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Finance Flashcards

(70 cards)

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1
Q

Internal sources of finance

A
  • Retained profit
  • share issue
    -sale of an asset
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2
Q

Retained profit

A
  • profit saved from previous yeards
  • the business has complete control over its own profit
  • no interest
    -can be risky to rely on future profits
  • spending emergany funds can cause long term issues
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3
Q

share issue

A
  • limited companies can sell extra shares to new or exisiting shareholders
  • large sums of money can be raised, especiallu in the stock market
    -Dilutes exisiting share value
  • increases the dividends to be paid to shareholders if a profit is made
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4
Q

Sale of an Asset

A
  • A business can chose to sell any unwanted assets
  • does not need to be repaid
    -can be hard to find appropriate buyers
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5
Q

External sources of Industry

A
  • Bank loan
  • Bank overdraft
    -Mortgage
    -Share issue
    -Debentures
    -Trade credit
    -Debt Factoring
    -Grants
    -Hire purchase
    -Leasing
    -Venture capital
    -Crowdfunding
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6
Q

Bank loan

A
  • a large sum of money borrowed from the bank which is repaid over a long period of time with interest.
    -Fixed repayments allow for budgeting
    -can be expensive in the long run - high interest
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7
Q

Bank overdraft

A

allows a bank to withdraw more money then they have
- instant access once apporved
-interest can be high as usually charged daily

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8
Q

Mortage

A
  • A large sum of money borrowed to purchase land or property. A deposit is usually required
    -fixed payments allow for accurate budgeting
    -Property can be repossessed if
    payments are not made on time.
    High interest is charged.
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9
Q

Share issue

A

-Limited companies can sell extra
shares to new or existing shareholders
-Large sums can be raised, especially
on the stock market.
- Dilutes existing share value.
Increases the dividends to be paid
to shareholders if a profit is made.

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10
Q

Debenture

A

-A large loan from an individual over
a fixed period. A set amount of
interest is repaid each year, with the
debenture amount paid in a lump
sum at the end.
-No control in the business is lost
-High interest.
-The end lump sum can be unmanageable

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11
Q

Trade credit

A

-Allows a business to obtain raw
materials/stock on a “buy now, pay
later” offer
-Sales revenue can be generated
from the stock before it has to be
paid for
– good for cash flow.
-Credit is at the suppliers discretion –
not always guaranteed.

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12
Q

Debt Factoring

A

-Outstanding invoices can be sold to
other organisations at a price less
than the debt owed.
-The risk moves to the buyer
-The business does not get the full
amount owing back

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13
Q

Grant

A

-A sum of money from the
Government or a charity. –The business must meet specific criteria for most grants.
-Grant do not have to be repaid
-Can normally only be obtained once
-Usually a lengthy application

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14
Q

Hire purchase

A

-Assets can be obtained but paid for
over an agreed period of time.
-Fixed payments allow for accurate
budgeting
-Can be expensive in the long run –
high interest over a long repayment
term.
-Allows access to important assets
without a large up front cost

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15
Q

Leasing

A

-Assets can be rented rather than
bought outright
-Allows access to important assets
without a large up front cost
-The asset is never owned – can be
more expensive long term
-Leasing company is responsible for
maintenance.

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16
Q

Venture Capital

A

-Money invested in a business by an
individual.
-The project is usually
seen as high risk.
-Allow access to finance where a
bank may have declined.
-The investor usually asks for a share
of the business – and profit.

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17
Q

Crowdfunding

A

-Appealing to the public for small
donations towards a project.
-Usually facilitated on social media or specific websites.
-Access to a large amount of
investors
– can obtain large amounts overall
-Business ideas can be copied as the
information is made public

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18
Q

Poor cash flow reasons

A
  • Cash tied up in stock
    -Low sales revenue
  • Offering trade credit terms
  • Recieving short credit terms
  • Increased Expenditure
    -Purchase of assets
    -Cash tied up in stock
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19
Q

Solution for Too much money tied up in stock

A
  • Implement a stock management system or JIT if appropriate
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20
Q

Solution for High credit sales

A
  • Offer incentive to pay in cash
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21
Q

Solution for Paying all stock upfront

A

Negotiate trade credit from suppliers

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22
Q

Solution for the purchase of expensive equipment

A

Consider leasing or hire purchase for high cost asset

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23
Q

Solution for high expenses

A

Investigate trends in increasing expenses, can
cheaper alternatives be found?

