Flashcards in Finance Deck (97)
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1
Things a new business needs to spend on.
Property-Their building
Vehicles-Van/Lorries to transport goods
Advertisement-Inform potential customers about their existence
Machinery and equipment-To manufacture your product
Raw materials-To be made into the products
2
Things established businesses need to spend on.
Expansion-Increase scale of enterprise or acquisitions
Improve efficiency-Training employees or purchasing new tech
Develop new products-Research and new production facilities.
3
Internal sources of finance
Owners funds-Money put into the business by its owner.(No interest).
Retained profits-Profit made in previous years. (Only available to successful companies).
Selling assets-A business sells assets like property to generate money.
4
Selling assets-A business sells assets like property to generate money.
Internal
5
Retained profits-Profit made in previous years. (Only available to successful companies).
Internal
6
Owners funds-Money put into the business by its owner.(No interest).
Internal
7
Expansion-Increase scale of enterprise or acquisitions
Established businesses
8
Improve efficiency-Training employees or purchasing new tech
Established businesses
9
Develop new products-Research and new production facilities.
Established businesses
10
Property-Their building
New businesses
11
Vehicles-Van/Lorries to transport goods
New businesses
12
Advertisement-Inform potential customers about their existence
New businesses
13
Machinery and equipment-To manufacture your product
New businesses
14
Raw materials-To be made into the products
New businesses
15
External sources of finance
Bank loans-Requires interest and may ask for collateral
Mortgages-Solely for property, longer repayments than loans
Overdrafts-Borrow more than in account. Flexible loans.
Issuing shares-A business chooses when to IPO but new businesses with little value won’t get as much. Also means letting go of control.
Friends and Family-Free of interest, easier to get.
Hire purchase-Pay off tech/machinery over a long period of time
Government grants-Business that fit with government aims will receive money from the government, usually startups.
16
Bank loans-Requires interest and may ask for collateral
External
17
Mortgages-Solely for property, longer repayments than loans
External
18
Overdrafts-Borrow more than in account. Flexible loans.
External
19
Issuing shares-A business chooses when to IPO but new businesses with little value won’t get as much. Also means letting go of control.
External
20
Friends and Family-Free of interest, easier to get.
External
21
Hire purchase-Pay off tech/machinery over a long period of time
External
22
Government grants-Business that fit with government aims will receive money from the government, usually startups.
External
23
Influences on choosing which source (New businesses)
Amount of personal finance available
Legal structure
Risk-Is there space in the industry
24
Amount of personal finance available
New businesses
25
Legal structure
New businesses
26
Risk-Is there space in the industry
New businesses
27
Influences on choosing which sources (Established businesses)
Profitability of the business
Assets owned
Past history and future prospects
Legal structure
Amount of finance needed
28
Profitability of the business
Established businesses
29
Assets owned
Established businesses
30
Past history and future prospects
Established businesses
31
Legal structure
Established businesses
32
Amount of finance needed
Established businesses
33
Advantages of using retained profits
No interest payments
Can be arranged immediately
34
Disadvantages of using retained profit
Only available to profitable businesses
Shareholders may oppose the decision
35
Advantages of selling assets
No interest payments
May keep assets (if leased back)
36
Disadvantages of selling assets
Many businesses do not have suitable assets
Leasing assets back means regular payments
37
Advantages of bank loans and mortgages
Can be arranged quickly
Allows repayments over a long period of time
38
Disadvantages of bank loans
Interest has to be paid
Banks may require an asset as collateral
39
Advantages of selling shares
No interest payments
40
Disadvantage of selling shares
The owners may lose control of the company
Only available to companies
41
Advantages of Government Grants
Many Government Grants do not have to be repaid
42
Disadvantages of a Government Grants
A business may have to meet strict conditions to receive a grant
Businesses may have to invest money alongside the grant
43
Influences on what source of finance to use (new businesses)
Amount of personal finance available to the entrepreneur
The business’ legal structure
How risky the new business is judged to be
44
Amount of personal finance available to the entrepreneur
New businesses
45
The legal structure of a business
New businesses
46
How risky the business is
New business
47
Influences on what source of finance to use (established businesses)
Profitability
Assets owned by the business
Past history and future prospects
Legal structure of the business
Amount of finance needed
48
Profitability
Established businesses
49
Assets owned by the business
Established businesses
50
Past history and future prospects
