Finance Flashcards
(67 cards)
1
Q
Whats the role of finance
A
Money is very important for a bussness to achieve its objectives, pay bills etc
-record and maintain finance records e.g cash budget and income statement
- pay bills
- pay wages and salary to employees
2
Q
What can influence finance choices
A
- the purpace of finance
- objectives of the organisation
- amount of finance required
- type of bussness
- length of time the finance is required for
- finance cost (interest rates)
- payback items
3
Q
Name a source of finance
A
- bank loan
- commercial mortgage
- crowdfunding
- dept factoring
- share issue (equity capital
- venture captial
- debentures
- overdraft
- bank overdraft
- grant
- selling assets
- owners saving
- retained profit
4
Q
What is debt factors
A
A short term of finance where firm sell there invoices to a factor such as a bank. They do this for some cash right away rather than waiting 28. Days to be paid in the full amount
5
Q
Whats an advantage of debt factors
A
- time and effort is saved as the company no longer requires to recover unpaid debt
-improvise cash flow as the bussness receives capital by selling of there debt
6
Q
Whats a disadvantage of debt factors
A
- money is lost from the business as unpaid debts are sold at a reduced value
7
Q
What is a bank overdraft
A
A short term of finance, it is a facility that will allow you to withdraw more money from your account that in available
8
Q
Give an advantage of using a bank overdraft
A
- there is not normally a charge off the overdraft earlier than exspected
- its quick to arrange
9
Q
Give a disadvantage of using a bank overdraft
A
- expensive as a high rate of daily interest is charged
- usually only available for small sums of money
10
Q
What is crowdfunding
A
A medium term source a finance witch involves getting small amount of finance from a large amount of people, this is usually done through social media or crowdfunding websites
11
Q
Give an advantage of using crowdfunding
A
- access to large amount of investement
- fast way to raise finance
12
Q
Whats a disadvantage of crowdfunding
A
- a public request for investments risk of your product being copied by competitors
- if the target money isn’t reached the money is returned to investors and the bussness gets nothing
13
Q
Whats a goverment grant
A
A medium term source of finance, which is a fixed amount of money usually awarded by the government, EU or charitable organisations. Grants are given to bussness on the conditions that they meet certain criteria
14
Q
Give an advantage of a government grant
A
- doesn’t need to be payed back
- there’s no limits to the amount of grants you can apply for
15
Q
Whats a disadvantage of government grants
A
- bussness need to meet a certain criteria
- time consuming to apply from grant and complicated paperwork
16
Q
Whats a bank loan
A
A medium term source of finance, its a fixed amount of money given to a bussness by the bank that has to be repaid overtime with interest, usually in monthly instalments
17
Q
Whats an advantage of bank loans
A
- loans can repaid over a long period of time
- don’t have to give up equity to get a loan from a bank
18
Q
What’s a disadvantage of a bank loan
A
- interest has to be paid in addition to the loan amount
- can be difficult to quality for a loan, banks will be less likely to provide a loan if they see it as risky
19
Q
Whats a share issue
A
A long term source of finance that is only available to private or public limited company’s. Bussness can decide to issue more shares in the company and obtain finance from the sales (need to offer shares)
20
Q
Whats an advantage of share issue
A
- finance raised doesn’t need to be paid back
- large amount of finance can be made
21
Q
Whats a disadvantage of share issue
A
- shareholders need to be paid a division of profits each year
- shareholders become part owners of the business
22
Q
What is debentures
A
A long term source of finance given to the bussness buy an individual, interest is paid annually and the loan is paid back in full at an agreed date in the future
23
Q
Whats an advantage of debentures
A
- control of the bussness isn’t lost
- the company only has to pay interest yearly
24
Q
Whats a disadvantage of debentures
A
- interest must be paid even is the company is making a lost
- the debenture holder will be able to seize assets if repayments aren’t made
25
What is venture capitals
A long term source of finance. It’s money that investors provide to a company that is starting up/ expanding. They are usually used when there is an element of risk with the business (think dragons den)
26
Whats an advantage of venture capitals
- may invest in firms that are deemed to risky by the bank
- they may provide exsperianced in addition to funding
27
Whats a disadvantage of venture capitals
- they may want a share of a bussness meaning some control of the bussness is lost
-often requires a large equity stake in return
28
What is commercial morgage
A long term source of finance. This a sum of money borrowed from the bank that is secured against a business property and paid back in instalment, usually over a long period of time
29
Whats an advantage of commercial morgage
- is given for a long period of time
- large amount of finance can be raised quickly
-interest rates are often lower compared to short term loans
30
Whats a disadvantage of a commercial mortgage
- interest rates is charge on the loan
- property can be lost to the morgage lender if repayments are missed
- assets can be reposed if there is a fail to make the repayment
31
Whats a cash budget
A document produced to help a business to manage there cash flow, it is prepare in advance and shows the months cash flow (receipts) and any planned cash outflow (payment)
32
Why do bussness prepare a cash budget
- to show if the bussness will have a surplus or deficit of cash
- show if additional finance is needed
- help control exspenses by highlighting periods when they could be high
- can help decision making as actual performance can be compared with predictions
33
What does a bussness spend cash on?
