Flashcards in Topic 5-Finance Deck (59)
Why is finance important?
Without it finance can restrict business activity.
What is revenue?
The money made from sales.
What does sources of finance mean?
Where a business gets its money from.
What is break-even?
The number of products a business needs to sell in order to cover its costs.
What is cash flow?
A record of the money coming in and out of a business.
What is the purpose of the finance function?
To manage the money that businesses need to operate.
Why might a business need finance?
-Run the business.
What is a loan?
Money borrowed from a bank which is paid back with interest.
What is an advantage to a loan?
Repayment is spread over time.
What is a disadvantage to loans?
Interest has to be payed.
What is an overdraft?
An arrangement between a bank and a business so that a business can spend more money than it has in its account.
What is an advantage of an overdraft?
It can meet short term cash flow problems.
What is a disadvantage to an overdraft?
Interest is charged.
What is trade credit?
When the payment to suppliers is delayed.
What is an advantage to trade credit?
It is usually interest free.
What is a disadvantage to trade credit?
The goods must be paid for even if they do not sell.
Give two ways a business can increase its revenue...
-Increase selling price as long as they don’t lose many customers.
What is the equation for revenue?
Revenue=Price x Quantity
Give two examples of fixed costs...
What are the two types of costs?
Fixed and variable.
What is the equation for total variable cost?
Total variable cost=Amount produced x variable cost per unit.
How can a business reduce costs?
-Lower it’s cost location.
What is the equation for profit?
Profit= total revenue- total cost.
What is the equation for margin of safety?
Margin of safety= actual sales- break even level of sales.
What is the equation for break-even?
Fixed costs/(selling price-Variable cost per unit)
What is variable cost per unit also known as?
What is the equation for gross profit?
Revenue- cost of sales(variable)
What is the equation for net profit?
Gross profit -Fixed costs.
What are two uses of break even?
May help to get a loan from the bank and helps to make judgements about prices and costs.