theme 2 slay for slay

What is meant by internal finance ?

Money generated by the business or its current owners

Explain one method of internal finance that might be used to raise initial capital to start a business

personal savings or sale of assets

What is meant by sale and lease back ?

the practice of selling assets

State two disadvantages of using internal finance ?

1. internal finance can be limited
2.internal finance are non tax deductible
3.internal finance can be inflexible to other external finance methods
4.opportunity cost can be high when using internal finance

State one advantage of using retained profit as a source of finance ?

cheapest source of finance due to no interest and more.

What is meant by capital ?

the money provided by the owners in a business

State two advantages of using internal finance as a source of finance ?

1.capital available immediately
2.internal finance is very cheap
3.there is no need to involve a third party

What is meant by a unsecured bank loan ?

where the lender has no protection if the borrower fails to repay the money owed.

What is meant by external finance ?

money raised from outside the business.

Bank overdrafts are flexible. What does this mean ?

the amount by which a business goes overdrawn depends on the time it is needed

What is meant by capital gain ?

the profit made from selling a share for more than it was bought.

What is the difference between limited and unlimited liability ?

limited liability means shareholders can only lose the original amount they invested in a business

State two implications of limited liability for a business ?

1. courts may decide that individuals are liable if a crime has been committed or if the company has failed to keep adequate records and accounts.
2. owners of small limited companies

Why may a business with unlimited liability find it easier to raise finance than those with limited liability ?

Unlimited liability start up companies can take advantage of finance methods such as crowd funding and government grants. even though limited liability companies can use these too they are less likely to get backing as they already have funding of some kind.

How is limited liability company most likely to raise finances ?

share capital

What is a rights issue ?

rights issues is issuing new shares to existing shareholders at a discount.

What is undercapitalisation ?

undercapitalisation is a business not raising enough capital when setting up.

State five pieces of information that are likely to appear in a business plan ?

buying and production

Give two examples of cash inflows in a cash flow forecast ?

Sales

Give two examples of cash outflows in a cash flow forecast ?

Wages

How is net cash flow calculated in cash flow forecast ?

the difference between the cash flowing in and the cash flowing out of a business in a given time.

Why might a business want to predict future sales ?

1. clear idea of cash inflows
2. allows business to pre-order supplies
3. enables the business to know if they are able to take on orders.

What is a time series data ?

a method that allows a business to predict future levels from past figures.

State three economic variables that might affect the sales forecasts of a business ?

1. fashion
2. consumer trends
3. long-term trends
4. inflation
5. unemployment
6. exchange rates

What is meant by 'trend' ?

a general direction in which something is developing or changing.

What is the difference between sales volume and sales revenue ?

sales revenue is the value of output sold in a particular time period ( calculated by price X quantity of output ).
whereas sales revenue is the quantity of output sold in a particular time period.

What is the difference between the short run and the long run in business ?

short run is the time period where at least one factor of production is fixed and long run is the time period where all factors of production are available.

Give two examples of fixed costs for a taxi driver ?

insurance

What is meant by a semi-variable cost ?

a cost that consists of both fixed and variable elements.

How is profit calculated ?

profit \= total revenue - total costs

A product sells for £10 and the variable costs are £8.50. What is the contribution per unit ?

( £10 - £8.50 ) \= £2.50

If the total variable costs are £450

000 and the contribution is £225

What are some limitations of break-even analysis ?

1. it assumes all output and stock are sold
2. cannot cope with sudden changes such as wage rises
3. the data if not accurate will not give an accurate break even analysis
4. doesn't work for multi-product businesses

What is margin of safety ?

the range of output between break-even level and the current level of output

What is a budget ?

a budget is a quantitate economic plan prepared and agreed in advance.

Why is a sales budget such an important budget ?

1. allows for efficiency
2. motivation
3. communication

State three benefits of a budget ?