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24
Q

Solution for decreasing sales revenue

A

Launch an advertising campaign, extension
strategies

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25
Solution for unpaid customer invoices
Sell to a debt factoring company
26
Surplus
Ending the period with a positive balance i.e. having cash left.
27
Deficit
Ending the period with a negative balance i.e. overspending. May be shown as -£100 or (£100)
28
Benefits of using a cash budget
-shows when there will be a surplus - can plan how best to invest it -shows when there will be a defecit - can arrange finance -Allows the comparison between predicted and actual - helps monitor the performance of the business - Highlights periods of high expenditure - encourages action to manage expenses - can be used to set targets for depts - this will help the overall business business stay within budget - can be used to show investors/lenders as evidence of planning - increases chances of being given the finance sought
29
Sales Revenue
The money/income a business makes from selling goods and/or services
30
Gross Revenue
profit from buying and selling goods (takes away the costs of buying/selling materials)
31
Profit for the year
Overall profit after expenses have been taken off (end profit before tax)
32
Causes of the increase of sales revenue
Business has sold more products than previous years. The selling price per unit has risen.
33
Causes of the increase of Gross profit
Could be due to increased sales revenue Business is using a cheaper supplier – less expensive raw materials
34
Causes of the increase of Profit of the year
Could be due to increased gross profit Expenses have decreased e.g. insurance, energy bills
35
causes of the decrease in Sales revenue
Business has sold less products than previous years The selling price per unit has fallen
36
Causes of decrease in Gross profit
Could be due to decreased sales revenue Supplier prices have increased – more expensive raw materials
37
Causes of decrease of the Profit for the year
Causes of decrease in Could be due to decreased gross profit Expenses have increased e.g. wages, rent
38
Solutions of decreased sales revenue
Launch an advertising campaign Use extension strategies
39
Solutions of decreased Gross profit
As above (if SR has fallen) Find cheaper suppliers Negotiate deals/discounts with existing supplier
40
Solutions of decreased Profit of the year
As above (if GP has fallen) Investigate expenses – is there cheaper alternatives or unnecessary spending?
41
Non Current Assets (fixed)
Items owned on a long term basis (longer than a year)
42
Current Assets
Items owned which change regularly within a year (easier to turn into cash)
43
Current Liabilities
Debts a business has to pay within a year
44
Non current Liabilities
Amounts owed by a business which are long- term eg. Bank loan paid back over 5 years
45
Trade Payables
Amounts owed to suppliers from a business for materials (included in current liabilities)
46
Trade Recievables
Amounts owed from customers to the business for goods sold (included in our current assets)
47
Equity
Money invested in the business (value of issued shares)
48
Shareholders - purpose
To assess overal performance, profits
49
Employees - purpose
Reassurance of job security, assess the likelihood of a pay rise
50
Investors and banks - purpose
To assess overall performance, profits
51
Government - purpose
To ensure the correct amount of tax is being paid on profits
52
Competitors - purpose
To compare performance, profits with their own
53
Email
Can be used to send out invoices to customers quickly.
54
Internet
Online banking can be used to manage bank accounts, overdrafts and transfer money safely and instantly.
55
Apps
Banking apps can be used to manage bank accounts, overdrafts and transfer money safely and instantly. Not all apps have as many features as online banking.
56
Software
Accounting software manages all financial transactions, wages and end of year accounts. Software can populate final accounts based on info input across the year.
57
Spreadsheets
Can be used to create templates for cash budgets, which can be reused and copied. Formulae ensure accurate and instant calculations on figures.
58
Presentations
Can be used to create presentations for BoD meetings on their yearly performance. Charts can show trends between years clearly.
59
Liquidty
- Measures cash flow - can a business pay it's short - term debts ?
60
Profitability
Meausures how profitble a business is
61
Efficiancy
Measures how well a business is using its resources
62
Current assets
Current assets: Current liabilities
63
Acid test ratio
Current assets - Inventory: Current Liabilities
64
Gross Profit ratio
Gross profit/ revenue x 100 Increase = higher revenue (sales or price) or cheaper suppliers Decrease = lower revenue (sales or price) or more expensive suppliers
65
Profit of the year ratio
Profit for the year/ revenue x 100
66
Return on Capital (Equity) Employed
Profit for the year/ Capital (equity) x 100
67
Rate of stock turnover
Cost of Sales/ average stock
68
Benefits
* Can assess performance compared to previous years * Can assess performance compared to competitors * Aid decision-making * Can use trends to forecast future performance and take action, if needed. * Allows a business to control expenses
69
Limitations
* The information is historical and does not show what could happen in the future * Comparisons can be unfair - different conditions apply in different years and no 2 companies are the same * Some businesses publish limited financial info * External factors are not taken into account – business may have done well during a recession, or new legislation may have had an impact * Does not consider other internal factors like staff motivation/morale * Comparisons must be made using the same ratio calculations * New product development or launches are not considered
70

Higher business (2 decks)

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