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Flashcards in Finance Deck (18):
1

Name 4 sources of finance.

Loans
Government grant
Retained profits
Bank overdraft

2

Describe what a loan is.

From a bank or another financial institution.

3

Describe what a Government Grant is.

Available for specific reasons, eg expanding in a deprived area.

4

Describe what retained profits are.

Profits which have been kept back from previous years.

5

Describe what a Bank Overdraft is.

Money obtained from a bank which has to be repaid with interest over an agreed number of years.

6

Give an advantage and a disadvantage of Owner's Capital.

Advantage:
-The money does not have to be repaid
-No interest has to be paid.
Disadvantage:
-May not have enough money.

7

Give an advantage and a disadvantage of a Bank Loan.

Advantage:
- The money can be obtained in one lump sum.
-Repayments can be spread over several years.
Disadvantage:
-The loan must be repaid-with interest

8

Give an advantage and a disadvantage of a Bank Overdraft.

Advantage:
- Useful as a short term source of finance t overcome cash flow problems.
-You are not tied into an agreement which requires repayment over several years.
Disadvantage:
- An expensive form of borrowing with high interest charges and costs especially if the facility is no arranged in advance.

9

Give an advantage and a disadvantage of Mortgage.

Advantage:
-Amount can be repaid over many years eg 25.
Disadvantage:
-Repayments may be high due to high interest rates.
-If repayments are not made then the property may be repossessed.

10

Give a advantage and a disadvantage of a Government Grant.

Advantage:
-The money does not have to be repaid.
-A large amount of money can be received at one time.
Disadvantage:
-There may be certain restrictions as to what the money can be used for.

11

Give an advantage and a disadvantage of re-invested profits.

Advantage;
-There are no extra costs eg interest to be paid.
Disadvantage:
-There may be insufficient money to fund the business.

12

Give an advantage and a disadvantage of Hire Purchase.

Advantage;
-Allows businesses to buy assets with only a small initial payment.
-Once full payments have been made the asset is owned.

13

Give an advantage and a disadvantage of Leasing.

Advantages:
-Can obtain the asset without a large financial outlay.
-Repairs are carried out by the leasing company free of charge.
-Upgrades can be obtained when the lease runs out.
Disadvantage:
-You never own the asset.

14

Give an advantage and a disadvantage of Trade Credit.

Advantage:
-Can buy goods and sell them on before payment is required.
-Provided payment is made within the agreed number of months then no interest is charged.
Disadvantage:
-May lose out on prompt discounts.
-May gain a reputation as a slow payer.

15

Give an advantage and a disadvantage of factoring.

Advantage:
-Allows the business to receive cash immediately.
-Removes the inconvenience of chasing up late payments.
Disadvantage:
-The service of the factor has to be paid for. The full values of the debts are never received.

16

Give an advantage and a disadvantage of issue shares.

Advantage:
-Large amounts of money raised quickly.
Disadvantage:
-Dividends have to be paid to shareholders which reduces the retained profits of the business.

17

State 4 reasons how poor cash flow can be caused.

-Spending too much on stock that has not sold.
-Giving customers too long to pay their debts.
-Not receiving enough money from sales.
-Not receiving enough time to pay bills from suppliers.

18

State 4 reasons how businesses can improve cash flow.

-Looking for cheaper supplies of raw materials as this would reduce the variable costs of making a product.
-Selling equipment or machinery no longer needed as this will bring in cash that can be used to fund other activities.
-Increasing marketing activities as this will raise awareness of the products the business has to sell and increase sales.
-Offering discounts to customers who pay on time as this will encourage them to pay more quickly.