IGCSE Section 5: Financial Information & Decisions

What is start-up capital in a business?

• The money spent on day-to-day expenses like wages and rent

• The money needed to pay day-to-day running expenses

• The initial capital used to buy fixed and current assets before trading

• The money spent on long-term assets like vehicles and machinery

What is the advantage of using retained profit as a source of finance?

• It is a permanent source of capital and no need to repay the money to shareholders

• It is available to the firm quickly and no interest has to be paid

• It provides immediate cash to the business and the business doesn't have to handle debt collecting

• It does not have to be repaid and no interest has to be paid

What is the disadvantage of using owner's savings as a source of finance?

• It increases the risk taken by the owners

• It makes better use of capital tied up in the business

• It reduces costs of inventory holding

• It does not become debt for the business, unlike a loan

What is the advantage of issuing shares for a limited company?

• The ownership of the business will change hands

• The company doesn't have to repay the money to shareholders

• The business can get very low rates of interest on their loans

• The bank can ask for the overdraft to be repaid at a short notice

What is the disadvantage of bank loans as a source of finance?

• Need to pay interest on the loan and it has to be repaid after a specified length of time

• The debt factor will get a percent of the debts collected and the business doesn't get all of their debts

• The bank can claim your property if the loan isn't repaid

• Quick to arrange a loan and can be for varying lengths of time

What is the advantage of using trade credits as a source of finance?

• The business can decide to buy the asset at the end of the leasing period

• The business doesn't have to handle debt collecting

• The bank can ask for the overdraft to be repaid at a short notice

• No interests, repayments involved

What is the advantage of using hire purchase as a method of finance?

• The firm doesn't need a large sum of money to use the asset

• The firms doesn't need a large sum of cash to acquire the asset

• The firm doesn't need to repay the money to shareholders

• The firm doesn't need to handle debt collecting

Why is cash important to a business?

• To increase business assets

• To improve long-term investments

• To cover short-term/day-to-day costs

• To enhance employee benefits

What of the following constitutes a "cash inflow" for a business?

• Repaying loans

• Purchasing fixed assets

• Paying creditors

• Sales revenue

What is an example of a "cash outflow" for a business?

• Purchasing raw materials

• Receiving payments from debtors

• Borrowing money from external sources

• Selling shares