1. good for preparation of plans
2. allows for comparison of actual budget at the end of the month/year.
3. analysis of variances

How is gross profit calculated ?

Gross profit \= revenue - cost of sales

What is meant by the 'bottom line' ?

the bottom line is the final total of an account or balance sheet.

What does a statement comprehensive income show ?

this is a financial document showing a company's income income and expenditure over a particular time period

What does a statement of financial position ( balance sheet ) show ?

a balance sheet shows a summary at a particular point in time of the value of a firms assets

What is the difference between current assets and current liabilities ?

current assets is a liquid asset for example those assets that can be turned into cash within a year

Give two examples of non-current assets ?

cars and trucks

How is working capital calculated ?

working capital \= current assets - current liabilities

what is the 'ideal' value for an acid test ratio ?

1:1 or higher.

What sort of business may operate with a low acid test ratio ?

Retailers with strong cash flow like a Sainsburys or Tesco.

Explain the internal and external factors that cause business failure ?

financial: they may become bankrupt

why has the business failure rate in the UK risen since 2008 ?

because business start ups often fail after 5 years.

What is overtrading ?

overtrading is the situation where a business does not have enough cash to support its production and sales

give 4 possible reasons of cash flow problems for a business ?

1.overtrading
2.investing too much
3.allowing too much credit
4.over-borrowing
5.seasonal factors
6.unforeseen expenditure
7.external factors
8.poor financial management

state 2 non-financial reasons a business may fail ?

1. lack of planning
2. lack of leadership
3. unsatisfied customers

What is job production ?

job production is a method of production that involves employing all factors to complete one unit of output at a time.

what are some advantages and disadvantages of job production \>

ADVANTAGES:
1. quality is high because workers are skilled
2. workers are well motivated because work is varied.
3. products can be custom made.
4. production is easy to organise.

DISADVANTAGES:
1. high labour costs due to skilled workers.
2. production may be slow- long lead times.
3. a wide range of specialist tools may be needed.
4. generally an expensive method of production.

What is batch production ?

batch production is a method that involves completing one operation at a time on all units before performing the next.

What are the advantages and disadvantages of batch production ?

ADVANTAGES:
1. workers are likely to specialise in one process.
2. unit costs are lower because output is higher.
3. production is flexible since different orders can be met.
4. more use of machinery is made.

DISADVANTAGES:
1. more complex machinery may be needed.
2. careful planning and co-ordination is needed.
3. less motivation because workers specialise.
4. if batches are small costs will be high.
5. money may be tied up in work in progress.

What is flow production ?

flow production is large scale production of a standard product

What are the advantages and disadvantages of flow production ?

ADVANATAGES:
1. very low unit costs due to economies of scale.
2. output can be produced very quickly.
3. modern plant and machines can allow some flexibility.
4. production speed can vary according to demand.

DISADVANTAGES:
1. products may be too standardised
2. huge set up costs before production can begin again.
3. worker motivation can be very low repetitive tasks.
4. breaks in production can be very expensive.

What is downsizing ?

downsizing is the process of reducing capacity

what is capital intensive production ?

capital intensive production is a production method that make more use of machinery relative to labour.

what is 'Kaizen' in terms of production ?

Kaizen is a Japanese term that means continuous improvement.

What is cell production ?

cell production involves producing a family of products in a small self contained unit ( a cell ) within a factory.

What is lean production ?

lean production is an approach to operations that focuses on the reduction of resources use.

What is out-sourcing ?

out-sourcing is giving work to sub-contractors to reduce costs.

What is meant by capacity utilisation ?

capacity utilisation is the use that a business makes of its resources.

What is meant by spare capacity ?

spare capacity is a situation in which actual production is less than what is achievable or optimal for a firm. This often means that the demand for the product is below what the business could potentially supply to the market.

If a train carries an average of 340 passengers between London and Glasgow

what is the capacity utilisation if the train's capacity is 500.

State two drawbacks of operating well below full capacity ?

