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GCSE: Accounting & Finance
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How to calculate 'break even'
- 1 There are three ways this can be done. All will give the same answer which is the number of products the business must make or sell to ‘break even’. This means they receive as much revenue as their costs.
- 2 A break even table will list the fixed cost, variable cost, total cost (fixed plus variable cost), revenue and profit or loss for each level of output. As profit or loss is the revenue minus the total cost this can be calculated relatively easily, especially if you use a spreadsheet program..
- 3 A break even graph plots the total cost and revenue for all the levels of output. Where the total cost and revenue intersect is the break even point. This can be easily produced from the table using the chart wizard.
- 4 The break even formula gives you the break even output. The formula is fixed cost divided by the price of one unit minus the variable cost.
- 5 The margin of safety is the number of items being produced, over and above the break even point.
What is cash flow?
- 1 Cash flow looks at the cash flowing through a business. It is not the same as the profit being made as businesses may be receiving goods on credit or giving credit to customers. This means that although a business may be profitable, it may still run out of cash. This could cause the business to go bankrupt.
- 2 A cash flow forecast predicts the flow of cash going through the business. A business may use it to see if there are any months when it will run out of cash.
- 3 Knowing that it may run out of cash in any month means that a business can plan for this by possibly arranging a bank overdraft.
- 4 A bank overdraft is an agreement arranged with a bank whereby if the business runs out of cash, the bank will lend it money to keep it trading. This overdraft will normally be at a high rate of interest but is better for a business than running out of cash.
- 5 A business may also cover a period of negative cash flow by deferring payment to suppliers or getting payment early from customers.
What could be a source of finance?
- 1 Many students go wrong when discussing sources of finance by not relating them to the size of the business or the reason they need it. A new business starting up has different needs to an existing business looking to expand.
- 2 Sources of finance available to sole traders and partnerships include the owner’s funds, borrowing from friends and relatives, bank borrowing or funds from venture capitalists that specialise in lending to new businesses.
- 3 A problem for sole traders and partnerships is unlimited liability. This means that the owner is responsible for all the debts of the business, not just the amount they have invested.
- 4 Private limited companies and public limited companies have limited liability. This means that investors in the businesses can only lose the amount they have invested. This makes it much easier for them to raise finance as people are more likely to lend to them knowing the maximum amount they can lose.
- 5 A benefit of selling shares compared with borrowing from the bank is that the money does not need to be repaid. Share holders will expect a share of the profits. With a loan, the amount borrowed has to be repaid with interest.
This is not a significant difference. Savings Account- Lloyds TSB has an interest rate of 3.27%. HSBC has a higher interest rate of 3.75%, which would mean I would receive �52375 instead of �51860. That means that I would earn an extra �515 with HSBC. Internet Account- HSBC has a rate of 4.75%. The rate is so high as Internet accounts can be maintained from a computer and do not require many staff or big premises. Lloyds TSB has an interest rate of 4.30%. Investing the money in the stock market by buying shares is very risky.
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The Disadvantages of having an agent is that his services cost a lot of money. The third way I could be monitoring my shares price is on the newspapers, the good thing about this that they are very reliable. The news papers that have stock prices are on broadsheets like The Times, The daily Mirror, Financial times and The Guardian etc. The Advantages of them is that it is easy to buy a newspaper and they are very reliable, there aren't many disadvantages, the costs aren't a lot but give or take, and you're still wasting income on it especially if you buy 1 every week/day.
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I think that this could be a possibility for my company as it will need capital at the start and I would not mind selling a section of the company if it were to provide capital which would take the business further. > Retained Profit - This is finance which is obtained from successful trading, when the business makes money and it keeps it in the business it is known as retained profit. The advantage is that the money is already in the business and your not borrowing any money, however a disadvantage is that it will only work with more successful companies that turnover a large enough profit to be able to do it.
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This is an important part of my business because I will need to check on all the money I am spending and if I am not going over board with the cash flow. There are three main costs which my business will have, and then these three main costs are sub divided in to smaller costs. Below I will summaries how this works: 1. START-UP COSTS - Start up costs vary from many things. Start-up costs are the various costs which I will need to set up my business.
