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Description
| Question | Answer |
| INTERNAL FINANCE (2.1..1) | INTERNAL FINANCE (2.1.1) |
| What is Internal Finance (2.1.1) | Money gained from within the business i.e. Retained Profit - profits reinvested Owners Capital - savings invested Sales of Assets - machinery and other assets sold |
| What are the Pros and Cons of Internal Finance (2.1.1) | Pros: Money is available immediately Not interest in involved Cons: Can be limited in terms of the amount as well as options present |
| EXTERNAL FINANCE (2.1.2) | EXTERNAL FINANCE (2.1.2) |
| What is External Finance and name 3 examples. (2.1,2) | Money gained from outside the business i.e. Bank loans - money on top of interest Business angels - investors who want an equity Crowd Funding - particularly used by charities. |
| What are the Pros and Cons of External Finance (2.1.2) | Pros: Assets can be kept for productivity Bigger Economies of Scale Cons: Interest is normally added Loss of ownership may occur |
| LIABILITY (2.1.3) | LIABILITY (2.1.3) |
| What is Limited Liability (2.1.3) | Where the owners of the company can only lose the money they invest |
| What is Unlimited Liability (2.1.3) | Where the owners of the company are liable for all debts made, meaning personal assets including property can be taken |
| PLANNING (2.1.4) | PLANNING (2.1.4) |
| What is a Business Plan (2.1.4) | A plan for the development of a business, giving details such as: Financial forecasts Premises and Equipment Personnel |
| What is a Cash Flow Forecast (2.1.4) | The prediction of all expected receipts and experiences of a business over a future time period which shows the expected cash balance at the end of each month. |
| What are Cash Inflows (2.1.4) | The flow of money into a business such as sales. |
| What are Cash Outflows (2.1.4) | The flow of money out of a business such as rent and wages. |
| What is Net Cash Flow (2.1.4) | The difference between the cash flowing into the business against the cash flowing out in a given time period. |
| What is Solvency (2.1.4) | The degree to which a business is able to meet the debts when they fall due. |
| SALES FORECASTING (2.2.1) | SALES FORECASTING (2.2.1) |
| What is Sales Forecasting (2.2.1) | The process of estimating future sales. |
| What are the Pros of Sales Forecasting (2.2.1) | Gives a company an insight into what they will need to meet or go further beyond their sales forecasts i.e. Staff |
| What are the Cons of Sales Forecasting (2.2.1) | A forecast is only a prediction, many factors may affect the company to not meeting their forecasts |
| What are the Factors affecting sales forecasts (2.2.1) | Consumer Trends External Shocks Economic Growth Inflation |
| SALES, REVENUE AND COSTS (2.2.2) | SALES, REVENUE AND COSTS (2.2.2) |
| What is the formula for Sales Volume (2.2.2) | Sales Revenue divided by Selling Price |
| What is the formula for Sales Revenue (2.2.2) | Price X Quantity of Output |
| What is a Fixed Cost (2.2.2) | Costs that never change i.e. Rent |
| What is a Variable Cost (2.2.2) | A cost that rises with output |
| What is a semi-variable cost | A cost that consists of both fixed and variable elements. |
| What is the 'total cost' | The entire cost of producing a given level of output |
| BREAKEVEN (2.2.3) | BREAKEVEN (2.2.3) |
| What is Breakeven | When a business generates just enough revenue to cover its total costs |
| What is Breakeven output | The output a business needs to produce so that its total revenue and total costs are the same |
| What is the breakeven point | The point at which a company is making no profit or loss |
| What is the formula for Breakeven | Fixed costs divided by contribution |
| What is the formula for contribution | Selling price - variable cost |
| What is the margin of safety | The range of output between the breakeven level and the current level of output, over which a profit is made. |
| BUDGETS (2.2.4) | BUDGETS (2.2.4) |
| What is a budget | A financial plan for the future concerning the revenues and costs of a business. |
| Name 3 purposes of a budget | Control Planning/ preparation Communication |
| What is a zero-based budget | A system of budgeting where no money is allocated for costs or spending unless they can be justified by the fund holder. |
| What is a variance | The difference between actual financial outcomes and those budgeted |
| What is variance analysis | The process of calculating variances and attempting to identify their causes. |
| PROFIT (2.3.1) | PROFIT (2.3.1) |
| What are the three types of profit | Gross profit Operating profit Net Profit |
