finance

Question 1

what are 3 examples of fixed costs?

Answer 1

• salaries
• rent/mortgage
• insurance

Question 2

what are 3 example of variable costs?

Answer 2

• raw materials
• packaging
• finished products

Question 3

give 3 examples of cash inflows…

Answer 3

• sales of production
• loans received
• rent charged

Question 4

give 3 examples of cash outflows…

Answer 4

• raw materials
• expenses
• suppliers

Question 5

what is return on investment?

Answer 5

making sure you get the best financial return from investments

Question 6

how do you calculate ROI?

Answer 6

ROI/ cost OI x 100

Question 7

what are 3 factors influencing investment decisions?

Answer 7

• interest rates stops unnecessary loans
• availability of finance
• competitors actions

Question 8

what is the difference between forecasting and budgeting?

Answer 8

forecasting is predicting profit and outcomes whereas budgeting limits expected expenses and revenues

Question 9

what are the 3 types of budgeting?

Answer 9

income budget, expenditure budget, profit budget

Question 10

what is meant by profitability?

Answer 10

a measure of finance performance taking a single year’s profitability to demonstrate how the business has performed in a single year

Question 11

what is margin of safety?

Answer 11

the gap between the break - even point and amount sold : businesses want this to be as big as possible as it creates profit

Question 12

what happens within the cash flow cycle?

Answer 12

• stocks are ordered from suppliers
• production turns stocks into products
• stocks are held until a customer is found
• products are sold to customers
• customers pay for their purchases

Question 13

what is debt factoring?

Answer 13

when assets are traded for cash by receivables being sold to a factoring company and the right to collect their debt is sold

Question 14

what is a bank overdraft?

Answer 14

an external source of finance which is flexible and easy to arrange or withdraw at short notice

Question 15

what are the features of a bank loan?

Answer 15

• provided over a fixed time period
• security required
• greater certainty of funding, lower interest rates
• hard to get and small/new businesses are often excluded

Question 16

what are the features of retained profit?

Answer 16

• long term internal source
  can be kept in business or paid out as dividends

Question 17

what is venture capital?

Answer 17

when people invest in the business to get a profit back

Question 18

what is share capital?

Answer 18

money invested by shareholders

Question 19

list 3 benefits of share capital

Answer 19

• allows opinions/ideas and votes to be shared rather than just leaders making decisions
• limited liability
• no repayment obligations

Question 20

list 3 drawbacks of a share capital

Answer 20

• loss of control
• profit sharing
• pressure for performance from shareholders - pushing short term decisions which avoid long term problems