AS Business Revision Notes

Useful Help with Cashflow Explanations as well as useful help for sources of finance

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AS Business Notes
Finance/Cash flow
Total Cost= Fixed Cost + Variable Cost
Profit= Total Revenue ­ Total Cost
Break Even= Fixed Cost "Divided" by Contribution per Unit **
Break-Even Advantages & Disadvantages
Advantages Disadvantages
Easy Assumes No Waste Of Materials
Quick Tells The Business How Much It NEEDS To Sell Not
What It WILL Sell
Allows Forecasting Of Sales And Output Doesn't Take Into Consideration The Changes Of
The Economy
Useful When Wanting To Obtain Loans
**Contribution Per Unit Means Selling Price Per Unit ­ Variable Cost Per Unit**
Margin Of Safety
This Is The Difference Between Actual And Breakeven Levels Of Output
(Actual Sales- Break-Even Level)
Sources Of Finance
External Sources Of Finance (long-term)
Loans- Agreement between The Borrower and Usually a Bank and Paid Over A Period Of
Time With Interest
Hire Purchase- Paying in Instalments until Full Payment Is Paid in Which the Company Then
Owns The Asset (usually done with office Utilities Such As Printers, Fax Machines Etc.)
Leasing- Rental Of Capital (Saves Buying Equipment)
Debentures- Type OF Fixed Period Loan Secured Against The Firms Assets And Paying A
Fixed Rate Return (Usually Through Giving A Small Amount Of Profit Every So Often)
External Sources Of Finance (short-term)
Bank Overdrafts- Banks Allow The Company To Overdraw Funds To An Agreed Limit. Usually
A Continuous Line Of Finance.
Trade Credit- Suppliers Giving A Company A Fixed Amount Of Credit For Usually 30-90 Days
Until Payment.
Debt Factoring- Debt Is Sold To a Factoring Company for 90% of What is Owed (usually Done
When Companies Need To Reclaim The Money On Debts Fast.)
Internal Sources Of Finance

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Company's Own Profits (Means No Repayments)
Assets Can Be Sold To Generate Funds
Owners Own Money Can Be Injected Into The Company…read more

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