Theme 2

Question 1

What are the three reasons for why you need finance?

Answer 1

1- starting up the business
2- growing the business
3- other problems (e.g. cash flow or large orders)

Question 2

Who / what are business Angels?

Answer 2

Wealthy individuals who invest their personal capital into start-up companies.

(THINK OF DRAGONS DEN)

Question 3

Is a loan from a bank short term, medium term or long term?

Answer 3

All three

Question 4

Is an overdraft short or long term?

Answer 4

Short term

Question 5

What does unlimited liability mean?

Answer 5

The finances of the business are treated as inseparable from finances of the business owner

Question 6

There are 2 types of businesses that have unlimited liability, what are they?

Answer 6

1- sole traders

2- partnerships

Question 7

How are unlimited liability businesses financed?

Hint= 3

Answer 7

1- owners capital
2- bank finance (e.g. a loan or an overdraft)
3- leasing (renting equipment rather than buying it)

Question 8

How are limited liability businesses financed?

Hint= 5

Answer 8

1- share capital 
2- bank finance 
3- venture or Angel capital investment 
4- peer-to-peer or crowdfunding
5- leasing and trade credit

Question 9

What should the heart of a business plan be about?

Answer 9

Competitive advantage

Question 10

What does forecasting mean?

Answer 10

Estimating future sales or costs with accuracy

Question 11

What is the equation for sales revenue?

Answer 11

Sales volume x Price

Question 12

How do you work out sales volume?

Answer 12

Number of units sold in a time period

Question 13

What are fixed costs?

Answer 13

Costs which DON’T vary directly with the level of output (e.g. Rent, Equipment..)

Question 14

What are variable costs?

Answer 14

Costs which vary DIRECTLY with level of output (e.g. Wages, Raw Materials)

Question 15

What is the equation for total costs?

Answer 15

Fixed costs + Variable costs

Question 16

What does break-even compare?

Answer 16

A firms revenue with its fixed and variable costs to identify the minimum level of sales needed to cover costs

Question 17

How do you work out contribution per unit?

Answer 17

Selling price - Variable costs per unit

Question 18

How do you work out total contribution?

Answer 18

Contribution per unit x Quantity sold

Question 19

What is the equation for break-even output?

Answer 19

Fixed costs ➗ (Selling price per unit - Variable cost per unit)

Question 20

What are the limitations of break even graphs?

Hint= 4

Answer 20

1- model is a simplification (assumes v costs increase constantly)
2- assumes firm sells output at a single price
3- assumes all output is sold
4- it is a static model (sales trends not taken into account)

Question 21

Can you name the definition for budgets?

Answer 21

A target for costs or revenue that a department or a firm must reach in a given time

Question 22

What do income budgets and expenditure budgets do?

Answer 22

IB- sets a floor (minimum target)

EB- sets a ceiling (maximum target)

Question 23

What is a zero-based budget and what is a drawback to them?

Answer 23

• means budget is 0 and budget holders must justify each pound they need
• time consuming as can take a while to justify why you need £150,000 rather than £110,000

Question 24

Can you say the calculation for net profit?

Answer 24

Operating profit - Financing and Tax

Question 25

What does net profit mean?

Answer 25

Profit for the year

Question 26

What is the calculation for Gross Profit?

Answer 26

Revenue - Costa of sales

Question 27

How do you work out Operating Profit?

Answer 27

Gross profit - Fixed overheads

Question 28

Do you know what liquidity measures?

Answer 28

It measures the ability of a firm to find cash to pay its bills

Question 29

What does current ratio do?

Answer 29

Examines liquidity position of the firm

Question 30

How do you work out current ratio?

Answer 30

Current assets ➗ Current liabilities

Question 31

How is current ratio and acid test ratio expressed?

Answer 31

As a ratio, e.g. 2:1

Question 32

What does acid ratio examine?

Answer 32

Businesses liquidity position but excludes stock from total of current assets

Question 33

How do you work out acid ratio test?

