finance

Question 1

What is role of finance department

Answer 1

keep track of how much money is coming in and out of business such as paying suppliers and salaries

Question 2

Name 4 roles of finance department

Answer 2

.Preparing budget
.Raising finances
.Preparing final accounts (cash flow,profit and loss)
.Assess business performance to make decisions

Question 3

What is a budget

Answer 3

Financial plan of action for the future is that covers a certain period of time usually 6 months-1 year, outlining planned revenue expenditures and profit.

Question 4

What is budgetary control

Answer 4

exercising financial control within business so managers can control sales and spending within departments

Question 5

What are favourable and adverse expenses

Answer 5

Favourable- revenues are higher, expenses lower
Adverse- vise versa

Question 6

What can budgets be used for

Answer 6

. control revenue and expenditures to help business make profit
. direct and coordinate business aims and objectives to make sure they are achieved
. communicate targets from management to subordinates creating motivation
.monitore performance ensuring budgets are met
-better planning by anticipating future events so business can better respond to these events

Question 7

What are drawbacks of budgeting

Answer 7

-hard when in markets that change rapidly
- startup firms may struggle to predict sales and revenues
-always going to be unexpected costs
-time consuming
- lead to inflexibility in decision making to stick to budget
-short term rash decisions to stick to budgets

Question 8

What are internal sources if finance

Answer 8

money that already exists within business

Question 9

Give three examples of internal sources

Answer 9

retained profit, working capital, sale of assets

Question 10

+ and - of retained profit

Answer 10

-already belongs to business so no interest also immediately available
-limited amount of capital available due to other business activities also less profit for owner now

Question 11

+ and - of working capital and what it is

Answer 11

money used to pay businesses short term expenses(within a year) such as stock, day to day costs
- can access by reducing trade credit periods so receive money off customers quicker or less stock
- customers lost due to loss of trade credit or lack of stock due to demand

Question 12

+ and - of sale of assets

Answer 12

selling goods it no longer requires (equipment, veichles)
- money is instantly accessible
- can be difficult to sell assets, small businesses wont have assets to sell

Question 13

Main + and main - of internal sources

Answer 13

+ no repayment or debt
- often limited and insufficient funds required for things such as growth

Question 14

What is an external source of finance

Answer 14

money that a business gets from outside of business

Question 15

What is trade credit and + and -

Answer 15

Obtain raw materials and stock but pay at later date usually 30-90 days
+ allows company pay after turning raw materials and stock into goods and selling then
-if payments missed poor relationship with supplier

Question 16

What is debt factoring and + and -

Answer 16

Sell invoices to a factor like a bank gaining access to cash right away
+ improves cash flow instantly
+factor does all credit management and collection work
-will not recieve full value of invoice as company lose out
-only form businees with good track record and reliable customers

Question 17

What is an overdraft and + and -

Answer 17

Money from bank goes below 0
+ covers short term cash flow problems and is flexible
+interest only paid when account overdrawn
-high interest rates charged on them and full repayment can be demanded in short amounts of time

Question 18

Long term sources of finance

Answer 18

bank loan, commercial mortgages,share capital, gov grant, venture capital

Question 19

+ and - of bank loans

Answer 19

• money instantly accessible and is high amount
  -payments made monthly so trackable and manageable
• difficult for new starts
• interest increase business costs(negative impact on cash flow)

Question 20

what is a mortgage and + and -

Answer 20

money provided by bank or building society to help buy property
+ large sum of money to expand and buy property, repayments over long term
- busines costs increased due to interest, property can be seized

Question 21

What is share capital and + and -

Answer 21

money raised by selling shares in business
+ shareholders cannot get refund so is permanent
+ not gurenteed dividends every year olnly when sufficient money to pay all costs
- gives part ownership so loss of control, slow decsion making

Question 22

Venture capatilist + and -

Answer 22

someone willing to fund and take risk of new or small businesses
+large sums provided, investor is experienced
- will want return on investment interms of share of profit and decsion making

Question 23

+ and - of government grant

Answer 23

+ aid in expansion abd investment and usually no repayments
- difficult to obtain and strict criteria attached such as employing certain amount of people

Question 24

Leasing-

Answer 24

busines spays regular amount to leasing company for use of an asset/equipment improving cashflow in short term to buying outright
- is cheaper in short run, regualr payments make cash flow manageable, keep up with tech changes, maintenance and repairs done by lease company
- expensive in long term, dont own item

Question 25

Hire purchase

Answer 25

acquire an assett by paying initial assett and repaying value of asset plus interest over time - costs are spread, flexible with terms ip to 5 years, own once payed - assett can be taken, interest can be high

Question 26

What is cash flow

Answer 26

movements of cash in and out of business

Question 27

Examples of cash flows in and out

Answer 27

in- sales, loans, interest recived out- payments made, overheads paid

Question 28

What is net cash flows

Answer 28

differenze between inflows and outflows

Question 29

What is cash flows forecast

Answer 29

Financial document predicting money coming into and out of business over specific period ofntime

Question 30

Consequences of negative cash flow

Answer 30

- bit able to pay suppliers - not pay rent or mortgage - cannot pay wages - afford advertising - unwilling to lend if negative cash flows

Question 31

Benefits of cash flow forecast

Answer 31

- helps with planning( plan for times of negative cash flow) - supports attemts to raise finance- potential investors can see risk, banks may be willing to supply overdrafts for short periods of negative cash flow - assits in deciding the viability ot feasibilty of new business venture- if cash flow is postibe yea

Question 32

Drawbacks if cash flows

Answer 32

only a forecast figuired may be in accurate data may be unreliable external factors impact figuires

Question 33

What is cash flows problem

Answer 33

business does not have enough money to cover amount of money going out of business

Question 34

Causes of cash flow problems

Answer 34

Low profits or losses Too much stock Allowing customers too much credit periods Seasonal demand Unexpected changes( machine breaking)

Question 35

How to improve cash flow

Answer 35

increase selling price - unwilling to pay if price elastic Reduce selling price- if inelastic wont work Increase advertising or sales New supplier Trade credit with suppliers

Question 36

What is a profit and loss accounts

Answer 36

income statement showing wether a business made a profit it loss during a specific time

Question 37

What is sales revenue and cost of sales

Answer 37

- total amount of money made by business from selling goods/services -direct costs involved making sales revenue

Question 38

What is gross profit

Answer 38

sales revenue- cost of sales

Question 39

What are expenses and net profit

Answer 39

Expenses- costs not directly involved in making good or service (rent, utilities) Net profit- gross profit - total expenses

Question 40

Ways to increase profit

Answer 40

-increase sales revenue ( advertising more , promotions) - reduce direct costs suppliers discounts or buy in bulk - reduce indirect costs( wages, salaries)

Question 41

What is gross and net profit margin

Answer 41

Gross/sales revenue x 100 Net/sales revenue x 100

Question 42

Why compare net and gross margins

Answer 42

to see how significant indirect costs or expenses are to see if one needs reducing

Question 43

Why compare net profit over time

Answer 43

can see what is happening to costs a decrease shows that sales revenue has fallen faster than costs or costs increased faster than sales revenue so can improve net profit

Question 44

What if gross profit is increasing

Answer 44

performing well and earning more revenue in relation to direct costs involved making

Question 45

Net profit increasing

Answer 45

financial control over expenses is improving and vice versa