OCR A-Level Business finance overview quiz quiz

Internal finance comes from within the business; external finance comes from outside

Internal finance always carries interest and must be repaid to outside lenders on a fixed schedule

External finance never has to be repaid

They are the same thing

Long-term finance is always cheaper

Matching avoids funding a long-lived asset with short-term finance that could be recalled before it pays for itself

The law requires it

Short-term finance cannot legally be used by any company to fund any kind of asset at all, whether long-lived or current

40

15

10

25

400 units

40,000 units

400,000 units

4,000 units

Because of timing, for example customers paying late while the firm pays for stock up front

Profit and cash are always equal

Profitable firms never run out of cash

Because cash flow only matters to loss-making firms, so a profitable firm can safely ignore its cash position

Opening balance minus inflows

Opening balance plus net cash flow

Inflows minus outflows only

Net cash flow times the number of months

6.7%

15%

40%

150%

Short-term liquidity

Profit per unit

Long-term reliance on debt, as non-current liabilities over capital employed

The speed of stock turnover, calculated as the cost of sales divided by average inventory held

It is too difficult to calculate

It always rejects profitable projects that have a slow but steady return

It requires a discount rate

It ignores cash flows after payback and the time value of money

It accounts for the time value of money, discounting future cash flows to today's value

It is easier to calculate

It ignores the cost of capital entirely, treating future cash flows as worth the same as cash today

It needs no forecasts