Topic 6 finance Flashcards
(37 cards)
How do you work out total revenue?
Sppu x output
What’s the difference between external and internal sources of finance?
Internal is describing capital found inside the business whereas external is outside
What is share capital?
Share capital is where you sell shares for money. Used ONLY in LTD and PLC companies
What is owners capital?
Owners capital is where the owner of the company injects money into the business
Adv and Disadv of owners capital?
Advantages: don’t have to share profits and you don’t have to rely on people.
Disadvantages: opportunity cost and unlimited liability.
When and why would you use trade credit?
You would use trade credit when you don’t have the funds to pay the supplier or consumer at that certain time so the time to pay is extended to 30 days.
What are the benefits of using a mortgage?
- reduces stress
- gives the buyer 30 years to pay
- own an asset come the end of the 30 years.
What does liquidity mean?
You don’t have enough cash to pay bills.
What causes cash flow problems?
- business overspending
- unexpected costs
- seasonal changes
- economy
- scheduling of payment is wrong.
How do you resolve cash flow issues?
- loan
- reduce stock
- increase sales
- overdraft
- sell assets
How do you calculate profit?
Total revenue (TR) - Total costs (TC)
What is the definition of cash flow?
Cash coming in and out of a business.
What is the difference between a debtor and a creditor?
A debtor is where a customer owes a business and a creditor is where the business owes the supplier
How do you calculate Total cost (TC)?
Fixed cost + total variable cost
What is the definition of a break even point?
A break even is the level of output at which the business makes neither a profit nor a loss.
How reliable is the break even point?
It’s not too reliable due to these assumptions:
- fixed costs always stay the same
- output, don’t always sell everything
- selling price remains the same.
What is the definition of investment in a business?
When a business invests or puts money into an asset in hope of making a profit from its use.
What is the average rate of return?
It’s an investment appraisal technique. ( it’s tells the business whether the investment is worthwhile )
How do you work out the average rate of return?
Average annual profit
———————————- X 100
Initial investment cost
In steps what do you do to find ARR?
Step 1: calculate the average annual profit (total profit divided by number of years)
Step 2: divide the AAP by the initial investment cost
Step 3: compare with the target percentage return.
How do you work out Gross profit?
Sales turnover — Cost of sales
How do you work out net profit?
Gross profit — (R+O)
What does depreciation mean?
The fall in value of an asset over time.
How can a business use financial info to analyse performance?
- previous years
- compare to other documents and competitors
- compare to targets and different branches
- compare to industry change
