GCSE BUSINESS - FINANCE

What is revenue?

What is revenue?

The amount of money a business receives for selling its goods or services.

What is the equation for revenue?

Quantity sold x price

What are costs?

Costs are the things a business has to buy in order to set up and run itself.

What are fixed costs?

Fixed costs do not change with output. Eg. rent, insurance

What are variable costs?

Variable costs do change with output. Eg. raw materials, wages

What is profit?

The difference between the revenue and the total costs.

What is the equation for profit?

revenue - total costs

Describe breakeven.

• A firm hits breakeven output when its total costs = total revenue

• Breakeven is often considered to be the survival point for a firm

What is the margin of safety?

The difference between output and breakeven

What are the advantages of breakeven analysis?

• shows effect of cost or price changes

• may help secure a loan as it shows financial planning

What are the disadvantages of breakeven analysis?

• assumes all output will be sold

• difficult to use if costs are volatile

What is cashflow?

A record or forecast of all money in and out of a business.

What are some cash inflows?

• sales revenue

• bank loans

• share capital invested

• sale of assets

What are some cash outflows?

• raw materials / wages

• rent / management salaries

• interest paid on loans

• tax

• dividends

What can poor cashflow lead to?

Bankruptcy - poor cash flow is the number 1 reason for business failure in the UK

What are cashflow forecasts?

Forecasts are when companies predict cashflow over the coming months.

What are cashflow statements?

Statements are when companies review how cashflow has been managed over the last few months.

How can you solve cashflow problems?

• Reschedule payments: P - improves cashflow C - eventually has to be paid

• Cut costs : P - reduces cash outflow C - moral implication, slower, poorer quality

• Use overdraft/loans: P - You can go negative C - You have to pay interest

• Find new cash inflows: P - increases cash inflow C - will cost money

What are some examples of what businesses invest in?

• buildings

• machines / vehicles

• ICT

• training schemes

• marketing campaigns

• new products

What is Average Rate of Return (ARR)?

A method of assessing how good a particular investment opportunity is

What is the equation for ARR?

extra annual profit/initial cost x 100