GCSE Business Studies 2

• Trade credit


  Finance where the business gets goods/services and pays for them at a later date, usually between 30 and 90 days
• Trade credit


  • A 'free' source of finance
  • Usually only available for up to 90 days
• Advantages and disadvantages of using internal sources of finance available from within the business

  • Advantages:
  • Available quickly
  • Avoids interest charges
  • Avoids paying interest on a loan

  Disadvantages:

  • Assets not available to business in the future
  • Sale and lease back requires future payments to use the asset
  • Only available to profitable businesses
  • Owners receive less of the profits
• Sources of finance


  • Internal:
  • Owners funds
  • Retained profits

  External:

  • Loan - family & friends
  • Loan - bank
  • Overdraft
  • Mortgage
  • Leasing
  • Issuing new shares
  • Govt grants
  • Selling unwanted assets
• Owners funds


  The personal savings of the business owner
• Retained profits


  Profits that have been kept within the business rather than paid out to the owners
• Loan - family & friends

  Money that is given to the business by a family member or friend and paid back, where the business has agreed to do so
• Loan - bank


  Money borrowed from a bank that is paid back later with interest, at an agreed amount and time
• Overdraft


  Funds the business can borrow from the bank up to a certain limit
• Mortgage


  A loan secured against a property owned by the business
• Leasing


  Paying to use an asset over a period of time rather than buying it outright
• Issuing new shares


  Selling part-ownership of the business to raise funds
• Govt grants


  Money given by the government to the business for a particular purpose
• Selling unwanted assets


  Selling something the business no longer needs
• Possible solutions to cash flow problems

  • Overdraft
  • Re-scheduling payments
  • Reducing cash outflows
  • Increasing cash inflows
  • Finding new sources of finance
• Overdraft


  • A flexible form of finance
  • Interest is only paid when the overdraft is used
  • The bank can withdraw the overdraft facility at any time
• Re-scheduling payments


  • Asking customers to pay more quickly/reducing their trade credit period will speed up inflows
  • Negotiating a longer trade credit with suppliers will enable the business to sell products before paying for them
• Reducing cash outflows


  • Reviewing outflows to reduce costs can improve efficiency
  • Negotiating better deals with suppliers can be time consuming
  • Cutting back on wages may reduce staff motivation
• Increasing cash inflows


  • Additional revenue can be raised by finding new methods of generating cash
  • Changing prices can increase demand and revenue
  • Additional promotional activity can increase awareness and demand
• Finding new sources of finance

  • Sale of shares would provide a permanent injection of cash but dilutes ownership
  • A bank loan would provide a lump sum but needs repaying with interest
  • Sale of assets would provide a lump sum but the asset is no longer available
• Formulae


  • Total costs
  • Total fixed costs
  • Total variable costs
  • Revenue
  • Profit/Loss
  • Average unit costs
  • Net cash flow
  • Opening and closing balances
  • Break-even point from a break-even chart
  • Profit/loss from a break-even chart
  • Margin of safety
• Total costs


  Total fixed costs + total variable costs
• Total fixed costs


  Total costs - total variable costs
• Total variable costs


  Total costs - total fixed costs
• Revenue


  Selling price per unit x quantity sold
• Profit/Loss


  Revenue - total costs
• Average unit costs


  Total costs / output
• Net cash flow


  Total cash inflows - total cash outflows in a given period
• Opening and closing balances

  1. Opening balance = closing balance of the previous period

  2. Closing balance = opening balance + net cash flow
• Break-even point from a break-even chart

  When total revenue = total costs
• Profit/loss from a break-even chart

  Total revenue - total costs
• Margin of safety


  Actual or budgeted output - break-even point
• Remember to learn all the formulae listed here, as no formulae will be provided in Paper 1 or Paper 2
• GLAD SPN


  No meaning provided
• GUTS


  No meaning provided
• шко


  No meaning provided
• Average rate of return

  average annual profit (total profit/ no. of years) x 100
• Gross profit


  sales revenue - cost of sales
• Gross profit margin


  gross profit x 100 / cost of investment
• Operating profit


  gross profit-overheads