Finance

Question 1

What are the main sources of finance? (9)

Answer 1

1. Retained profit
2. Sale of assets
3. Loans
4. Debentures
5. Venture capital
6. Ordinary share capital
7. Overdrafts
8. Leasing
9. Trade credit

Question 2

What is retained profit?

Answer 2

Profit kept in the business

Question 3

What is sale of assets?

Answer 3

Selling valuable items owned by the business

Question 4

What is a loan?

Answer 4

Borrowing money from someone or somewhere (and repaying monthly)

Question 5

What is a debenture?

Answer 5

Borrowing money and repaying it all back at once

Question 6

What is venture capital?

Answer 6

Investment from an entrepreneur in return for a share in the business

Question 7

What is ordinary share capital?

Answer 7

Share parts of the business

Question 8

What is an overdraft?

Answer 8

A negative bank balance

Question 9

What is leasing?

Answer 9

Renting a product

Question 10

What is trade credit?

Answer 10

Buying goods and services with credit from a supplier

Question 11

Advantages and disadvantages of retained profit

Answer 11

Advantage: Funds future expenditure

Disadvantage: Doesn’t get paid to owners

(internal - short term)

Question 12

Advantages and disadvantages of the sale of assets

Answer 12

Advantage: Earn money quickly

Disadvantage: Lose a valuable item

(internal - short term)

Question 13

Advantages and disadvantages of loans

Answer 13

Advantages: Payments are fixed and easy to arrange

Disadvantage: Intrest rates are high

(external - long term)

Question 14

Advantages and disadvantages of debentures

Answer 14

Advantage: Pay nothing till the end

Disadvantage: More expensive (more intrest)

(external - long term)

Question 15

Advantages and disadvantages of venture capital

Answer 15

Advantage: Recieve money and mentoring

Disadvantage: Loss of ownership and control

(external - long term)

Question 16

Advantages and disadvantages of ordinary share capital

Answer 16

Advantage: Don’t have to repay

Disadvantage: Lose control

(external - short term)

Question 17

Advantages and disadvantages of overdrafts

Answer 17

Advantage: Flexible and short term

Disadvantage: Costs more to pay back

(external - short term)

Question 18

Advantages and disadvantages of leasing

Answer 18

Advantage: Cheaper than buying a new product

Disadvantage: Payments are on-going

(external - short term or long term)

Question 19

Advantages and disadvantages of trade credit

Answer 19

Advantage: No loss of ownership and delays payment

Disadvantage: Potential loss of discount offered for cash payments

(external - short term)

Question 20

What are running costs?

Answer 20

Costs associated with the day to day running of the business (these will often be needed to pay immediately)

Question 21

What are start-up costs?

Answer 21

The costs that are included before the business starts to trade

Question 22

Running costs are paid for with…not…

Answer 22

Running costs are paid for with REVENUE FROM SALES not FINANCE

Question 23

Name 5 business costs

Answer 23

1. Wages
2. New premises
3. Stock
4. Rent
5. Insurance

Question 24

What is limited liability?

Answer 24

When the owners of a business are only partly responsible for paying any debts of the business

Question 25

What is unlimited liability?

Answer 25

When the owners of a business are fully liable for paying any debts of the business

Question 26

Break-even means...

Answer 26

When a business has made enough money through product sales to cover the cost of making the product (no profit; no loss)

Question 27

What is a likely source of finance for buying premises?

Answer 27

Mortgage

Question 28

What is interest reward for?

Answer 28

Lending (putting money in the bank and leaving it there for a certain amount of time)

Question 29

What is someone who lends money called?

Answer 29

Creditor

Question 30

What might sole traders lose if they can't pay back loans?

Answer 30

Personal assets

Question 31

What is a business?

Answer 31

An organisation that provides goods and services to customers who want them

Question 32

What are resources?

Answer 32

The different elements needed in order to run a business

Question 33

What are natural resources?

Answer 33

Resources that come from nature, for example, sand, wood and water

Question 34

What are human resources?

Answer 34

People to do the work needed in the business

Question 35

What are man-made resources?

Answer 35

Things like equipment, materials, machinery, furniture etc.