Finance

Question 1

What is internal finance?

Answer 1

Where the money is already in the business (therefore no cost) but has an opportunity cost

Question 2

What is external finance?

Answer 2

Where finance is sourced outside of the business, it usually costs in interest and security is required so that it can be repossessed if the loan isn’t paid back

Question 3

What is an opportunity cost?

Answer 3

Where the business has to choose in between 2 options of what to spend there money on as they can’t spen it on both

Question 4

What is short term finance?

Answer 4

Up to 12 months

Question 5

What is medium term finance?

Answer 5

1-3 years

Question 6

What is long term finance?

Answer 6

3+ years

Question 7

What is a share issue?

Answer 7

Where companies raise finance by trading finance for a share

Question 8

What is retained profit?

Answer 8

Where profit is made and held back to pay for things like equipment

Question 9

What is hire purchase?

Answer 9

Where a business will pay monthly for something they need (interest will be added) it won’t be theirs until final payment is made

Question 10

What is cash flow?

Answer 10

The amount of money being transferred in and out of a company

Question 11

What is cash flow forecast?

Answer 11

Where business try to predict its income and expenditure

Question 12

What is the balance being carried forward to the next month?

Answer 12

The difference between the total income and total expenditure

The closing balance for one month becomes the opening balance for the next

Question 13

What is negative cash flow?

Answer 13

Where the total expenditure > total income

Question 14

What happens if the balance being bought forward is negative?

Answer 14

It will be subtracted from the next months total income

Question 15

How many months is a forecast of negative cash flow bad?

Answer 15

A few consecutive months

Question 16

Can businesses fail even if they make a profit?

Answer 16

Yes because they will have run out of money

Question 17

Is having a negative cash flow bad for a business?

Answer 17

Not necessarily as it may mean that the flow of money in is

Question 18

Why do businesses forecast cash flow?

Answer 18

So they can identify the months in which they will be short of cash and the forecast helps them to prepare / find solution

Question 19

Which cash flow forecasts are more actuate?

Answer 19

Short term

Question 20

Why aren’t long term cash flow forecasts accurate ?

Answer 20

The prices of goods may change, new competitors may enter the market etc

Question 21

How can businesses avoid incorrect forecasting made by long term forecasting ?

Answer 21

Updating their forecasts at regular intervals

Question 22

Can good cash flows still have low profit?

Answer 22

Yes

Question 23

What is sales revenue?

Answer 23

The income from the sale of good also known as NET sales

Question 24

What is gross profit?

Answer 24

The profit made after deduction of variable costs

Question 25

What is net profit?

Answer 25

The actual profit after all costs are deducted

Question 26

How do you calculate sales revenue and gross profit?

Answer 26

1. Income from sales - total costs | 2. Revenue - variable costs

Question 27

Why is profit important?

Answer 27

It is a return on investments (investment + profit ) It is a reward for risk taking Retained profits used for investment Can be used for dividends to shareholders

Question 28

What is a dividend?

Answer 28

A lump of money per share (only applies to public limited companies)

Question 29

What is VAT?

Answer 29

The tax on purchase price, in the UK it is 20% and is paid at the last stage (retail point)

Question 30

What products don't have VAT?

Answer 30

Most essential food products and children's clothing

Question 31

What happens to the money collected from VAT?

Answer 31

It goes to the government

Question 32

What are fixed costs?

Answer 32

Costs which don't change with output such as rent

Question 33

What are variable costs?

Answer 33

Costs which do change with output such as the average cost per product

Question 34

How do you calculate average cost?

Answer 34

Total cost / amount sold

Question 35

What are some examples of fixed costs?

Answer 35

Rent Electricity Salaried staff Insurance

Question 36

What are some examples of material costs?

Answer 36

Flour for cupcakes Hourly staff Bonus payments

Question 37

Why do businesses manage costs?

Answer 37

So that they don't end up with greater costs over profit

Question 38

How can a business reduce its costs?

Answer 38

``` Reduce its labour workforce Produce efficiently Only produce what has been ordered Reduce waste Globalisation ```

Question 39

What is break even?

Answer 39

Where the business makes no profit or loss

Question 40

How do you calculate the margin of safety?

Answer 40

Actual sales - break even sales

Question 41

How does calculating break even help a company?

Answer 41

It tells the business at what point it is that they start to make a profit in terms of quantity sold

Question 42

Why is calculating break even a bad thing for a business?

Answer 42

It only applies to one product Based on output being sold It's forecast isn't real

Question 43

How can a business reduce its variable costs?

Answer 43

Buying in bulk (economies of scale)

Question 44

How can a business reduce its fixed costs?

Answer 44

Negotiate rent or move somewhere cheaper

Question 45

How can a business increase its revenue?

Answer 45

Increase quantity sold through promotion

Question 46

Why does a business need finance?

Answer 46

To pay staff, for marketing, to have enough start up capital, to pay investors back, for growth etc

Question 47

What is cooperation tax?

Answer 47

A tax put on company profits

Question 48

What is national insurance?

Answer 48

Payments made by employees and employers for NHS and state pension etc

Question 49

What does the local government collect?

Answer 49

Rates from business's

Question 50

What is income tax?

Answer 50

The tax taken of an employees wages

Question 51

What is overdraft?

Answer 51

An arrangement with the bank where a business can use more money than it is (interest charged)

Question 52

Trade credit

Answer 52

A business buys it's good and pays for them 30 days later (interest free)

Question 53

Retained profit

Answer 53

A business holds back some profit for later use

Question 54

Sale of assets

Answer 54

Selling assess for finance to help pay for things (opportunity cost)

Question 55

Loan

Answer 55

A sum of money borrowed from the bank for a fixed amount of time (interest paid back)

Question 56

Lease

Answer 56

Where items are 'borrowed' and monthly payments are made given back after a certain amount of time

Question 57

Hire purchase

Answer 57

Obtaining items and making monthly payments (inc interest)

Question 58

Grants

Answer 58

Money from the government for a specific use

Question 59

Mortgage

Answer 59

Long term money borrowed from the bank for purchase of property

Question 60

Share issue

Answer 60

Raising money buy selling a share in the business