Unit 3.3 revision Flashcards

1
Q

What is Cash flow?

A

The flow of capital into and out of a business

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2
Q

What does destocking mean?

A

Reducing the levels of stock by getting rid of unwanted stock you won’t probably get more of

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3
Q

What does Trade credit mean?

A

Where a supplier gives a customer a period of time to pay for a bill (or invoice) for goods or services once
they have been delivered.

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4
Q

Name 4 ways a business can change to improve cash inflow

A

De-stocking
Delaying paying invoices(increasing trade credit)
Reduce trade credit with customers
Leasing rather then buying.

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5
Q

What is a advantage of Destocking?

A

Less money tied up in stock – lower

storage costs, room for new stock

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6
Q

What is a disadvantage of Destocking?

A

May not receive the full amount for

the stock if sold at sale prices.

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7
Q

What is the advantage of Delaying paying invoices?

A

Keeps cash in the business for longer

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8
Q

What is the disadvantage of Delaying paying invoices?

A

No discounts for prompt payments

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9
Q

What is an advantage of Reducing trade credit with customers?

A

The business receives money quicker.

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10
Q

What is a disadvantage of reducing trade credit with customers?

A

Customers may not be happy and use

a competitor instead

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11
Q

What is an advantage of leasing not buying?

A

Businesses can afford to have better and more up to date equipment

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12
Q

What is a disadvantage of leasing not buying?

A

If it’s a long term lease it could work out to be more expensive

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13
Q

Name 4 ways a business can change to improve cash outflow.

A

Cutting labour costs
Cutting investment
Use cheaper suppliers
Reduce stock levels

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14
Q

What is a advantage of Cutting labour cost?

A

Keeps costs lower

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15
Q

What is a disadvantage of cutting labour costs?

A

Could affect motivation of current staff

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16
Q

What is an advantage of Cutting investment?

A

Will save large sums of money

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17
Q

What is a disadvantage of Cutting investment?

A

Will make it harder for the business to grow

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18
Q

What is an advantage of using cheaper suppliers?

A

Costs will be lower

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19
Q

What is a disadvantage of using cheaper suppliers?

A

Quality of products not the same

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20
Q

What is an advantage of reducing stock levels?

A

Cuts costs

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21
Q

What is a disadvantage of reducing stock levels?

A

Cannot react with the sudden changes in demand

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22
Q

What is Profit?

A

Occurs when the revenue of a business products are greater than its costs over a period of time

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23
Q

What is the formula of profit?

A

Total revenue-total costs

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24
Q

What is Revenue?

A

The amount of capital received from selling goods or services over a period of time.

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25
What is the formula for Revenue?
Number of products sold * Average price
26
Name 2 ways business might cut their costs
JIT stock control | Cheaper raw materials and labour costs
27
Name 3 ways businesses can increase its profits
Cutting material costs Increasing prices Cutting labour costs
28
What is the break even point?
Where the total costs equal total revenue so not profit or loss is being made
29
What is the formula of contribution
Selling price - variable costs
30
How do you calculate break even point ?
Fixed costs/ Contribution
31
What does Margin of safety mean?
is the amount of sales the business can lose before they make a financial loss.
32
What is the formula for Margin of safety?
Actual sales - break even sales.
33
If you increase the Fixed costs what happens to the BEP?
It increase meaning Margin of safety decreases
34
If you decrease the Fixed costs what happens to the BEP?
It will decrease meaning margin of safety increases.
35
If you lower fixed and variable cost what does it mean for BEP and margin of safety?
It will decrease the point meaning margin of safety increases.
36
Name 3 uses of Break even analysis
Launching a new product Understanding the past (were past decisions on price correct) Important part of a business plan-Good B/E charts can be used to help gain funds from banks
37
Name 2 benefits of BEA?
Illustrates the importance of keeping Fixed costs lower and higher FC means higher BEP. Encourages banks to give business loans
38
Name 2 drawbacks of BEA
Assumes all the products are sold | Analysis doesn't take into account economies of scale
39
Name 3 short term sources of finance
Overdraft Trade credit Government funds
40
Name 9 long term sources of finance
``` Personal savings Retained profit Share capital Loans Mortgage Leasing Venture capital selling assets Bonds ```
41
What is Retained profit?
Capital saved from all expenses after total costs have been paided
42
What is an advantage of retained profit?
No interest involved
43
What is a disadvantage of Retained profit?
Business may not make enough | profit to recover back
44
What is an advantage of a loan?
Large amount of money can be borrowed
45
What is a disadvantage of a loan?
Interest paid back if and get a bad credit score
46
What is an Overdraft?
Borrowing money when balance is 0 which has a limit
47
What is an advantage of an Overdraft?
Very quick to get
48
What is a disadvantage of an Overdraft?
Only can get small amounts of money
49
What is share capital?
Allows people to buy into the company in return for dividends.
50
What is an advantage of share capital?
can raise large amounts of money
51
What is a disadvantage of share capital?
the original owners may lose control of the business
52
What is a Government grant?
Money given by the government to support the business, usually if the business is for a good cause.
53
What is an advantage of Government grant?
Don't have to pay it back
54
What is a disadvantage of a Government grant?
Won't have freedom on what to spend it on.
55
What is leasing?
Renting equipment instead of buying
56
What is the advantage of leasing?
- No need to find a lump-sum of money | to purchase it
57
What is the disadvantage of leasing?
The business doesn't own the asset.
58
What is an advantage of selling assets?
Gain money from unwanted items.
59
What is a disadvantage of selling assets?
Might sell an item you will need in the future.
60
What is trade credit?
Period of days a supplier will give the business to pay for the good that have been purchased
61
What is an advantage of trade credit?
Gives the business more cash to use in | the immediate future
62
What is a disadvantage of trade credit?
it's a short term only and has to be paid in a couple of months.
63
What is an advantage of hire purchase?
Don't have to pay for now
64
What is a disadvantage of hire purchase?
Only used for certain equipment and machinery
65
What is an advantage of Venture capitalists?
Mentoring, help, contacts
66
What is a disadvantage of Venture capitalists?
Have to pay back dividends.
67
What is a Mortgage?
A large loan from the bank usually to fund a property
68
What is an advantage of Mortgage?
Pay back over a long time
69
What is a disadvantage of Mortgage?
Large sums of interest charged
70
What are the steps of drawing a break even chart?
Draw fixed costs line Draw total costs line Draw total revenue line
71
Where does the total revenue line start?
0,0
72
Where does the total cost line start?
On the fixed costs line
73
List 4 reasons why business use Break even analysis.
1) Developing a business plan 2) Launching a new product 3) Setting and achieving production tasks 4) Starting a new business
74
Name 3 ways a business could increase revenues.
Improved marketing Better products Increasing its selling price (depending on how sensitive demand is)