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Also, it is unique information, fresh so I can make improvement straight away. In addition, competitors can not use this information as it my information which I have gathered. There are a few disadvantages to collecting primary research and they are that it is very expensive to gather. This is because I am starting from scratch and need all the resources and equipment to produce surveys and hand them out. Another method I am going to do is visits to similar businesses to see what my competition is.
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( Reference: BTEC First Business 2nd edition, Carol Caryforth and Mike Neild, Page 108, 113 and 114) In my opinion i think a cash flow is the balance of amount being recived and paid by a business during a period of time. A cash flow statement is a statement that shows a business cash flow, what means it shows the money that is coming in and out what is called cash flow in- and outflows. This statement shows the changes in balance and income. A cash flow forecast is a business cash flow over a specific time what means is the change in cash frome one period to the next period.
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Is there anything you are worried or nervous about? I am worried that I might not carry out my placement effectively and I am also nervous that I might not be accepted in the working environment. P1 How organisations use ICT 1. Describe and give examples, of the ways in which the organisation uses ICT; try to find at least one example of each of the following: Presentation (promotional, technical) Manipulation of information (interpreting data, decision making) Communication (internal, external)
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Without finance a business would find it difficult to accomplish anything, for example someone who decided to start up a shop would need finance at first to just buy the shop and the stock. Here is a table of the internal and external sources of finance which categorise them into short, medium or long term finances. Short term Medium term Long term Bank overdrafts Bank loans Bank loans (20 years more) Short term bank loans (2 years) Hire purchase Share capital Trade credit Leasing Debentures Venture capital Government Grants Sale of assets An asset is money which will help start up a business.
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However, by the end of the 1980's the tourist industry had caused immense environmental damages. The gorgeous mountains were in the shadows of the humongous resorts, which were filled with masses of noisy tourists, who threatened wildlife away. (Waugh 151) The hundred and fifty kilometers of sandy beaches were now littered with rubbish all over, as well as the serene ocean was polluted with tourist effluents. (Waugh 151) The environment, which attracted them it the first place, had been ruined. The Spanish language is the third most widely spoken language in the world, all though, during the 1960's till the 1980's, it had slowly began to change, as well as become less spoken around Costa del Sol, which was largely due to tourists, who spoke English.
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Cash outflow Cash outflow is the money that goes out such as purchases for example manufacturing businesses will buy raw materials, wages, rent etc In flows is the money the business expects to receive and pay into its bank account. It then needs to add up its cash out flows. This is the difference between these two figures is the cash balance. Every business will always aim for a positive cash balance, which occurs when inflows are greater than outflows.
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Countries from the European union (EU) are set to comply with the new Basel rules from January 2007. The same deadline applies to advance countries in Asia. However, banking regulators in the US decided to delay adoption at least until January 2008. At the same time they are proposing adoption of different approaches for the US banks. In September 2006, the four regulators proposed that the IRB (internal ratings-based) approach should apply to the largest and internationally active banks only (26)
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2.0 The Original Intentions of Basel II According to Cornford (2004), the initial purpose of Basel II, which was published in June 2004, was to create an international standard that banking regulators can use when creating regulations on how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse (Cornford, 2004).
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Distance to market- the people who by the products. If your setting up something like the paper shop for people of the local public. Depending on the business you would locate you business would be located near the customers. If you're a corner shop you would need to be near the market, if you own a corner shop near an industrial area you would get the odd customers, whereas if you locate the corner shop near a public area there is more likely to be customers. Another example is a postal order then you don't need to be near the market because you are using the postal system, the customer doesn't need to come you, you would go to them.
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food, forestry and mining for materials); client services (eg financial, health care, leisure and sport, internet access); Other services (eg transport and communications). The Reasons for Trends Businesses are attracted towards profitable activities and away from unprofitable activities. Customer tastes and preferences change just like fashion etc. Number of people employed in an activity will vary as people are getting put out of jobs and also things are now made by robots to make cars eg the Picasso Car advertisement.
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Limited Liability A limited liability means you only use your original investment. For example, if you own a business and it collapses the bank can only take the money back that you own them and no more. Unlimited Liability This means that the owner is responsible for all the debts. If the company fails you have to pay its debts or declare bankruptcy. The person you owe money to may take all your belongings or you have to sell all your personal belongings to pay that money back. Sole Trader There are many advantages to become a sole trader because it is easy to set the business up.
