Business Studies Finance

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  • Created on: 22-04-13 10:37
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  • Business Studies Finance
    • Why do large businesses need finance?
      • new property.. e.g. offices, shops
      • machinery, equipment and vehicles
      • recruiting and training new employees
      • raw materials
      • deveploping new goods and services
      • introducing new methods of production
      • to pay for major marketing campains
    • sources of finance for large and growing businesses
      • selling unwanted assests
        • advantages
          • no intrest payments
          • may keep assests if leased back
        • disadvantages
          • many businesses do not have sustainable assets
          • leasing assets back means regular payments
      • a loan or mortage
        • adavantages
          • can be arranged quickly
          • allows repayment over a long period of time
        • disadvantages
          • intrest has to be paid
          • banks may require an asset as collateral
      • using retained profits
        • advantages
          • no intrest payments
          • can be arranged immediatly
        • disadvantages
          • only avaliable to profitable businesses
          • shareholders may oppose to the decision
      • selling more shares
        • advantages
          • no intrest payments
        • disadvantages
          • the owners may loose control of the company
          • only avaliable to companies
    • why do businesses prepare finacial statements?
      • the law
      • to help the business managers
      • to guide investors
    • profit and loss key terms
      • revenue
        • income recieved by a business from selling its goods and services
      • cost of sales
        • these are the cost involved in directly supplying the good or service, this includes: wages, raw materials and energy costs
      • gross profit
        • this is the revenue minus the cost of sales
      • over heads
        • these are the costs that do not alter when the level of production changes. this includes: saleries of managers, insurance costs, intrest on loans
      • net profit
        • this is calculated by taking overheads away from the gross profit
    • balance sheet
      • this sets out the assets and liabilities that a business has on a particular day. it shows where the business's money is coming from and how the business has spent the money that it has raised.
        • assets- an asset is anything that is owned by a business.
          • fixed assets- a business will normally keep this type of asset for many years.
            • E.g. shops and vehicles
          • current assets- these are assets that the business only expects to have for a short time usually less than a year
            • E.g. cash, stocks of raw materials
            • current assets are used by the business to settle debts such as paying for raw materials
      • liabilities- liabilities are the amounts owed by a business to other businesses and inderviduals.
        • current liabilities- debts that a business will pay within a year.
          • E.g. money owed to suppliers and that the business has to pay
        • long- term liabilities- debts that will be paid back over many years.
          • E.g. bank loans
      • total equity
        • total equity is part of a companys money that belongs to sheholders.
    • ratios- ways to judge whether the business is sucsseful
      • Gross profit margin- this compares the business's gross profit for a trading period with the revenue figure for the same period
        • net profit margin(%)= gross profit / revenue x100
      • net profit margin- this compares a business's net profit for a trading period with the revenue figure for the same period
        • net profit margin(%)= net profit / revenue x100
      • current ratio- this ratio compares the value of the current assets that a business has with the figure for its current liabilities. this will help you to see whether a business has enough assets that it may sell for cash to enable it to pay its short-term debts.
        • current ratio= current assets / current liabilities
      • acid test ratio- the current ratio is not always a good guide to whether a business can pay its short term debts as it includes a figure for stock. stock is not always easy to sell quickly
        • acid test ratio= current assets-stock / current liabilities




far too cramped, very poor!



Somewhat hard to read. Might consider learning how to save money alternative. 

Cameron McKenna



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