Topic 1.3

Question 1

What are business aims?

Answer 1

Long term targets for a business to achieve.

Question 2

What are business objectives?

Answer 2

Short term targets for a business that help achieve the bigger aims.

Question 3

What are financial aims and objectives?

Answer 3

-Survival
-Maximise profit
-Increase sales
-Market share
-Financial security

Question 4

What are non-financial aims and objectives?

Answer 4

-Social objectives
-Personal satisfaction
-Challenge
-Independence
-Control

Question 5

Why do aims and objectives differ between businesses?:

Answer 5

Because businesses operate in different sectors, and business operations vary in size and scale.

Question 6

Revenue - Formula

Answer 6

Quantity (sales) x Price revenue

Question 7

How to increase the revenue?

Answer 7

-Increase the amount of volume sold

-Achieve a higher selling point

or both

Question 8

What is fixed cost?

Answer 8

Cost that does not change regardless how many you sell. Stays the same. (rent and insurance)

Question 9

What is variable cost?

Answer 9

Cost that changes with the number of products you sell. (ingredients and raw materials)

Question 10

Total cost - Formula

Answer 10

Fixed cost + Variable cost

Question 11

What is profit?

Answer 11

The revenue left once all costs have been covered.

Question 12

Profit/Loss - Formula

Answer 12

Total sales - Total costs

Question 13

What is interest?

Answer 13

A %of the borrowed amount that has to be repaid in addition to the original amount.

Question 14

Interest - Formula

Answer 14

(total repayment - borrowed amount) x 100
/ borrowed amount

Question 15

What is break even?

Answer 15

When the total revenue matches the total costs and no profit or loss is being made.

Question 16

Break even point in units - Formula

Answer 16

fixed cost
/ (sales price - variable cost per unit)

Question 17

What is a margin of safety?

Answer 17

It is how much s business can lose/fall before the break even point is reached again.

Question 18

Margin of safety - Formula

Answer 18

Actual or budgeted sales - Break-even sales

Question 19

What is the importance of cash to a business?

Answer 19

-To pay suppliers
-To pay overheads
-To pay employees
-To prevent business failure (insolvency)

Question 20

What is the difference between cash and profit?

Answer 20

-Not all cash is profit, some pays costs
-Profit can be calculated monthly or yearly

Question 21

What are the 5 main areas of cash flow forecast?

Answer 21

-Cash inflows
-Cash outflows
-Net cash flow
-Opening balance
-Closing balance

Question 22

Net cash flow - Formula

Answer 22

Cash inflows - Cash outflows

Question 23

Closing balance - Formula

Answer 23

Opening balance + Net cash flow

Question 24

Opening balance - “Formula”

Answer 24

Last month’s closing balance

Question 25

What are 2 short term sources of finance?

Answer 25

-Overdrafts -Trade credit

Question 26

What are the 6 long term sources of finance?

Answer 26

-Personal savings -Venture capital -Share capital -Loans -Retained profit -Crowd funding

Question 27

What are Overdrafts?

Answer 27

A facility offered by the bank where an account holder can borrow money at short notice.

Question 28

What is Trade Credit?

Answer 28

Allows business to get supplies and pay for them later. (30,60,90 days)

Question 29

What is Venture Capital?

Answer 29

Money lent from successful entrepreneur in exchange of return on investment.

Question 30

What is Share Capital?

Answer 30

Business can raise finance by selling shares in the business.

Question 31

What is Retained profit?

Answer 31

Money that the business owner keeps rather than reinvesting into the business.