Exam code: 0450, 0986 & 0264, 0774
1/25
0Still learning
Know0
Define working capital.
Working capital is the money used in the day-to-day operations of a business.
True or False?
A business can operate normally without any working capital.
False.
Without working capital, a business would be unable to cover its day-to-day expenses and may suffer cash-flow problems that could lead to business failure.
Finance is required for , which is spending on raw materials, wages or utilities.
Finance is required for working capital, which is spending on raw materials, wages or utilities.
Did this page help you?
Define working capital.
Working capital is the money used in the day-to-day operations of a business.
True or False?
A business can operate normally without any working capital.
False.
Without working capital, a business would be unable to cover its day-to-day expenses and may suffer cash-flow problems that could lead to business failure.
Finance is required for , which is spending on raw materials, wages or utilities.
Finance is required for working capital, which is spending on raw materials, wages or utilities.
What is start-up capital and why is it important for a new business?
Start-up capital is the finance needed by a new business to pay for fixed assets and current assets before it can begin trading. It is important to cover costs such as premises, stock, equipment, and other initial expenses.
A business usually estimates the amount of start-up capital needed in the .
A business usually estimates the amount of start-up capital needed in the business plan.
Define capital expenditure.
Capital expenditure is money spent by a business to acquire or improve long-term assets such as equipment, buildings, or technology.
Why might a business need to invest in research and development (R&D)?
A business may need to invest in research and development (R&D) to develop new products and support growth, as this often requires large amounts of capital.
Fixed assets like machinery and vehicles or become outdated over time and need to be replaced.
Fixed assets like machinery and vehicles wear out or become outdated over time and need to be replaced.
What are two main reasons a business might invest in new technology?
A business might invest in new technology to keep operations up-to-date and to improve efficiency or product quality.
What is the difference between short-term and long-term finance needs?
Short-term finance needs last less than one year, while long-term finance needs last more than one year.
Paying for stock, wages, and utility bills are examples of finance needs.
Paying for stock, wages, and utility bills are examples of short-term finance needs.
Why was retained profit recommended as the best source of finance for StyleWise’s new equipment?
Retained profit allows StyleWise to buy the equipment immediately without taking on debt or paying interest, making it the most cost-effective and low-risk choice for this essential purchase.
Leasing equipment means StyleWise would pay a monthly fee to it, but would not own it.
Leasing equipment means StyleWise would pay a monthly fee to use it, but would not own it.
Define internal source of finance.
An internal source of finance is money that comes from within a business, such as owners’ capital, retained profit, or money from selling assets.
Define external source of finance.
An external source of finance is money introduced into a business from outside sources, such as loans or share capital.
Retained profit is profit that has been generated in earlier years and to owners, but reinvested back into the business.
Retained profit is profit that has been generated in earlier years and not distributed to owners, but reinvested back into the business.
What is a sale and leaseback arrangement in business finance?
A sale and leaseback arrangement is when a business sells an asset, such as a building, to receive cash and then rents the asset back from the new owner to continue using it.
A business can generate additional finance internally by managing its more effectively.
A business can generate additional finance internally by managing its working capital more effectively.
True or False?
Internal sources of finance always require the payment of interest or fees.
False.
Internal sources of finance are often free, as they do not involve interest or charges.
Why can only limited companies raise finance by selling shares?
Only limited companies, such as Ltds or PLCs, can raise finance by selling shares because sole traders and partnerships are not legally allowed to issue shares.
Finance needed for less than one year is called finance.
Finance needed for less than one year is called short-term finance.
What factors must a business consider when choosing a source of finance?
A business must consider factors such as its size, legal form, the amount required, length of time, existing lending, cost of finance, and the purpose of the finance.
Define bank overdraft as a source of finance.
A bank overdraft is an agreement that allows a business to spend more money than it has in its account, typically for short-term cash flow needs, but with daily interest charges.
True or False?
Leasing an asset means the business owns the asset after the end of the agreement.
False.
Leasing allows a business to use an asset without owning it; ownership does not transfer at the end of the lease.
Why was retained profit the most suitable finance source for StyleWise’s new equipment?
Retained profit was most suitable because it allowed StyleWise to buy the equipment immediately, avoid debt and interest, and have enough profit saved to cover the cost.