117 – 122 Finance Key terms Flashcards
What is a budget?
A budget is a financial plan for the future aimed at controlling expenditure and/or revenues.
What are internal sources of finance?
Internal sources of finance are generated from within the business, e.g. owner’s capital, sale of assets, reinvested profit.
What are external sources of finance?
External sources of finance are those raised from outside of the business, e.g. money raised from share issue/capital, overdraft, venture capital, bank loan, hire purchase, leasing, trade credit, debt factoring.
What is an overdraft?
An arrangement where a bank allows its customer to take out more money than is in their account, usually for short term use.
What is a loan?
A loan is an agreed sum borrowed from the bank paid back over a set period of time (long term) with additional interest.
What is share capital?
Share capital is the money invested in a company by the shareholders, providing them a share of the ownership.
What is venture capital?
Venture capital usually invests in small-medium high risk growing businesses in return for a high stake and a direct say in how the business is run.
What is leasing?
Leasing is where a business pays for the use of an asset/equipment but will never own the asset, improving short term cash flow.
What is trade credit?
Trade credit is when a business buys goods but agrees to pay for them at a later scheduled date.
What is debt factoring?
Debt factoring allows a business to raise cash by selling their outstanding sales invoices to a third party at a discount.
What is a cash flow forecast?
A cash flow forecast is a projection of the likely cash inflows and outflows in a business.
What is an income statement?
An income statement shows the business’ financial performance over a given time period, showing gross profit and net profit.
What is gross profit?
Gross profit calculates a company’s revenues minus its cost of goods sold.
What are cost of goods sold?
Cost of goods sold are the direct costs related to the supply of a product/service.
What is net profit?
Net profit measures the revenue minus all of the expenses, calculated as gross profit minus expenses.