| What is gross profit and what is the formula | The difference between revenue/turnover and cost of sales Formula = Revenue divided turnover - cost of sales |
| What is gross profit margin and what is the formula | Gross profit expressed as a % of revenue/turnover Formula = Gross profit divided by revenue X 100 |
| What is operating profit and what is the formula | The difference between gross profit and business overheads, such as selling. Formula = Gross profit - Operating expenses |
| What is the operating profit margin and what is the formula | Operating profit expressed as a % of revenue/ turnover Formula = Operating profit divided by revenue X 100 |
| What is net profit and what is the formula | The difference between operating profit and interest and exceptional items Formula = Operating profit - Interest |
| What is net profit margin and what is the formula | Net profit after tax, expressed as a % of revenue/ turnover Formula = Net profit before tax divided by revenue X 100 |
| Name 2 ways in which a company can become more profitable | Raising Prices Lowering costs through cheaper raw materials |
| LIQUIDITY (2.3.2) | LIQUIDITY (2.3.2) |
| What is liquidity | The ease of which assets can be converted into cash |
| What is Acid Test Ratio | Current Assets - stock divided by Current Liabilities |
| What is current ratio | Current Assets divided by current liabilities |
| BUSINESS FAILURE (2.3.3) | BUSINESS FAILURE (2.3.3) |
| Name 3 internal causes of business failure | Overtrading Seasonal Factors Poor Leadership |
| Name 3 external causes of business failure | Competition Changing consumer tastes/ trends Changes in market prices |
| PRODUCTION, PRODUCTIVITY AND EFFICIENCY (2.4.1) | PRODUCTION, PRODUCTIVITY AND EFFICIENCY (2.4.1) |
| What is batch production | A method that involves completing one operation at a time on all units before performing the next |
| What is cell production | Involves producing a family of products in a self - contained unit within a factory |
| What is flow production | Large scale production of a standard product, where each operation on a unit is performed continuously one after the other, usually on a production line |
| What is job production | A method of production that involves employing all factors to complete one unit at a time |
| What is lean production | An approach to operations that focuses on the reduction of resource use |
| Name 3 factors that affect productivity | Motivation of employees Education and Training Specialisation |
| Name 3 factors that affect efficiency | New technology Outsourcing Kaizen |
| What is Kaizen | A Japanese term for continuous improvement |
| CAPACITY UTILISATION (2.4.2) | CAPACITY UTILISATION (2.4.2) |
| What is capacity utilisation and what is the formula | The use that a business makes of its resources Formula = Current output divided by max. possible output X 100 |
| Name 2 ways in which capacity utilisation can be improved | Increase Sales Reduce Capacity |
| STOCK CONTROL (2.4.3) | STOCK CONTROL (2.4.3) |
| Name 3 factors that influence stock levels | Demand Type of stock External Shocks |
| What are buffer stocks | Stocks held as a precaution to cope with unforeseen demand |
| Name 3 implications of poor stock control | Opportunity cost Unsold stock Storage costs |
| What is JIT stock control and name 1 pro and 1 con | A stock control method where stock is ordered when it is needed. Pro: Storage costs are low Con: If demand booms then they cannot meet it |
| QUALITY MANAGEMENT (2.4.4) | QUALITY MANAGEMENT (2.4.4) |
| What is quality control | Making sure that the quality of a product meets specified quality performance criteria. |
| What is Quality Assurance | A method of working for businesses that takes into account customers' wants when standardising quality. |
| What is Total Quality Management | TQM is a managerial approach that focuses on quality and aims to improve the effectiveness, flexibility and competiveness of the business |
| LEGISLATION (2.5.2) | LEGISLATION (2.5.2) |
| Name 3 ways how consumer legislation affects businesses | Increased Costs Quality Control Changes in business practice |
| Name 3 ways how employment legislation affects businesses | Increased labour costs Loss of flexibility Penalties |
| Name 3 ways how environmental legislation affects businesses | Marketing Finance HR |
| THE COMPETITIVE ENVIRONMENT (2.5.3) | THE COMPETITIVE ENVIRONMENT (2.5.3) |
| Name 3 things that determine competitiveness | Number of businesses in a market Barriers to Entry Differentiation |
| Name 3 ways that competitiveness can affect businesses | Price Profit Innovation |
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