finance
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- Created by: bertie321
- Created on: 26-02-22 14:38
what are costs
they are the spending that occurs to set up a business and run
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what is a fixed cost
they are costs that do not change in relation to output, this can also be planned and be budgeted around eg: rent and wages
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what are Variable costs
they are costs that do change in relation to the output eg: raw materials
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total variable costs=
variable costs per unit x quantity sold
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total costs =
variable costs + fixed costs
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what is revenue
it is the income gained by a business from selling goods and services. It is a form of cash flow
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Maximise sales revenue=
increasing sales value
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revenue=
Number of units sold x selling price
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what is overdraft + advantages and disadvantages
When the business makes payments which exceeds the business current account
+ Only pays interest when overdrawn and Quick and easy to arrange
- Debt can increase rapidly and Difficult to predict the cost of borrowing
+ Only pays interest when overdrawn and Quick and easy to arrange
- Debt can increase rapidly and Difficult to predict the cost of borrowing
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what is a bank loan + advantages and disadvantages
It is when a business applies to lend a set amount of money from the bank
+ Helps cash flow planning and No additional fees
- Assets at risk and Early repayment fee
+ Helps cash flow planning and No additional fees
- Assets at risk and Early repayment fee
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what is owners capital +advantages and disadvantages
Where the owner invests their own money into the business
+ Low risk and Shows owners commitment
- Owner can lose all there money they invest
+ Low risk and Shows owners commitment
- Owner can lose all there money they invest
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what is trade credit + advantages and disadvantages
When you pay you supplier at a later date
+Allows the business to potentially sell product so they can pay the supplier and Very easy to set up
-Businesses can lose good suppliers if they do not pay on time
+Allows the business to potentially sell product so they can pay the supplier and Very easy to set up
-Businesses can lose good suppliers if they do not pay on time
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what is retained profit + advantages and disadvantages
It is when they invest profits back into the business
+
• No restrictions on how the retained profits are spent
• Does not have to be repaid
_
• Can cause disagreement with shareholders
• Only available when a business makes profits
+
• No restrictions on how the retained profits are spent
• Does not have to be repaid
_
• Can cause disagreement with shareholders
• Only available when a business makes profits
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what is share capital + advantages and disadvantages
Finance is raised by selling shares
+ Does not cost the business anything and Business is in full control of who invests
- Future business profits are shared between shareholders and Owner’s share reduces every time a new investment is received
+ Does not cost the business anything and Business is in full control of who invests
- Future business profits are shared between shareholders and Owner’s share reduces every time a new investment is received
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what is venture capital + advantages and disadvantages
When someone invests money into the business for a share in equity
+ Available for business which banks think are to risky
- More equity is given away to secure investment
+ Available for business which banks think are to risky
- More equity is given away to secure investment
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what is a Mortgage + advantages and disadvantages
It is when a business applies to lend a set amount of money from the bank
+Helps cash flow planning and No additional fees Low interest
- Assets at risk and Early repayment fee
+Helps cash flow planning and No additional fees Low interest
- Assets at risk and Early repayment fee
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what is a hire purchase + advantages and disadvantages
Hire purchase
+ quick, easy and good for short term
- Can be expensive in the long term and can be paying for outdated machinery
+ quick, easy and good for short term
- Can be expensive in the long term and can be paying for outdated machinery
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what is selling unwanted assets + advantages and disadvantages
+ no additional costs or interest, easy and you can gain storage space
- one time use
- one time use
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internal sources of finance
Owners’ capital (savings)
Selling unwanted assets (old laptops, old vehicles, machines)
Gift from family and friends
Retained profit (profit left over from the previous year)
Selling unwanted assets (old laptops, old vehicles, machines)
Gift from family and friends
Retained profit (profit left over from the previous year)
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what is selling unwanted assets + advantages and disadvantages
+ no additional costs or interest, easy and you can gain storage space
- one time use
- one time use
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internal sources of finance
Owners’ capital (savings)
Selling unwanted assets (old laptops, old vehicles, machines)
Gift from family and friends
Retained profit (profit left over from the previous year)
Selling unwanted assets (old laptops, old vehicles, machines)
Gift from family and friends
Retained profit (profit left over from the previous year)
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external sources of finance
Mortgage
Trade credit
Overdrafts
Hire purchase
Government grants
Bank loan
New share issue
Loan from
Trade credit
Overdrafts
Hire purchase
Government grants
Bank loan
New share issue
Loan from
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Why do you use a cash flow forecast
Advanced warning, Business can pay suppliers and employees, Financial control and Reassurance to investors
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what are cash inflows
Sales, Grants and Share capital
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what are cash outflows
Payments to suppliers, Wages, Tax on profits and Dividends
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why is cash flow important
it is key to a business’s survival as it needs enough cash to pay its bills and day to day running costs and for the timing of cash coming in and out
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Net cashflow=
total inflow-total outflow
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Closing balance=
opening balance+ net cashflow
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what causes cashflow problems
not enough sales, too much credit given to customers, overtrading, not being offered trade credit and expenses too high
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what are the solutions for cash flow
reschedule payment to suppliers by securing generous trade credit term, reschedule payments owed by customers to get the cash in sooner,
cut outflows by trying to agree to a bulk buy discount and apply for a short term finance via a overdraft
cut outflows by trying to agree to a bulk buy discount and apply for a short term finance via a overdraft
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what is an income statement
A income statement shows how a business has performed over a specific accounting period, usually the last year.
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why do businesses do a income statement
Legal requirement for tax purposes
Figures can be compared to previous years accounts, targets and against rival firms
(intra-firm comparison)
The level of net profit will determine how much can be retained for reinvestment into the business
Figures can be compared to previous years accounts, targets and against rival firms
(intra-firm comparison)
The level of net profit will determine how much can be retained for reinvestment into the business
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what is in an income statement
Revenue, Cost of sales, Gross profit, Overheads, Operating profit, Tax, Interest
and Net profit
and Net profit
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what is a gross profit margins and equation
A gross profit margin of 30% means that 30p of each £1 of revenue is gross profit
Gross profit margin=gross profit/revenue x 100
Gross profit margin=gross profit/revenue x 100
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what is a net profit margin
A net profit margin of 10% means that 10p of each £1 of revenue is net profit
net profit margin=net profit/revenue x 100
net profit margin=net profit/revenue x 100
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what is the statement of financial position
it records where a business got its money from and what they did with it
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what is a fixed asset
assets that will last for more than a year
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what is a current asset
assets that last for less than a year
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what is a current liability
they are bills than need to be paid soon
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net current assets =
current assets-current liabilities
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what is a long term liability
money owed to others
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what stakeholder will be interested in financial analysis
existing and potential shareholders, employees, the government and suppliers
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Other cards in this set
Card 2
Front
what is a fixed cost
Back
they are costs that do not change in relation to output, this can also be planned and be budgeted around eg: rent and wages
Card 3
Front
what are Variable costs
Back
Card 4
Front
total variable costs=
Back
Card 5
Front
total costs =
Back
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