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Finance Flashcards

(43 cards)

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1
Q

What is Revenue?

A

money going into the business

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2
Q

What are Costs?

A

money going out of the business

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3
Q

What is the formula for revenue?

A

Revenue = Price x Quantity Sold

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4
Q

What is Price?

A

The amount of money a customer pays for a product or service.

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5
Q

What is Profit?

A

Money remaining after Total Costs are taken away from Total Revenue

(Profit = Total Revenue - Total Costs)

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6
Q

What is Breakeven?

A

When revenue can cover the Business’ total costs, therefor the business is no longer making a loss.

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7
Q

What is Breakeven Output?

A

The amount of Products a business needs to sell in order to reach Breakeven. (Breakeven point in Units)

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8
Q

What is the Margin of Safety? (MoS)

A

How much sales can drop before the Business reaches the Breakeven Point again –> where they will begin to make a loss.

The larger the MoS, the safer the business.

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9
Q

What is the formula for Margin of Safety? (MoS)

A

MoS = Actual or Budgeted Sales - Breakeven Output

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10
Q

What is Contribution?

A

How much money a business will make from each individual sale.

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11
Q

What is the formula for Contribution?

A

Contribution = Selling Price - Variable Cost

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12
Q

What is the formula for Breakeven Output?

A

Breakeven Output = Fixed Costs ÷ Contribution

OR

Breakeven Output = Fixed Costs ÷ (Selling Price - Variable Cost)

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13
Q

What is Cashflow?

A

The flow of cash (money) in and out of a business.

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14
Q

What is Cash Inflow and Cash Outflow?

A

Cash Inflow - the flow of cash into a business.

Cash Outflow - the flow of cash out of a business.

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15
Q

What is a Cashflow Forecast?

A

A prediction of how cash will flow in and out of a business in the future.

This can be used to see how well they will be performing, and if any action is needed to avoid a cash crisis (when a business does not have enough money to do things).

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16
Q

What is a source of Finance?

A

How a business gets money to fund (pay for) itself.

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17
Q

What is Finance?

A

Money for the business.

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18
Q

What is Internal and External Finance?

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A

Internal - money obtained in the business (e.g. Retained Profits, Selling assets).

External - money obtained outside the business (e.g. Loans, Share Capital, Venture Capital, Crowdfunding).

19
Q

Give examples of Short Term and Long Term finance.

Study These Flashcards
A

Short - Overdraft, Trade Credit

Long - Retained Profits, Loans, Personal Savings, Share Capital, Venture Capital, Crowdfunding.

20
Q

What is the difference between Short Term finance, and Long Term finance?

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A

Short Term Finance - pay back in immediately or fairly quickly

Long Term Finance - pay back over a much longer period of time, usually a year or more.

21
Q

What is an Overdraft?

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A

When you can withdraw more money than you have in your bank.

A business can spend more than they have and feel financially comfortable, however overdrafts have High Interest rates

22
Q

What is Trade Credit?

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A

Buy now, Pay Later.

When a supplier (anyone who provides a product or service) allows the customer a longer period of time to pay for the product or service.

23
Q

What is Venture Capital?

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A

A type of Share Investment made by funds managed by a professional investor. The minimum investment is usually over £1million –> so not available for small businesses.

24
Q

What is Share Capital?

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A

Finance made by issuing shares to outside investors.

Selling a large part of your business ownership, meaning they gain a share of your profits and can make decisions for the business

25
What is Crowdfunding?
Ordinary people getting together to raise money for businesses and projects, however if the target is not met, all money invested must go back to the investors.
26
What is Fixed Cost?
Costs for a business that do not change depending on how the business is performing. Therefore the business will pay the same amount each week, month, year, etc.
27
What is Variable Cost?
Costs for a business that change depending on how well a business is performing
28
What is Government taxation?
Compulsory charges on business individuals by the government.
29
What is Inflation?
An equal increase in Prices and Wages.
30
What are Exchange rates?
The price of 1 currency in terms of another. E.g. £1 = $1.50 An increase in the value of a currency is called an Appreciation, and a decrease is called a Depreciation.
31
How do you work out the Cost of a Currency? (Exchange Rate)
Cost = Price x Exchange Rate. E.g. If £1 = $1.50; £50 x $1.50 = $75. So £50 in the USA is $75.
32
What is Net Cash Flow?
The difference between money going in, and money going out of a business. Net Cash Flow = Cash Inflow - Cash Outflow
33
How can a Business improve its Cash flow?
Reducing Cash Outflow - e.g. Buying less stock OR Increasing Cash Inflows - e.g. Creating more sources of finance (overdraft, trade credit, share capital, loans, etc)
34
What is an Asset?
Something that contains economical value
35
What is Capital?
Money that has been invested into a Business.
36
What is an Advantage of Internal Growth?
Internal Growth is Organic and has low risk
37
What is a Disadvantage of Internal Growth?
Can be very slow
38
What is an Advantage of External Growth?
External finance can be a very fast way of growing
39
What is a Disadvantage of External Growth?
Very risky
40
What are Overheads?
Overheads (aka "Direct Costs") are the fixed costs for operating a business, such as Rent and Bills. Not linked to the product or service they are providing.
41
What is an Advantage of Trade Credit?
Increase Relationship with Suppliers A business/customer can get a product before having the money available.
42
What is a Disadvantage of Trade Credit?
For a supplier/business, if a customer expects Trade Credit, it can be very confusing for their Cash Flow.
43
Give some examples of Fixed Costs.
Rent, Insurance, Salaries for Staff, Bills

Business (3 decks)

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