2.1 Raising finance

Question 1

capital

Answer 1

the money provided by the owners in a business

Question 2

capital expenditure

Answer 2

spending on business resources that can be used repeatedly over a period of time

Question 3

internal finance

Answer 3

money generated by the business or its current owners

Question 4

retained profit

Answer 4

profit after tax that is ‘ploughed back’ into the business

Question 5

revenue expenditure

Answer 5

spending on business resources that have already been consumed or will be very shortly

Question 6

sale and leaseback

Answer 6

the practice of selling assets, such as property or machinery, and leasing them back from the buyer

Question 7

authorised share capital

Answer 7

the maximum amount that can be legally raised

Question 8

bank overdraft

Answer 8

a business can spend more money than it has in its account, the overdraft limit is agreed and interest is only charged when the business goes overdrawn

Question 9

capital gain

Answer 9

the profit made from selling a share for more than it was bought

Question 10

crowd funding

Answer 10

where a large number of individuals invest in a business or project on the internet, avoiding the use of a bank

Question 11

debenture

Answer 11

a long-term loan to a business

Question 12

equity

Answer 12

an ordinary share

Question 13

external finance

Answer 13

money raised from outside the business

Question 14

issued share capital

Answer 14

amount of current share capital arising from the sale of shares

Question 15

lease

Answer 15

a contract to acquire the use of resources such as property or quipment

Question 16

peer-to-peer lending (P2PL)

Answer 16

where individuals lend to other individuals without prior knowledge of them, on the internet

Question 17

secured loans

Answer 17

a loan where the lender requires security, such as property, to provide protection in case the borrower defaults

Question 18

share capital

Answer 18

money introduced into the business through the sale of shares

Question 19

unsecured loans

Answer 19

where the lender has no protection if the borrower fails to repay the money owed

Question 20

venure capitalism

Answer 20

providers of funds for small or medium-sized companies that may be considered too risky for other investors

Question 21

collateral

Answer 21

an asset that might be sold to pay a lender when a loan cannot be repaid

Question 22

incorporated business

Answer 22

a business model in which the business and the owner have separate legal identities

Question 23

limited liability

Answer 23

a legal status that means shareholders can only lose the original amount they invested in a business

Question 24

long-term finance

Answer 24

money borrowed for more than one year

Question 25

rights issue

Answer 25

issuing new shares to existing shareholders at a discount

Question 26

short-term borrowing

Answer 26

money borrowed for 12 months or less

Question 27

undercapitalised

Answer 27

a business not raising enough capital when setting up

Question 28

unincorporated businesses

Answer 28

a business model in which there is no legal difference between the owner and the business

Question 29

unlimited liability

Answer 29

a legal status which means that business owners are liable for all business debts

Question 30

business plan

Answer 30

a plan for the development of a business, giving details such as the products to be made, resources needed, and forecasts such as costs, revenues and cash flow

Question 31

cash-flow forecast

Answer 31

the prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month

Question 32

cash inflows

Answer 32

the flow of money into a business

Question 33

cash outflows

Answer 33

the flow of money out of a business

Question 34

net cash flow

Answer 34

the difference between the cash flowing in and the cash flowing out of a business in a given time period

Question 35

solvency

Answer 35

the degree to which a business is able to meet its debts when they fall due