Flashcards in Finance Deck (20)
What is a bank loan?
A loan of a fixed amount of money repaid over a fixed amount of time in instalments with interest.
What is hire purchase?
Its a way of buying an asset but paying for it over a period of time in instalments.
What is a grant?
Money given to a business by the government or the EU or the Prince's Trust that doesn't have to be paid back. It is often used to persuade businesses to locate in areas of high unemployment.
What is trade credit?
This is a way of getting goods from the supplier but paying at a later date. It is typically 30 days so the business can sell their stock and make a profit before actually paying for the supplies.
What is a mortgage
This is a common way of buying land or property and is a long term loan usually from a bank. The bank keeps ownership of the land or property until all the mortgage has been repaid over about 25 years.
What is a share?
Friends and family can buy shares (invest) in a public limited company in return for an annual dividend (share of the profits).
What is a bank overdraft?
A business can spend more money than it has in the bank up to an agreed limit. This usually over a short time and bills can be paid even if the company does not have enough money.
Name three jobs that the finance department will carry out.
•Payment of bills, eg electricity, insurance and advertising.
•Payment of invoices and wages, eg suppliers, salaries
•Preparing financial accounts: Cash budgets and profit statements.
What is profit?
A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
What is revenue?
The amount of money that a company actually receives during a specific period. It is the "top line" or "gross income" figure calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.
What are costs?
The money paid out by the company for supplies, staff and buildings. Anything that the company has to spend.
What are Fixed Costs?
Costs which remain constant even when the volume of production changes. These must be paid even if no sales are made e.g. rent, insurance
What are Variable Costs?
Costs which vary directly with the volume of production e.g. raw materials, wages.
How do you calculate TOTAL COSTS?
TOTAL COSTS = FIXED COSTS + VARIABLE COSTS
What is the BREAK EVEN POINT?
This is reached when TOTAL COSTS = SALES REVENUE. At this point neither a loss nor a profit is being made.
What is a CASH BUDGET?
A financial statement which shows the amount of cash flowing in and out of a business over the course of a set time period.
How do you calculate TOTAL REVENUE?
TOTAL REVENUE = SELLING PRICE X UNITS SOLD
What is GROSS PROFIT?
The profit from buying and selling
What is NET PROFIT?
NET PROFIT = GROSS PROFIT - EXPENSES