Finance

Question 1

what is the finance function

Answer 1

the finance department in a business - usually only in larger businesses as small businesses usually employ a firm

Question 2

what is finance

Answer 2

money raised and used by a business

Question 3

what is financial information

Answer 3

includes details of profit, loss, cash flow, break-even, profit margin and average rate of return - this information is used in decision making

Question 4

what is the role of the finance function

Answer 4

arranging finance - loans
managing payments
forecasting cash flow
calculating break-even
calculating ARR
calculating sales and revenues
calculating profit or loss

Question 5

what are the 5 reasons that businesses need finance

Answer 5

establishing a new business - factory, machinery
funding expansion -materials, stock, machinery, campus
recruitment - selections, wages/salaries
marketing - campaigns, advertising, public relations
running the business - daily costs, paying expenses

Question 6

what is owners capital

Answer 6

money from savings put into the business by the owner/s

Question 7

what are the advantages of owners savings

Answer 7

no need to repay
no interest
doesn’t affect ownership or control

Question 8

what are the disadvantages of owners savings

Answer 8

owner risks savings
owner may not have enough savings

Question 9

what is retained profits

Answer 9

profit that is not distributed to shareholders as dividends

Question 10

what are the advantages of retained profits

Answer 10

no need to repay
no interest

Question 11

what are the disadvantages of retained profits

Answer 11

business may not have made profits
owners wont get profit as income

Question 12

what is sale of assets

Answer 12

items are sold by the business to get money

Question 13

what are the advantages of sale of assets

Answer 13

no need to repay
no interest
good if selling old equipment or stock

Question 14

what are the disadvantages of sale of assets

Answer 14

may be difficult to sell
may take time to sell

Question 16

what is overdraft

Answer 16

an arrangement with a bank that a business can spend more money than it has in its account

Question 17

what are the advantages of overdraft

Answer 17

meets short term cash flow problems
interest is only paid on amount owed
repayment is only due when the business closes or the overdraft is no longer needed

Question 18

what are the disadvantages of overdraft

Answer 18

interest is charged for each day that money is owed so can be expensive

Question 19

what is trade credit

Answer 19

when the business buys goods to sell and doesnt need to pay the supplier for a period of seven days

Question 20

what are the advantages of trade credit

Answer 20

can help with cash flow problem
no interest if repaid in the agreed time frame
business can have goods to sell before paying for them

Question 21

what are the disadvantages of trade credit

Answer 21

goods must be paid for even if they do not sell
interest is charged if payment is late

Question 22

what is taking on a new partner

Answer 22

adding a new partner who contributes some new capital

Question 23

what are the advantages of taking on a new parnter

Answer 23

new skills
no need to repay
no interest

Question 24

what are the disadvantages of taking on a new partner

Answer 24

existing owners have to give the new one a say in the running of the business
sole traders must become a partnership to do this

Question 25

what is crowdfunding

Answer 25

money raised through an appeal to the public who are supporters of the business

Question 26

what are the advantages of crowdfunding

Answer 26

no need to repay no interest new supporters can contribute a lot of money to the business

Question 27

what are the disadvantages of crowd funding

Answer 27

ownership will be shared if the money is raised through investment interest will be paid if the money is raised through a loan

Question 28

what is a loan

Answer 28

a sum of money borrowed for a stated period at an agreed rate of interest

Question 29

what are the advantages of a loan

Answer 29

repayment can me made in fixed sums over time money is available immediately

Question 30

what are the disadvantages of a loan

Answer 30

interest must be paid the business may need to give the lender security

Question 31

what is a share issue

Answer 31

money raised from the investors by selling shares

Question 32

what are the advantages of a share issue

Answer 32

no need to repay no interest new investors can contribute a lot of money

Question 33

what are the disadvantages of a share issue

Answer 33

existing owner has to give shareholders a say in the running of a business shares can only be sold by limited companies

Question 34

which of the finance methods are short term

Answer 34

overdraft trade credit owners capital

Question 35

which of the finance methods are medium term

Answer 35

owners capital sale of assets retained profits loans

Question 36

which of the finance methods are long term

Answer 36

owners capital loans crowdfunding taking on a new partner share issue

Question 37

what is external finance

Answer 37

finance raised from sources outside the business: overdraft, trade credit, loan, crowd funding, share issues

Question 38

what is internal finance

Answer 38

finance raised from within the business: owners capital, retained profit, sale of assets

Question 39

what is revenue

Answer 39

the sum of money a business earns from all the sales it makes

Question 40

what is the equation for revenue

Answer 40

selling price x quantity sold

Question 41

what should a business do to increase its revenue

Answer 41

increase the products price reduce the price to increase sales increase sales by: advertising, producing more, selling wider range

Question 42

why would a business not want to increase revenue

Answer 42

to avoid expanding may want to sell to a niche market

Question 43

what is a fixed cost

Answer 43

a cost that remains the same with output

Question 44

what is a variable cost

Answer 44

a cost that changes with output

Question 45

what is a total cost

Answer 45

the total variable costs + the total fixed costs

Question 46

why would a business want to minimise its costs

Answer 46

to increase profits reduces prices - more competitive without cutting profits save money in order to expand or update machinery

Question 47

how would costs of a business be reduced

Answer 47

using technology instead of workers finding cheaper supplies asking suppliers to reduce costs or workers to take a pay cut

Question 48

what is cost of sales

Answer 48

the cost of the business producing the goods to sell

Question 49

what is expenses

Answer 49

the costs of operating the business

Question 50

what is the equation for gross profit

Answer 50

sales - cost of sales

Question 51

what is the equation for net profit

Answer 51

gross profit - expenses