Finance Flashcards
(26 cards)
What are the roles of the finance function ?
-calculating break-even
-calculating average rate of return
-managing payments
-arranging finance
-calculating profit or loss
Why do businesses need finance ?
Funding expansion
Recruitment
Marketing
Running the business
Owners capital? Pros and cons ?
Owners savings are invested
Pros-no need to repay,no interest to pay
Cons-owners risk savings,may not have savings
Retained profit ? Pros and cons ?
Money not distributed to the owners as profit
Pros-no repay,no interest to pay
Cons-business may not have made profits
Sale of assets ? Pros and cons ?
Good ect.. owned by the business are sold to raise money
Pros -no repay,no interest
Cons-may be difficult to sell,high risk ,take time to sell
Overdraft ? Pros and cons ?
A bank makes money available for the business
Pros-short-term cash,interest only paid on owed amount
Cons-interest is charged for each day owed
Trade credit ? Pros and cons ?
A business sells goods after agreeing to pay for them at a later date
Pros-no interest if repaid within agreed time,help with cash flow problems
Cons-good must be paid,interest in charged
Taking on a new partner ? Pros and cons ?
The new partner invests some of their savings
Pros-new partner may bring new skills,no need to repay
Cons-existing owners will lose percentage of company,more arguments
What are short-terms of finance?
Owners capital
Sale of assets
Trade credit
What are medium-term sources of finance ?
Owners capital
Bank loan
Crowdfunding
What are long-term sources of finance ?
Owners capital
Taking on new partner
Share issue
Retained profits
What is the revenue ?
The money received from sales
Total quantity sold x price = revenue
What are fixed costs ?
Costs that stay the same no matter what
What is the total costs ?
The addition of total fixed and total variable costs
What are variable costs ?
Costs that change as output changes, more products used higher cost
What is gross profit ?
Sales - cost of sales
What is the net profit of a business ?
Gross profit - expenses of operating the business
How to calculate the average rate of return ?
Measuring and comparing the profitability of an investment
-calculate total profit from investment= total income - cost of investment
-calculate the annual profit per year = total profit / life of the investment
-calculate (ARR) = annual average profit / cost of investment x 100
What is break even ?
The amount a business must sell to earn enough revenue to cover its costs
The break even equation ?
Break-even output= total fixed costs / price - variable costs per unit
Pros and cons of break-even forecast ?
Pros-planning how much to produce,decide the right price
Cons-only a forecast could be incorrect, might need to lower price
What is the cash of a business ?
The money that a business has on its premises or in its bank account
What is a cash flow forecast ?
Statement showing the expected flow of money in and out of the business
What is liquidity ?
The ability of a business to pay its short-term debts
