Finance

Question 1

What is the formula for the Break Even Point?

Answer 1

fixed costs/contribution per unit.

Question 2

What is the formula for Contribution Per Unit?

Answer 2

total revenue - total variable costs.

Question 3

Name 1 reason why a firm needs finance to start up a business?

Answer 3

to pay for the premises and have enough money to pay for staff and later have enough to expand.

Question 4

What is an internal source of finance?

Answer 4

They are funds that are found inside the business.

Question 5

Give an example of an Internal source of finance?

Answer 5

Selling assets.

Question 6

What is an external source of finance?

Answer 6

The are funds found outside the business.

Question 7

Give an example of an external source of finance?

Answer 7

Creditors.

Question 8

Give 3 examples of short term sources of external finance?

Answer 8

Overdraft, Trade Credits and Factoring.

Question 9

Give 3 examples of long term sources of internal finance?

Answer 9

Loans, Grants and Leasing

Question 10

What is a creditor?

Answer 10

An individual or business that has lent funds to a business and is owed money.

Question 11

What is a debtor?

Answer 11

An individual or business who has borrowed funds from a business and so owes it money.

Question 12

What is the financial objectives?

Answer 12

Targets expressed in money terms such as making a profit, earning income or building wealth.

Question 13

What does S M A R T stand for?

Answer 13

Specific, measurable, achievable, realistic and timed.

Question 14

What does Revenues, Sales Revenue, Turnover, Sales Turnover mean?

Answer 14

The amount of income received from selling goods or services over a period of time

Question 15

Whats the total revenue formula?

Answer 15

TR = P x Q

Total Revenue = Price x Quantity

Question 16

What is Sales Volume?

Answer 16

The number of items or products or services sold by a business over a period of time.

Question 17

What are a businesses fixed cost?

Answer 17

Costs which do not vary with the output produced such as rent, business rates, advertising costs, administration costs and salaries.

Question 18

What are total costs?

Answer 18

All the costs of a business; it is equal to fixed costs plus variable costs.

Question 19

What is the total cost formula?

Answer 19

TC = FC + VC

Total Costs = Fixed Costs + Variable Costs

Question 20

What are variable costs?

Answer 20

Costs which change directly with the number of products made by a business such as the cost of buying raw materials.

Question 21

What is the definition of profit?

Answer 21

Occurs when the revenues of a business are greater than its costs over a period of time.
TR - TC = P

Question 22

What is cash flow? and define the inflows and outflows

Answer 22

The cash flow is the flow of cash into and out of a business. Inflows are the cash flowing into a business, its receipts. The outflows are The cash flowing out of a business, its payments

Question 23

What is the Net Cash Flow formula?

Answer 23

The receipts of a business minus its payments

Inflows – Outflows = Net Cash Flow

Question 24

Whats insolvency?

Answer 24

When a business can no longer pay its debts

Question 25

Whats a Cash Flow Forecast?

Answer 25

A prediction of how cash will flow through a business in a period of time in future.

Question 26

what is the Opening Balance?

Answer 26

The amount of money in a business at the start of the month.

Question 27

What is Closing Balance?

Answer 27

The amount of money in a business at the end of the month.

Question 28

What is Trade Credit?

Answer 28

Where a supplier gives a customer a period of time to pay a bill (or invoice) for goods or services once they have been delivered.

Question 29

What is Stocks?

Answer 29

Materials that a business holds. Some could be materials waiting to be used in the production process and some could be finished stock waiting to be delivered to customers.

Question 30

Whats the definition of long term finance?

Answer 30

Sources of money for businesses that are borrowed or invested typically for more than a year e.g Mortgage, Venture Capitalist.

Question 31

Whats the definition of short term finance?

Answer 31

Sources of money for businesses that may have to be repaid with immediately or fairly quickly, such as an overdraft, usually within a year.

Question 32

What is the definition of personal savings?

Answer 32

Money that has been set aside and not spent by individuals and households.

Question 33

Whats Share Capital?

Answer 33

The amount of money invested into the business by shareholders.

Question 34

Define Shareholders?

Answer 34

The owners of a company.

Question 35

Whats a venture capitalist?

Answer 35

An individual or company which buys shares in what they hope will be a fast growing company with a long term view of selling the shares at a profit.

Question 36

What is a loan?

Answer 36

Borrowing a sum of money which has to be repaid with interest over a period of time, such as 1-5 years.

Question 37

What is security or Collateral?

Answer 37

Assets owned by a business which are used to guarantee repayments of a loan; if the business fails to pay off the loan, the lender can sell what has been offered as security.

Question 38

Whats a mortgage?

Answer 38

A loan where property is used as security.

Question 39

What is a Dividend?

Answer 39

A share of the profits of a company received by shareholders who own shares.

Question 40

Define Retained Profit?

Answer 40

Profit which is kept back in the business and used to pay for investment in the business.

Question 41

What is leasing?

Answer 41

Renting equipment or premises.

Question 42

What is an overdraft facility?

Answer 42

Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn.

Question 43

What is Factoring?

Answer 43

A source of finance where a business is able to receive cash immediately for the invoices it has issued from a factor, such as a bank, instead of waiting the typical 30 days to be paid.