Finance

A tangible product (i.e. car, phone)

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Goods

A tangible product (i.e. car, phone)

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Services

An intangible experience (i.e. holidays, haircut, retailing)

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Business sections

Human Resources - employees, conistions/contracts, health and safety, training

Finance - management of accounting, budgeting, costing, producing financial accounts

Operations - (production) in charge of stock control, quality, resources, capacity

Administration - filing records, communication

Marketing - anticipating/research, satisfying consumer needs (4 P's: place, product, promotion, price)

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5 basic needs

Food

Shelter

Clothes

Water

Warmth

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Inelastic and Elastic demand

Inelastic demand: people buy goods no matter what the price is (i.e. gas, people always complain but nned it so they buy it) Necessity

Elastic Demand: demand varies with price, if price is LOW there is a HIGH demand, if the price is HIGH there is a LOW demand (i.e. candy) Luxury


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Shareholder

An individual or group who owns part of or a limited company.

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stakeholder

An individual or group that has an interest in a business:

Internal 

shareholders, directors/managers, employees

External

Government, payables(creditors)/suppliers, competitors, recievables(debtors/customers), local community 

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What is a business?

An individual or group who provide goods or services.

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Short-term - Sources of finance

(under 2 years) 

Overdraft: allows you to go over bank account limit 

GOOD-easy to arrange BAD-expenisve over time

Trade credit: allows more time to pay or to be paid

GOOD-improves cash flow BAD-no discount, ate payment=bad feeling

Debt factoring: getting a third party to pay your debt

GOOD-improves cash flow BAD-can be expensive up to more than 5% of debt charged

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Medium-term - Sources of Finance

(2-5 years)

Bank loan: bank lends money 

GOOD-easier financial planning BAD-Interest rate vary with risk 

Leasing: contract that allows person to use equipment (can't afford) and they can change/maintain equipment

GOOD-firm can use equipment they wouldn't afford BAD-equipment not owned

Hire purchase: Buyer pays for item in seperate amonts through time, and after totally paid they own item 

GOOD-Cost of purchase spread BAD-more expensive than loan, repossesion if payments missed

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Long-term - Sources of finance

(over 5 years)

Mortgage loan: a secured loan on a house or loan 

GOOD-good rate of interest BAD-only for large sums 

Venture Capital: they supply cpital in return for stake

GOOD-VC's firm takes risk and help manage/finance BAD-only for large sums, admin costs high

Debenture loan: corporated bond where borower pays money or something else on agreed date

GOOD-repayed in agreed date, prioriry over shareholders BAD-security offered on the loan

Reinvested profits: earning that are invested in operations (put back into business)

GOOD-cheap and easy BAD-expansion can be slow, lack of profit

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Asset

Something that a company owns 

Fixed assets: an asset that has a life of over a year (i.e. machinery, Building, Furniture, vehicles)

Current assets: an asset that has a life of less than a year  (i.e. cash, stock, debtors)

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Liabilities

Something that a company owes

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Working Capital

Cash available to a business that allows it to operate on day-to-day basis 

(efficiency and short-term financial health )

Working capital = current assests - current liabilities

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Liquid asset

Type of asset that can be easily converted into cash

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How money works in business

Start Cash - raw material - labour - finished product - sales End

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Loan finance

long-term debt, with certain amount of interest and has date of repayment

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Liquidity

A firm's ability to be able to pay its short-term debts

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Budget

A future financial plan to move towards the achievement of set objectives

(not a forcast but a plan)

Sales budget: forecast how much will be sold

Capital expenditure budget: outlines new assets that may be needed

Purchase Budget: outlines labour requirements of production budget

Master Budget: summary of all budgets to forecast profit and loss

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profit

profit = sales revenue - firm's expenses

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Cash flow

The money that flows in and out of the business from operations and investments.

Cash inflow categories:

owner's capital injection, cash sales, payment by debtors, loan, reciepts from trade

Cash outflow categories:

marketing, materials, staff wages, electricity/gas/water, rent

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insolvent

When a business is unable to pay its short-term debts

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window dressing

Term used to make company's amount look more favourable than they actually are. If rim doesn't depreciate its fixed assets fully, this gives inflated profit figure and greater net worsen on balance sheet. 

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Dereciation

The fall in value of a fixed asset.

Fixed don't last forever, they loose value becasue:

- they wear out

- become obsolete (no longer functional)

- are not maintained

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Why don't we depreciate current assets?

Because they don't last over 1 year anyways

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Straight-line method

This reduces an asset by same amount each year 

depreciation=original cost-expected value ate end of life/ex[ected yearsof ownership

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equity

Fairness and impartiality towards all concerned, giving advantage and consideration to one party as much as to another. 



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stock

The security that means ownership in a company and represents claim on part of its assets.

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