Theme 2 Flashcards
(90 cards)
1
Q
Definition of a good:
A
a products- anything which is capable of satisfying customer needs - tangible items eg. a car
2
Q
Defintion of a service
A
A service is an act that a business person carries out for you in exchange for money - intangible - eg. hair dresser
3
Q
Whats the equation for profit:
A
Revenue (sales) - costs
4
Q
Defintion of owners capital:
A
This is money invested by the owner in the business, this may have come from their own personal savings
5
Q
Defintion of rerained profit:
A
retained=to keep
This is profit from a previous year that is saved and could be used to reinvest into the business
6
Q
Defintion of an asset:
A
This is an item that the business owns that could be sold to raise cash eg. a van/machine
7
Q
notes on owners capital:
A
- the owner may have savings or a redundancy payout to start up a business
8
Q
Explain retained profit and give an A+DA
A
- After a year or more businesses are able to re-invest into the business
- advantage = no interest to pay
- disadvantage = once its gone its gone
9
Q
Name 6 sources of finance:
A
- family and friends
- banks
- peer to peer funding
- business angels
- crowd funding
- other businesses
10
Q
Name 7 methods of finance
A
- loans
- share capital
- venture capital
- overdrafts
- leasing
- trade credits
- grants
11
Q
Look at sheet for explanations of methods and sources of finance
A
12
Q
Name 2 internal sources of finance
A
- retained profit
- sales of assets
13
Q
Name 3 external sources of finance
A
- bank loan
- overdraft
- share capital
14
Q
what are the consequences of being bankrupt:
A
- no credit
-cannot pay debts - no mobile phone contract
- cannot buy house
15
Q
What 3 things do business angels give you
A
- advice
- money
- contacts
16
Q
What does crowd funding do:
A
- donate - don’t get money back
- lend - get money back with interest
-invest - in business and exchange for shares
17
Q
Give a example of debt factoring:
A
Emma lends Haaris £5,000 but he refuses to pay it back. Emma fails to take him to court and Haaris runs away. Emma pays £4,000 debt to debt factoring company who are professionals and find Haaris. He is forced to give debt factoring company at least £5,000. He makes a profit of £1,000.
18
Q
Definition of unlimited liability:
A
if the business has debts the owners are liable for the full amount and may need to sell their own assets to cover payments. They are unprotected.
19
Q
Definition of limited liability:
A
if the business has debts the owners are only liable for the amount of their original investment. They are protected.
20
Q
What does LTD stand for
A
Private limited company (smaller businesses)
21
Q
What does PLC stand for
A
public limited company (larger businesses)
22
Q
Whats a description and example of a sole trader:
A
- a person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses.
- eg. a window cleaner
23
Q
What are the benefits and problems of a sole trader:
A
benefits:
- benefit from success financially
- full control
- easy to set up
problems:
- face burden of failure
- assets may be sold - unprotected
- unlimited liability
24
Q
Whats a description and example of a partnership:
A
- a legal agreement between two or more entities that determines shared ownership and operation of a business.
-eg. Dentist/vets
25
Whats the benefits and problems of a partnership?
benefits
- shared responsibilities
- support when needed
- additional skills
- more capital inject more finance - more people
problems
- sharing profit
- different goals and priorities
- loss of control
- unlimited liability
26
Whats a description and example of private limited companies:
- a company that is a legal entity in its own right, separate from the identity of its owners and has special status in law.
- eg. suttles/high street businesses
27
What are the benefits and problems of private limited companies:
benefits:
- access to capital - money
- protected
- banks more willing to lend
- limited liability
problems:
- time consuming to set up
- public disclosure
28
Whats the definition and examples for public limited companies:
- a type of public company that is allowed to offer its shares to the public and is listed on a stock exchange
-eg. coca-cola/ kellogs
29
What are the benefits and problems of public limited companies:
benefits:
- raising capital
- economies of scale
- growth opportunities
- limited liability
problems:
- possibility of take-over - hostile take over
- company value falls if share prices fall
30
Where do you go to become limited
companies house
31
What can you do if you are public limited company?
sell shares
32
Definition of a business plan:
a document that describes a businesses aims and objectives and how they can be achieved.
33
Why is a business plan needed?
- any provider of finance (bank, business angel) will expect to see a carefully prepared, logical plan.
- attract external finance to help business grow
- helps ensure entrepreneur has carefully considered potential problems
- has quantitative aims targets to aim for
34
What are the 7 main sections a business plan should include:
1. Executive summary
2. The product/service
3. The market
4. Marketing plan
5. Operational plan
6. Financial plan
7. Conclusion
35
What is a dividend
a share of profit
36
Give an example of a leasing company:
A construction company leasing a crane
37
what does b2c stand for?
business 2 consumer
eg. sainsburys to you
38
What does b2b stand for?
business 2 business
eg. fanta to tesco
39
What is the definition for cash flow forecast?
to show the expected income and expenditure of a business over the coming year
40
Whats the calculation for sales revenue?
price (each item) x quantity
41
definition of opening balance
cash available at start of each period
42
definition of closing balance
cash available at end of each period that can be carried over next period
43
What is the equation for:
- net cash flow =
- closing balance =
- opening balance =
- inflow-outflow
- opening balance + net cash flow
- closing balance of previous period
44
What are the uses of cash flow forecasts?
