Edexcel Business A Level Paper 2 (Theme 2 & 3)

Edexcel Business A Level Paper 2 (Theme 2 & 3) Retained profits - ANS profits that the owners have reinvested into the business after paying costs and taxes Owners' funds - ANS money put in by the owners themselves Sale of assets - ANS a one-off way to raise money, generally used during financial struggles Benefits of owners funds - ANS Avoids interest on loans Owners keep complete control Disadvantages of owners funds - ANS If it fails after remortgaging, they could lose their house Limit to amount raised Short term finance examples - ANS overdrafts for daily expenses Medium term finance examples - ANS loans, hire purchase, trade credit, debt factoring used to pay for repairs, paid back after 1-5 years Long term finance examples - ANS issuing shares, debentures, mortgages, grants used to pay for major expenditure, paid back over many years Selling assets - ANS Can sell machines, buildings, land Limited buyers Advertising costs Sold cheaply Loans - ANS High interest rates Usually requires security in the form of assets which will be taken away if they don't make the repayments Needs regular updates Grants - ANS No repayment May be recalled if conditions aren't met May not cover full amount Hire purchase / leasing - ANS Must pay deposit and monthly Own assets at the end Leasing does not lead to ownership Must pay interest Will be re-claimed if not paid for Issuing shares - ANS Only for a limited company (ltd, plc) No risk but must pay yearly dividends Shareholders at risk as shares fluctuate Shareholders have influence Venture capital - ANS Large businesses lend to smaller (not plc) businesses Lender becomes shareholder Aim to grow business so share price increases Lenders play active role Revenues - ANS the amount of product that a customer actually buys Total revenue equation - ANS volume sold x average selling price Profit as an objective - ANS Profit is the most important source of cash flow and finance Can be other reasons for running a business than profit Why profit is important - ANS A return on investment A reward for taking risks A key source of finance A measure of business success A motivating factor Profit equation - ANS total sales