- employees
- mortgage/ rent
- suppliers of raw materials
- consul tax and bussness rates
- advertising
- telecom, internet & phones
- service bills e.g electricity
34
What is cash flow
Is all the money that goes in and out of the bussness
35
What can produce cash flow problems
-to much money tied up in stock
- to many credit sales
- to long a period for credit sales
-Not enough credit purchases
- high amount of spending on non-current assets
- drawing by owner to high/ dividends paid to shareholders too high
- not enough sales revenue
- to many unpaid debts (customers haven’t paid)
- Purchasing a high amount of fixed assets
- sudden increase in operation exspenses (inflation)
36
What can be a consequence of poor cash flow
- electricity/ gas cut of due to bills not being paid
- owners not willing to invest in there drawings
- inability to purchase stores, goods, development etc
- poor employee relations
- suppliers refuse to supply materials until paid
37
Whats a finacial statement
A bussness keeps various types of finance record to monitor its performance and ensure taxes are paid
There are 2 types
- income statement
- statement of finacial position
38
Whats an income statement
Shows the business financial performance over a period of time
39
Whats the purpace of preparing a income statement
- shows profit or loss from buying and selling goods
- can be used to compare gross profit over different years
- comparison to different company’s can be made
- can be used to compare exspenses and sales over the years or between departments
40
What is a statement of financial position
Shows the value of a bussness on a particular date, it shows the assets and liability of the bussness
41
Whats the purpose of preparing a statement of financial position
- shows overall value of bussness - is a legal requirement for limited company’s
- investors can use this statement to determine there investment
- suppliers and creditors can use to deterrent the level of risk involved in lending/ supplying
- can be used to analyse ratios
- used to show the value of different assets and liability’s
42
Who uses a statement of finacial positions
Lenders- will look at the solvency of a bussness
Rival- interested in monitoring the profits earned by competitiors
Banks - used them to make lending decisions
Gov (HMRC) - used to finance info to calculate tax payments
Owners - look at the statement to help make decisions
Employees - used to ensure there jobs are secure
43
Name a type of tech that can be used in finance
-spreadsheets
- EFTPOS
- internet banking
- BACS payment
- sage software
44
What is spreadsheets and why does a finacial department use it?
Used to produce graphs and charts of finacial info, the Formular function allows calculation to be carried out instantly accurately
45
What is SAGE software and why is it used?
A software package that is soused in a bussness to manage and produce finance info; it can be used to
- generate invoices
- manage payrolls
- complete tax returns
46
What is BACS payment
It allows a company to transfer money secure quality between bank acounts. They are used to pay staffs wages or pay suppliers
47
What is electric funds transfer point of sales (EFTPOS)
An electronic method of paying for goods exactly where you purchase them. This an be done through:
- debit card
- credit card
- contactless payment
- app payment
48
What is internet banking
Used to find transfer instantly and more conveniently, (think banking apps)
49
Whats a cost of using technology in finance
- cost to gain hardware and equipment
- staff training; leads to a loss in work time
- loss in efficantly due to staff being unformilure with the equipment
- computer virtuoses/ malware
50
Whats a benefit of using technology in finance?
- can increase efficiantcy and flexibility
- increase amount of data info that can be handled
- increases customer satisfaction
-possibility to reduce staff costs
51
Whats a purpace of using a ratio analysis
- to compare a bussness performances of 2 time periods
- compare bussness performance with that of competitors
- compare budget and actual performance
- highlight areas of the bussness that aren’t performing well
- highlights trends to help with further decision making
- compare against industrial standard
52
What is profibility ratios
When a bussness analyses the profit- making capacity of the bussness and whether the bussness has met its objectives
53
Name a type of profibility ratios
- gross profit as % of sale ratio
- profit for the year % ratio
- returns on equity/ capital
54
What is gross profit as a % of sales ratio used for
(Gross profit/ sales) x 100
This ratio is used to calculate the gross profit as a % of sales turnover
55
What can increase and decrease the ratio of gross profit % of sales ratio
Increase:
- selling price raised
- cost of sales have been lowered
- increase in markets = increase in demand
Decrease:
- cost of sales increased
- inventory might be less (waste or theft)
- fewer marketing activity’s
- fewer sales due to external factors
56
What is profit for the year % ratio
(Profit for the year/ sales) x100
This ratio is used to calculate what % of the sales they have turned into profit
57
What can increase and decrease the results of the profit for the year % ratio
Increase:
- gross profit has been higher
- exspenses have been lowered
Decreased:
- gross profit has gone down
- expenses have increased
58
What’s is return on equity/ capital ratio?
(Profit for the year/ capital/ equity employed) x 100
ROEE means how well a bussness has utilised the capital that has been invested in it. It gives a useful measure of performance rather that profit figures
59
What can increase or decrease the ratio of return on equity/ capital
Increase:
- sales have increased
- exspenses have been lowered
Decrease:
- sales have decreased
- expenses have been higher
60
What is liquidity ratios
Used to examine there ability to cover short- term finance obligations. It’s a measure of a bussness ability to convert assets into cash to pay debt
These ratios show how a bussness has performed in the use of assets and the control of its debts
61
Whats a type of a liquidity ratios
- current ratios
- acid test ratios
62
What is Current ratio
Current assets/ current liability’s
This is used to show a bussness ability to meet short term (current) debts
63
What is an acid test ratio
(Current assets - closing inventory)/ current liability’s
This ratio is used to measure a bussness ability to pay short term debts in rises situations, taking into account that stock of raw materials or products take time to sell, or may not sell
64
What can increase or decrease an acid test ratio
Increase:
- current liability’s have decreased - fewer trade payables
- current assets have increased - more money in the bank
Decrease:
- current liability have increased
- current assets habe decreased
65
What is an efficiency ratios
They are used to analyse how well a business resources. The current assets and current lability are analysed here
66
What is the rate of inventory turnover ratio
Cost of sales/ average inventory
This is a ratio witch determands how quickly a firm goes through stock
67
What can increase or decrease the results of rate of inventory turnover ratio
Increase:
- cost of sales have increased
- decrease in average inventory holding
Decrease:
- decrease in the cost of sales
- increase in inventory held