Established businesses
51
Legal structure
Established businesses
52
Amount of finance needed
Established businesses
53
What is cash flow
Cash flow is the money that flows into and out of a business on a day to day basis
54
Inflows
Income from sales
Loans from banks
Money invested by the business’ owner
55
Income from sales
Inflow
56
Loans from banks
Inflow
57
Money invested by the business’ owners
Inflow
58
Outflows
Buying raw materials
Wages
Rent or mortgage
Interest on loans
Taxes
59
Buying raw material
Outflows
60
Wages
Outflows
61
Rent or mortgages
Outflows
62
Interest on loans
Outflows
63
Taxes
Outflows
64
Benefits of having a positive cash flow
No need to borrow (avoid interest)
More able to arrange long term loans
Reduces the risk of businesses getting into debt and failing
65
What is a cash flow forecast
A table of the inflows and outflows of cash that are expected by a business’ managers
66
What is a cash flow statement
A cash flow statement is a table of past month’s cash flow to help predict and prepare for the future
67
Importance of cash flow forcastes
It can identify times when the business might be short of cash
Enables the business to take actions to avoid cash shortages becoming a major problem
68
Causes of cash flow problems
Poor management
The business is making a loss
Offering customers too long to pay
69
Solutions to cash flow problems
Reschedule payments
Cut costs
Use overdrafts
Find new sources of cash inflows
70
Influences on choosing the best solution
The cause of the cash flow problem
The business’ circumstances
71
Price
Price is the amount a business asks a customer to pay for a single product.
72
2 factors affecting price?
The prices set by the competition
The cost of production
73
What are sales?
Sales is the number of products sold by a business over some time. Usually a week, month, quarter or year.
74
What are costs?
Costs are the spending that is necessary to set up and run a business. A business normally has to pay two main types of cost: fixed costs and variable costs.
75
What are fixed costs?
Fixed costs do not alter when a business changes its output. For example, a shopkeeper still needs to pay the same amount of rent, regardless of sales.
76
What are variable costs?
Variable costs are costs which vary based on output. For example, if a shopkeeper is serving more customers, he will need to buy more inventory.
77
Equation for total costs
Fixed costs+Variable costs
78
Equation for total variable costs
Variable costs of a single unit X Number of Units
79
What are total costs?
Total costs are a business’s expenditure over a time period.
80
What is profit?
Profit is the amount by which a business’s revenue from all its sales exceeds its costs.
81
What is loss?
A loss is the amount by which a business’s costs are larger than its revenue from all sales.
82
What is a balance sheet?
A balance sheet sets out the assets and liabilities that a business has on a particular day.
83
What does a balance sheet show?
It shows where a business’ finance has come from and how the business has spent the money that it has raised. It is only a snapshot of the business’ position.
84
Types of assets
Non-current assets and Current assets.
85
What are non-current assets?
Non-current assets are assets which a business will normally keep for many years. Examples of non-current assets include shops and vehicles. They create revenue for the business and enable it to earn profits.
86
What are current assets?
They are assets that the business only expects to have for a short time (normally less than one year). Examples of current assets include cash and inventories of raw materials. Current assets (especially cash) are used by the business to settle debts such as paying for raw materials.
87
What are assets?
An asset is something that is owned by a business.
88
What are liabilities?
Liabilities are the amounts owed by a business to other businesses and individuals.
89
Types of liabilities.
Non-current liabilities and Current liabilities.
90
What are non-current liabilities?
They are debts that will be paid back over many years. Loans from the bank or a loan to buy property (mortgage) are examples of this type of liability.
91
What are current liabilities?
They are debts that a business will pay within a year. Examples of current liabilities include money owed to suppliers and tax the business has to pay.
92
What is total equity?
Total equity is part of a company’s money that belongs to shareholders. If a company stops trading and sells all its non-current and current assets, it would normally have a large sum of money remaining. This would be used to pay all the company’s liabilities. The money that is left once this is done is called total equity.
93
What are net assets.
The sum of all the assets a business owns.
94
What will equal the amount of money put into the business (total equity) on a balance sheet?
Net assets.
95
If the shareholders of a business raised extra finance to buy new vehicles than what would increase by the same amount?
The value of the business’ non-current assets and the shareholders’ total equity.
96
Key indicators of a business’ performance over time from its income statement.
The revenue from sales of goods and services and gross and net profits.
97