1. they wont be making the most of its resources.
2. may also affect the morale of the workers.

State two drawbacks of operating at full capacity ?

1. the pressures of working at full capacity can cause stress.
2. increases risk of accidents.
3. could be very expensive.

What is mothballing ?

mothballing is leaving machines

Why do businesses prefer to minimize stock holdings ?

1. to keep up with demand
2. it may cost them more to keep.
3. the type of stock

What is meant by work-in-progress ?

work-in-progress is partly finished goods.

State four costs of holding stocks ?

1. storage costs
2. opportunity costs
3. spoilage costs
4. administrative and financial costs.

Why are buffer stocks held by firms ?

1. emergency stock
2. to keep up with sudden demand.
3. to protect themselves from a break in supply.

What type of stocks are most likely to be wasted ?

items which expire quickly

What is Kanban ?

Kanban is a card or an object that acts as a signal to move or provide resources in a factory.

What is lead time ?

Lead time is the time between placing the order and the delivery of goods.

What is meant by the quality of a product ?

quality is features of a product that allow it to satisfy customers' needs. it may refer to some standard of excellence.

Explain the difference between actual and perceived quality ?

Actual quality is the quality a product will have for example a heavy piece of machinery will do the correct job whereas just due to a brand something may look to have quality but actually have little or none.

what is the difference between quality assurance and quality control ?

quality assurance is a method of working for businesses that takes into account customers' wants when standardising quality. it often involves guaranteeing that quality standards are met.
However

What is the main purpose of quality circles ?

they allow the workforce directly to improve the nature of the work they are doing.

State 5 implications of total quality management (TQM) ?

1. there will be training and development costs of the new system.
2. TQM will only work if there is commitment from the entire business.
3. there will be a great deal of bureaucracy and documents

What are quality chains ?

quality chains are when employees from a series of links between customers and suppliers in business

How is inflation measured ?

a common way to measure inflation is to calculate changes in the consumer price index (CPI).

State three drawbacks of inflation for business ?

1. increased costs
2. uncertainty
3. borrowing and lending
4. consumer reactions
5. international competitiveness

How might deflation affect a business ?

a fall in demand may occur and also may postpone investment.

State four examples of direct tax ?

1. income tax
2. national insurance contributions
3. corporation tax
4. capital gains tax
5. inheritance tax

What is the difference between direct tax and indirect tax ?

Direct taxes allow the government to collect taxes directly from consumers and is a progressive type of tax

What is meant by a boom in a economy ?

a boom is a peak of the economic cycle where GDP is growing at its fastest.

What is a base rate ?

the base rate is the rate of interest around which a bank structures other interest rates. if the bank of England raises the base rate

What is the fiscal policy ?

the fiscal policy using changes in taxation and government expenditure to manage the economy.

State four consumers issues covered by consumer legislation ?

Sale of goods act

How might a food producer be affected by consumer legislation ?

food safety act - food should be fit for human consumption and comply with safety standards.
Example - food should not be sold if decaying or contaminated.

How might business adverts be affected by consumer legislation ?

sale of goods act - products must be of a merchantable quality and fit for purpose.
Example - a garment sold as 'waterproof' must not let in the rain.

What is contract of employment ?

contract of employment is a written agreement between an employer and an employee in which each has certain obligations.

State three responsibilities of the CMA ?

1. Monitoring and regulating prices
2. Standards of customer service
3. Opening up markets

What is a contract of employment ?

a contract of employment is a written agreement between an employer and an employee in which each has certain obligations.

Give two examples of highly competitive markets ?

Fashion and food (supermarkets).

Give two examples of markets that might lack competition ?

Energy markets
Healthcare markets
Niche product markets.

How might consumers benefit from competition in a market ?

Consumers derive several key benefits from business competition

Outline two implications of operating in a relatively small market ?

Low amount of consumers to target.
Low sales.
Bigger company could come along and take your product idea and overrun the smaller company.