- control and monitor cash in and out of business
- show business owner where likely cash surplus and shortages are so they can arrange suitable finance
- make comparisons between the predicted inflows and outflows and what actually happened
45
What are the limitations of cash flow forecasts?
- over inflate the inflows to make business look better on paper to attract finance/impress a supplier
- predictions cannot take into account weather problems, a supplier closing, any other event that cannot be foreseen
- mistakes - may be inaccurate
46
Definition of economy
a state of a country or region in terms of the production and consumption of goods and services and the supply of money.
47
What are variable costs?
Costs that change all the time.
48
What are fixed costs?
These are costs that do NOT vary with the level of output or sales. eg. shop rental
49
What is an example of varaible costs for pizza express?
- ingredients:
-pizza dough
- pineapple
-olives
-tomato
-mozzarella
-packaging
-wage (per hour)
50
What is an example of fixed costs for pizza express?
- utility bills
- water
-light
-insurance
-heating
-salary
-gas
-rent
-advertising (expensive so you budget it)
51
What is the formula for profit?
profit = sales revenue-total costs
sales revenue = price x quantity
total costs = TVC+TFC
TVC = VCPU x Q
52
Are the profit and cash flow the same?
NO
53
Look at 3/12/24 for example of how profit and cash flow are not the same
54
Defintion of breakeven
balance between sale revenue and cost
55
What is the margin of safety?
maximum output - break even output
56
What happens when a business runs out of cash
insolvent (business runs out of cash) - administration (finance company takes control) - liquidation (selling all assets)
57
Look at breakeven charts (6/10/24)
58
Look at break-even diagram with margin of safety (10/12/24)
59
How do you improve breakeven?
increase sales and decrease costs
60
What is price skimming?
setting a high price- usually on luxuary items eg. technology
61
What are 2 advantages to a break even graph?
- see where to lower costs
- see where to increase sales
62
what are 3 disadvantages to a break even chart?
-need one for each product
- its an estimation
- doesn'tD bring into account external factors
63
Definition of a budget:
the purpose of a budget is as a forecasting, planning and motivational tool, they can be income or expenditure.
64
What is the purposes of a budget?
- budgets are based on the objective of business and organisation
- means managers must think ahead and not just spend unlimited money
65
What are the reasons why a business would set a budget?
- planning; to anticipate problems
- motivation ; for managers to be in control
- control ; budgets are set against objectives
66
What are the 2 types of budgets?
- Historical figures - budget is based on previous performance of sales and costs
- Zero based - budgets is based on a prediction of performance usually for a start up.
67
What are 3 benefits of setting a budget?
- improves financial control
- Delegates spending power
- Sets targets and goals
68
What are 3 drawbacks of using a budget?
- potential for conflict
- may be restrictive
- time consuming to set and monitor
69
What is variance analysis?
variance is the difference between budgeted and actual figures.
70
What 2 things can variance be ?
- adverse
-favourable
71
What does adverse mean?
- bad for the business
-expenditure = higher then budget
- income lower than budget
- profit lower than budget
72
What does favourable mean?
- good for business
- expenditure= lower then budget
- income higher than budget
- profit higher then budget
73
Profit definition:
the difference between the revenue of a business and the costs generated by the business during a period of time.
74
What are the 3 different types of profit?
- gross
- operating
-net
75
What is a gross sale and the equation?
- sales revenue (income from sales) minus direct or variable costs.
- total revenue - cost of sales
76
What is a operating profit?
- gross profit minus other operating expenses of running business. That's all the costs including rent, wages ect.
- gross profit - fixed overheads
77
What is a net profit (profit for the year) ?
- operating profit - interest (net financing cost and corporation tax)
78
equation for gross profit margins:
gross profit
--------------------- x 100
turnovers/sales
79
What does the gross profit margin tell us?
tells us the profit a business makes on its cost of sales, or cost of goods sold.
80
What are the 3 profit margins? what do you need to do when you see an M?
-GPM
-OPM
-NPM
- M= need to find %
81
Equation for GPM
gross profit
----------------- x100
revenue
82
Equation for OPM
operating profit
------------------------- x100
revenue
83
Equation for NPM
profit for year (net)
------------------------------ x100
revenue
84
Look at 7/2/25 for examples of calculating profit
85
What are two ways we can improve profitability?
- increase selling price - increase profit margin but may decrease overall profit. This is because an increase in price may lead to a drastic fall in sales volume.
- cut costs - using cheaper materials or employing fewer staff can damage a company's reputation and then revenue.
86
What is cash?
money available in the business to pay the bills, cash may not come in the same month it goes out.
87
what are some differences between profit and cash?
- profit is recorded straight away whilst cash is not recorded until it is paid out or received which could be in a different trading year.
- business can trade for many years without profit, but profitable business may go bust of it runs out of cash to pay suppliers or wages of staff
- to improve profitability a business must either increase revenue or reduce their costs as - P=TR-TC - however if owners introduce cash via savings or a loan this will not affect the profit figure
88
What is liquidity?
The ability of a business to find the cash it needs to pay its bills.
89
28/2/25
90
