finance ffs

Question 1

what’s the role of finance?

Answer 1

create financial accounts
keep and maintain financial records
make payments
analyse financial performance

Question 2

why would a business need finance?

Answer 2

-start up costs and running costs
-fund expansion, replace worn out assets, fund new product development

Question 3

what’s is internal finance?

Answer 3

easing funds from within the business. Often limited but means b keeps full control and doesn’t need to pay high interest

Question 4

what is external finance?

Answer 4

raising funds from outside the business
raise larger amounts of funds compared to internal sources

Question 5

examples of internal sources of finance

Answer 5

owners capital
retained profit
selling unwanted assets

Question 6

examples of external sources if finance

Answer 6

loans
overdraft
trade credit
crowdfunding
new share issue
taking on a new partner

Question 7

what is retained profit?

Answer 7

when a business has worked out its profits, owners can decide if they want to keep it for themselves or reinvest.

Question 8

benefits of retained profits

Answer 8

cheap form if finance as no interest is paid
do not reduce ownership of the b (differs to selling shares)

Question 9

drawbacks of retained profit

Answer 9

if it is facing problems, it is unlikely to have any profit to use
may not be high enough to finance the growth quickly
using too much profits may upset shareholders feel dividends r too low

Question 10

what is owners capital

Answer 10

invest personal savings, redundancy or inheritance money into a start up

Question 11

benefits of owners capital

Answer 11

no interest
don’t need to repay
don’t lose control over the b

Question 12

drawbacks if owners capital

Answer 12

amount available is limited

Question 13

selling unwanted assets

Answer 13

selling assets such as land, buildings, machinery or equipment on a one off basis

Question 14

bank loan

Answer 14

amount of money borrowed for a set period with an agreed payment schedule. Repayment amount will depend on size and duration of the loan + rate if interest

Question 15

benefits of bank loan

Answer 15

no lost control
repayments are spread over time
paying back in instalments helps with budgeting

Question 16

drawbacks if bank loans

Answer 16

interest must be paid

Question 17

what is an overdraft

Answer 17

Allows the business to withdraw funds from its account that are not there, up to an agreed maximum limit only used when b needs additional, temporary amounts of money.

Question 18

benefits of an overdraft

Answer 18

good to cover short term payment problems
awarded quickly
doesn’t require security

Question 19

drawbacks of an overdraft

Answer 19

repayable to the bank
will be an interest charge

Question 20

what’s crowdfunding

Answer 20

can attract a crowd of investors - contribute towards an online fundraising target in turn for a reward

Question 21

benefits of crowdfunding

Answer 21

provides investments when other sources may be unavailable
investors may have experience or skills they can offer

Question 22

drawbacks of crowdfunding

Answer 22

investors will need to be offered a return
risk that there will be a limit to the amount of money ppl r willing to invest
business may not be of interest

Question 23

what’s new share issue

Answer 23

new businesses set up as limited companies can sell shares

Question 24

benefits of share issues

Answer 24

large sums of money can be raised
capital doesn’t need to be repaid

Question 25

drawbacks of share issue

Answer 25

possible loss of control if og owners sell more that 50% of total shares need to satisfy shareholders

Question 26

what is trade credit

Answer 26

provided by a firms suppliers allowing the b to have goods now and pay later

Question 27

benefits of trade credit

Answer 27

allow bs to use goods in manu process or sell goods before they have to pay help a **temporary shortage of funds** usually **interest free**

Question 28

drawbacks of trade credit

Answer 28

difficult for new bs bc risk of a not being paid goods **must be paid for** even if they do not sell **interest is charged** if credit is not paid within the time limit

Question 29

what is revenue

Answer 29

it is the income gained by a b from selling goods and services. price x quantity sold

Question 30

what are costs

Answer 30

the spending that occurs to set up and run a b

Question 31

what r fixed costs

Answer 31

costs which do not change in relation to output

Question 32

what r variable costs?

Answer 32

costs which change as a result of changes in output

Question 33

examples of fixed costs

Answer 33

rent salaries insurance marketing costs

Question 34

examples of variable costs

Answer 34

raw materials wages electricity

Question 35

total costs

Answer 35

total fixed costs + total variable costs

Question 36

what’s profit

Answer 36

difference between the total revenue and total costs total sales - total costs

Question 37

what’s gross profit

Answer 37

amount of money a b makes after the direct costs of making the products

Question 38

what’s the net profit

Answer 38

profit the b generates after all other expenses not included in the calc for gross profit

Question 39

gross profit calculation

Answer 39

total revenue - costs of sales

Question 40

net profit calculation

Answer 40

total revenue - costs of sales - other expenses

Question 41

gross profit margin

Answer 41

gross profit / sales revenue x 100

Question 42

how to improve the gross profit margin

Answer 42

lower selling price as it may increase demand inc price as may generate more revenue inc advertising

Question 43

how can you lower costs of sales

Answer 43

cut down in the price paid to suppliers change suppliers

Question 44

net profit margin

Answer 44

net profit / sales revenue x 100

Question 45

average rate of return

Answer 45

average profit of investment / cost of investment x100

Question 46

steps for average rate if return

Answer 46

income generated / years / by invest x100

Question 47

what’s break even

Answer 47

point at which sale revenue is the same as total costs

Question 48

break even point in units

Answer 48

fixed costs / sales price per unit - variable costs per unit