Business Studies Unit 2 -Finance

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Define retained profit
profit kept in the business after tax and dividends have been paid
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Define selling unwanted assets
to pay for expansion or pay of debts
2 of 35
Define share issue
selling shares of a company to pay for LT expansion
3 of 35
define loan
money from banks for ST or LT purposes
4 of 35
4 finance strategies for large businesses
share issue, retained profit, loan and selling unwanted assets
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advantages and disadvantages of retained profit
no interest+no loss of control however business may expand and still not be profitable or when profit is low the growth is slow
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advantages and disadvantages of selling unwanted assets
no interest+no loss of control however assets are no longer owned and could have tax
7 of 35
Advantages and disadvantages of share issue
share capital doesn't have to be paid+no interest however dividends are expected by shareholders+may be loss of control
8 of 35
advantages and disadvantages of loans
no loss of control+lower interest rate than overdraft however interest could be high and must be repaid
9 of 35
define profit and loss accounts
shows how much a firm earned from selling goods or services and how much its paid out in costs
10 of 35
the purpose of a profit and loss account
see if a profit or loss was made, how much cash is flowing in and out and when suppliers+taxes need to be paid
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What the profit and loss account shows
product sold and value of item, equipment+assets purchased and wage+other labour costs
12 of 35
Define sales revenue
value of sales revenue increases when number of units sold increases
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sales revenue equation
no of goods sold x price of product
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define cost of sales
cost of the business of the goods sold
15 of 35
equation for cost of sales
opening stock + purchases - closing stock
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equation for gross profit
sales revenue - cost of sales
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equation for new profit
gross profit - overheads (expenses)
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define overheads
expenses of the business that aren't part of production e.g.- rent or salaries
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equation for gross profit margin
gross profit divided by revenue x 100
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equation for new profit margin
net profit divided by revenue x 100
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how to increase gross profit margin
business can increase margin by increasing price or reducing cost of sales making higher profit on each pound of sales
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how to increase new profit margin
increase price of goods, cost of sales decrease or reduction in overheads
23 of 35
define balance sheet
financial statement showing businesses assets, liabilities and capital on a particular date
24 of 35
define fixed and current assets
fixed- last long time+expensive (e.g. buildings) current- used and replaced regularly (e.g. stocks or raw materials)
25 of 35
define current liabilities and debentures
current- short term payment to debtor debenture- long term loan
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define capital
amount invested in the business by the owner
27 of 35
Define share price
price of shares
28 of 35
how to interpret a balance sheet
analyse using current ratio+acid test ratio to show liquidity
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define liquidity
refers to businesses ability to pay of ST debts
30 of 35
Define liquidity assets
assets held on cash form
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Define working capital
money used for day to day running of the business
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current ratio equation
current assets divided by current liabilities
33 of 35
how to improve current ratio
increase value of profitable sales and turn overdraft into LT loans (reducing ST liabilities and increasing capital)
34 of 35
acid test ratio equation
current assets - stock divided by current liabilities
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Other cards in this set

Card 2

Front

Define selling unwanted assets

Back

to pay for expansion or pay of debts

Card 3

Front

Define share issue

Back

Preview of the front of card 3

Card 4

Front

define loan

Back

Preview of the front of card 4

Card 5

Front

4 finance strategies for large businesses

Back

Preview of the front of card 5
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