finance Flashcards

1
Q
Describe one advantage and one disadvantage of the following sources of finance to an organisation: (6 Marks) 2013S2Q3b 
• Bank loan 
• Grant 
• Issuing Shares 
Describe one advantage and one disadvantage of the following sources of finance to an organisation: (6 Marks) 2013S2Q3b 
• Bank loan 
• Grant 
• Issuing Shares
A
Bank Loan  
\+ Can be paid back in instalments 
- Interest will be charged 
Grant 
\+ Does not need to be repaid 
- Must adhere to the conditions set 
Issuing Shares 
\+ Can generate large sums 
\+ dividend only payable if profits are made 
- Cost of issuing shares can be very high 
- Spreading control of the organisation
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2
Q

Identify 2 sources of finance available to an organisation when looking to expand.(2 Marks)

A
(Bank) loan. 
Take on a partner. 
Issue shares. 
Issue debentures. 
Mortgage premises. 
Retained profits. 
Grants (from government, the EU, LECs or Prince’s Trust etc) 
Leasing. 
Hire purchase.
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3
Q

Explain one advantage and one disadvantage for each source identified above in (i). (4 Marks

A

Bank Loan
+ Can be paid back in instalments thereby spreading payments over a long period of time.
- Higher interest will be charged if deemed to be of higher risk.
Partner
+ Introduces more finance that does not need to be repaid.
+ Brings extra expertise which may make them more efficient.
- Sharing control over the organisation which may make decision-making harder/more time consuming.
- Profits having to be shared …
Issue Shares
+ Can generate large sum which does not need to be repaid.
+ Shareholders only get an annual dividend which is payable only if profits are made.
- Cost of issuing shares can be very high and thereby prohibitive.
- Spreading control of the organisation which means there will be more people having a say in decisions.
Issue Debentures
+ Only need to pay an annual interest charge over period of loan.
The capital is not repaid until the end − smaller payments.
- Interest must be paid even if a loss is made.
Mortgage
+ Can be paid back in instalments over a period of time thereby spreading payments.
- Due to paying mortgage over a very long period of time, interest charges are very high.
Retained Profit
+ Does not need to be repaid as the money belongs to the organisation.
+ No loss of control of business if not taking on other owners.
- If only small amounts being made, then may take a long time to generate enough.
Grant
+ Does not need to be repaid thereby saving money.
- Must adhere to the conditions set with the grant otherwise may have to repay it.
Leasing
+ Frees up capital to be spent on other things.
+ Easier to change equipment when it becomes obsolete.
- Business never owns the equipment …
- Renting over a long period of time can work out more expensive than purchasing.
Hire Purchase
+ Cost is spread over a long period of time …
- Good is never owned until the last instalment is made.

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4
Q

Outline possible solutions to cash flow problems that may have been identified in an organisation. (3 Marks)

A

•Offering discounts and promotions (to encourage sales) – max 1 for methods of increasing sales
• Sell off fixed assets
• Encourage customers to pay bills swiftly
• Reduce wage bill
• Reduce expenses eg electricity (max 1)
• Arrange longer credit periods with suppliers
• Seek out other sources of finance – overdraft/loan
• Ask the owner to take less drawings
• Find a cheaper supplier for raw materials
• Spread payments of purchase of fixed assets
Do not accept – Fire employees

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5
Q

Other than job losses through branch closures, suggest 2 ways the business could cut costs. (2 Marks)

A
  • Reduce electricity costs.
  • Reduce marketing costs.
  • Reduce phone calls.
  • Reduce opening hours.
  • Switch to a cheaper supplier for stationery.
  • Reduce interest rates given to savers.
  • Move to cheaper premises.
  • Reduce over time/reducing hours/change contract.
  • Restructuring/delayering/outsourcing.
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6
Q

77 Suggest 3 possible causes of a Cash Budget Deficit for a business. (3 Marks)

A
  • Debtors taking too long to pay.
  • Creditors reducing credit period.
  • Expenses costs too high (max 1 for expenses).
  • Sales falling.
  • Poor planning/estimating.
  • Failing to take account of External Factors.
  • Drawings too high.
  • Purchasing items all at once rather than paying in instalments.
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7
Q

Identify 3 causes of cash flow problems. (3 Marks

A
  • Poor sales.
  • Too much money tied up in stock.
  • Allowing customers too much credit.
  • Allowing customers too long to pay.
  • Borrowing too much money at high interest rates.
  • Owners taking too much drawings.
  • Purchase of large items outright.
  • Expenses too high.
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8
Q

Other than the Balance Sheet, identify and describe a financial statement that a business would prepare for helping with the finance. (2 Marks)

A

Trading Account – profit made on trading activities/buying & selling goods/Gross profit.
Profit & Loss Account – Expenses of the business are deducted to find the profit the business has made/Net Profit.
Cash Budget – plan of the incoming and outgoings of the business are given to find the cash surplus and deficits each month.
Cashflow statement – the summary of cash inflows and outflows over a period of time.

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9
Q

Identify different types of ICT that could be used in the finance department of an organisation. (3 marks)

A
  • Email
  • Internet
  • Word processor
  • Spreadsheet
  • Database
  • Network
  • Mobile phone
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10
Q

Describe a possible use, in the finance department, for each type of ICT identified
in (e)(i) above

A

Email
• To contact Head Office to give weekly financial figures eg sales revenue
Internet
• To research information on new taxation rates
Word processor
• To create letters to send to customers to tell them their accounts are overdue
Spreadsheet
• To calculate the monthly wages
• To calculate the annual profit and loss
Database
• To keep staff records on personal allowance, tax codes etc
Network
• To allow all finance department staff to access the same files regardless of their location in the organisation eg cash budgets
Mobile Phone
• To check current value of stocks and shares held by the organisation

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11
Q

Identify 4 different types of ICT that could be used by a Human Resources department.(4 marks)

A
  • Video Conferencing
  • Internet/E-commerce
  • Intranet
  • Email
  • Ediary
  • Networks
  • Word Processor/MS Word
  • Database/MS Access
  • Presentation Packages
  • Mobile/Smart Phone Apps
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12
Q

Describe ways that the Human Resources department could use each type of ICT identified in 5a(i).
(4 Marks

A

(A different use must be given for each type).
Video Conferencing
• To carry out training across branches in different areas.
Internet
• To place job adverts online.
Intranet
• To put dates of training meetings on to give to staff.
Email
• To notify staff when their annual appraisal is taking place.
Ediary
• To arrange a meeting between department managers regarding Health and Safety.
Networks
• To place the organisation staff absence policies into a shared area for all to use.
Word Processor
• To key in job adverts.
• To key in letters of interview to candidates for a job.
Database
• To store staff details.
Presentation Packages
• To create a presentation to staff on the new staff development programme.

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13
Q

Give 2 advantages an entrepreneur would gain from using a spreadsheet to prepare
financial information. (2 Marks)

A
  • Calculations can be performed using formulas.
  • Information can be saved and used again.
  • Standard layouts can be used.
  • Graphs can be prepared from the information.
  • “If statements” can be used.
  • Can be exported into other packages eg word processing.
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