Year 12 mock Flashcards
(40 cards)
disadvantages of owners capital
- threat to family finance
- only a certain amount
internal sources of income
- owners capital
- retained profit
- sale of assets
benefits of owners capital
- no interest
- owners control
- dont repay
- risking own savings can be motivation
benefits of retained profit
- avoids interest
- doesnt dilute business ownership
disadvantages of retained profit
- only possible if there is sufficient retained profit
- could cause upset with shareholders
- reduces security blanket
sale of assets benefits
- no interest
- lump sum injection
- could turn obsolete asset into finance
disadvantages of sale of assets
- one off option
- expensive in long run if they need to lease back the item
- loss of asset and future value
sources of external finance
- family and friends
- bank
- peer-to-peer funding
- business angels
- crowdfunding
- other businesses
methods of external finance
- loans
- share capital
- venture capital
- overdrafts
- leasing
- trade credit
- grants
business angels
wealthy individuals make investments into start-up businesses for a share
share capital advantages
- no interest
- possible to raise large amounts of finance
- only need to pay dividends if a profit is made
share capital disadvantages
- loss of ownership
- costly processes of issuing shares
venture capital
investment from a wealthy business to a smaller business
Reason of a sales forecast
To help inform cash-flow forecasts, people needed, resource management and marketing
Factors affecting sales forecasts
Consumer trends, competitors actions, economic variables
Problems with sales forecasts
External shocks, future is unknown, past data may not be reliable
Contribution equation
Selling price-variable cost per unit
Break even point equation
Fixed costs/contribution
Margin of safety definition
The output above the break even point
Strengths of break even
Calculate levels of loss/profit, provides a target, aids decision making, integral part of a business plan
Weaknesses of break even
Based on predicted costs and revenue, fixed costs can vary especially in the long run
Current ratio
Currents assets:currents liabilities
Acid test ratio
Currents assets-stock: current liabilities
Working capital definition and equation
The measure of a firm’s liquidity
Current assets-currents liabilities