadvantages of breakeven point analysis?

A
  1. Assumes business sells all products
  2. Unrealistic assumptions
  3. Difficult to calculate if business sells more than one product
  4. Better as a planning aid than decision tool
  5. Assumes all products sold at same price
  6. Variable costs could regularly change, making it inaccurate
27
Q

What is cash flow?

A

The money that flows in and out of a business on a day-to-day basis

28
Q

What are cash inflows?

A

The money flowing into a business (e.g. cash sales, sale of spare assets, government grants, bank loan)

29
Q

What are cash outflows?

A

The money flowing out of a business (e.g. payment of suppliers/employees, buying equipment, income tax, payment of loans and interest)

30
Q

What is net cash flow?

A

The difference between all cash inflows and outflows of a business

31
Q

What is the formula for net cash flow?

A

net cash flow= cash inflows-cash outflows

32
Q

Why is cash flow forecasting important?

A
  1. Identifies negative closing problem or liquidity problem
  2. Identifies positive closing balance
  3. Monitor actual cash flow against forecasting
  4. Budgeting
  5. Help predict when a business may need an overdraft or short term source of finance
33
Q

When may a business face cash flow problems?

A

At start- up and during rapid growth

34
Q

What are causes of cash flow problems?

A

1.Poor management/poor business decisions
2. Poor sales/business is making a loss
3. Offering customers too long to pay

35
Q

What problems are caused by having a lack of cash?

A
  1. Not enough cash in business to meet day-to-day expenses
  2. Staff may not get paid on time - motivation
  3. Creditors may not be paid on time
  4. Businesses may not be able to take advantage of discounts for prompt payments
36
Q

How can cash inflows be improved?

A
  1. Increase price of product
  2. Remove/reduce trade credit agreements for customers
  3. Negotiating an overdraft with the bank
  4. Remove loyalty schemes
  5. Reschedule supplier payments
  6. Finding new sources of finance
37
Q

How can cash outflows be reduced?

A
  1. Negotiate lower cost of materials
  2. Keep costs/spending under control
  3. Negotiate trade credit agreement with supplier

Business Studies GCSE (1 decks)

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