Answer 33

(Current assets - Inventories) ➗ Current liabilities

Question 34

How can you improve liquidity? Hint= 4

Answer 34

1- sell under-used fixed assets 2- raise more capital share 3- increase long term borrowings 4- postpone planned investments

Question 35

What are the three factors influencing efficiency?

Answer 35

1- level of wastage in production process 2- if you have the right technology 3- if managers have achieved the right balance between the variable factors that affect efficiency

Question 36

What does the definition productivity mean?

Answer 36

Output per worker in a time period

Question 37

Can you explain what job production means?

Answer 37

Producing a one-off item for a customer

Question 38

Do you know what batch production means?

Answer 38

Producing a set number of identical items

Question 39

How would you explain the definition flow production?

Answer 39

Continuous production of a single item

Question 40

What does cell production mean?

Answer 40

Small production line (group working process)

Question 41

Does capital intensive production have high or low financial barriers to entry?

Answer 41

High

Question 42

Does labour intensive production have high or low financial barriers to entry?

Answer 42

Low

Question 43

What is the equation for capacity utilisation?

Answer 43

Current output ➗ maximum possible output x 100%

Question 44

What does capacity utilisation measure?

Answer 44

Firms output level as a % of the firms maximum output level | A football stadium is at its full capacity when all the seats are full

Question 45

What is buffer stock?

Answer 45

A minimum stock level held in case of emergency stock needed

Question 46

Can you name 2 implications of having too much stock?

Answer 46

1- prevents firms from re-investing 2- increased storage costs 3- increased stock wastage if product goes out of date / style 4- increased finance costs

Question 47

Can you name 2 implications of having too little stock?

Answer 47

1- can't manage last minute orders | 2- worker downtime if components have been delayed

Question 48

What does JIT management of stock mean?

Answer 48

The attempt to operate with a zero buffer stock

Question 49

What does lean production aim to do?

Answer 49

Produce more whilst using less

Question 50

What kind of firm benefits from inflation and why?

Answer 50

- firms with large loans | - because inflation erodes the real value of money owed

Question 51

What are interest rates?

Answer 51

Prices charged by a bank per year for lending money or providing credit

Question 52

What do exchange rates measure?

Answer 52

Quantity of foreign currency that can be bought in one unit of domestic currency

Question 53

Can you explain the term appreciation?

Answer 53

A fall in the value of the pound

Question 54

What are the four effects on business of changes in the economy?

Answer 54

1- the business cycle 2- inflation 3- interest rates 4- exchange rates

Question 55

What does retained profit mean?

Answer 55

Profit kept in the company rather than payed to shareholders as a dividend

Question 56

Can you name the 3 sources of internal finance?

Answer 56

1- owners capital 2- retained profit 3- sale of assets

Question 57

What does the term legislation mean?

Answer 57

Laws passed by parliament that relate to business operations

Question 58

What does the sale of goods act say?

Answer 58

- that good must be fit for purpose which they are sold | - they can get refunded if product is of bad quality

Question 59

What does the trade descriptions act say?

Answer 59

- forces companies to ensure that every statement about the product is true

Question 60

Can you name the 5 key areas of the employment law?

Answer 60

``` 1- minimum wage 2- right to a contract of employment 3- increased right to sick, maternity and paternity leave 4- redundancy 5- trade union rights ```

Question 61

What is a disadvantage to having a minimum wage?

Answer 61

Business pays more as wages increase so they could fire some employees which leads to unemployment

Question 62

What is an advantage to trade union rights?

Answer 62

Can make working environment better so you have happy and motivated staff

Question 63

What are the two environmental laws?

Answer 63

1- landfill tax | 2- environmental protection act

Question 64

What does the health and safety at work state and do?

Answer 64

1- states you have to provide a safe working environment | 2- identifies and prosecutes any serious errors by companies

Question 65

What strategies could firms use to be more competitive in the market?

Answer 65

- USP | - predatory pricing

Question 66

What firms might be forced to do in a competitive market?

Answer 66

1- price cut 2- increase product differentiation 3- collusion (managers from diff firms assemble to discuss ways to work together to restrict supply and or raise prices)