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This is important because without customers a business would not survive. Marketing/Sales The marketing department try to find out what customers want from the business in terms of the goods and services they provide. They use this information to develop strategies to ensure that the business can meet the needs of customers but at the same time make a profit or at least cover their costs if they are a public sector organisation. Research and Development The research and development department (often just referred to as R&D) spend time finding out how to develop new products that consumers might want.
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This will help the JJ Supermarket know that there business is successful and it will help them know if their business is going to go in loss or not. > Cash flow forecast gives the business clearly the time through which business will have trouble surviving like if their out flow exceeds certain limitations. This will help them to take steps which would improve the future of the business. > It checks if the business is performing consistently or not, any odd figures in the cash flow fore cast could be identified by observing and fix it to help business improve.
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All businesses exist for a purpose. They produce or supply goods, offer a service or do both. In this case, the purpose of the business is a service. In group two, I have decided to look up Virgin. I am going to answer the same questions above (as the same as group one) I have used the internet to help me answer the questions. I have research that Virgin is a leading branded venture capital organisation, is one of the world's most recognised and respected brands.
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Because of this, using the risk-free rate is not always an accurate predictor of a firm's cost of equity. Using the firm's cost of debt is preferable to using the risk-free rate because it more accurately reflects the true financial risks faced by the company. Equity Risk Premium Based on the idea that an investor requires a high rate of return for assuming risk, a risk premium is added to the cost of debt. The risk premium is the difference between the cost of debt and the required return an investor would expect to take on greater risk. The risk premium is usually determined a number of ways.
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Then I went to Zara's house to tell her the news. "You did what!" said Zara after I told her about what I did. "You're going to be the only girl there and if you loose then well it'll be embarrassing for all of us and not just you!" "But if I win then well we'll show the boys that we girls can beat them and then they won't be so stuck-up all the times!" I exclaimed, banging my fist to show my frustration. Zara, I noticed was looking doubtful. "You don't believe that I can beat the boys do you!"
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(1,475,000,000) = $64,619,750,000 Next we need to find the value of debt for each company. Market value is generally the best way to achieve this, but because we were not given the number of outstanding shares the book value is sufficient. This is acceptable because neither company has experienced a significant change in credit ratings in the recent years. We look to the Balance Sheets of both companies and use the most recent year (2001). The main contributors to Book Value of Debt are Notes Payable, the Current Portion of Long Term Debt, and Long Term Debt.
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� Type of the Business. � Where the business is in terms of its development. � Whether it is a profitable business. Internal Finance Internal Finance can be profit that has been retained, squeezed out of working capital, or can be cash from sale of assets. This is money that was already within the business. External Finance External Finance for day-to-day working capital is trade credit, bank overdrafts, and debt factoring. This is money from outside the firms own resources. Retained Profit Once the business starts to generate sales it will hopefully make some profit.
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CASE CONTEXT: September 14, 1979. St. Louis National Bank was considering a loan request from a company located in a nearby city, Hampton Machine Tool Company. Since its establishment in 1915, the company had successfully weathered the severe cyclical fluctuations characteristic of the machine tool manufacturing business and had experienced record production and profitability during the mid- and late- 1960s. But Hampton sales had bottomed out in the mid- 1970s and the several years prior to 1978 had been a steady rebuilding of sales.
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Case Context Wilson Lumber Company experienced growth in its business the past three years (1982-1984). It enjoyed increasing profits within this period. But the company is now experiencing financing problems as it can no longer sustain its continued growth. With the expectation of a higher sales level of 2.5 million for 1985, the company is in need of more resources. The company can choose to establish a new line of credit with the Northrup bank and have access to $325,000 as a revolving credit line, however this would mean severing its relationship with its present bank, the Suburban National Bank.
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A repayment period is the amount of time that you can pay back the money that you have borrowed. A secured loan is one in which some of your property (home, stocks and shares, etc) is held, by the lender, as security for the amount you have borrowed. Secured loans usually offer lower interest rates than unsecured ones. (definition from www.moneyfacts.co.uk/glossary) A personal loan available from a bank, building society or other financial institution without security. They are usually covered by the terms of the Consumer Credit Act.
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