2.1.1 Internal finance Flashcards
Asset:
Types:
Things of value
E.g. stock, machinery
1) current asset (bank balance)
2) fixed asset (land/building)
Liability:
Types:
Something that costs the business
E.g. wages, rent (owed), taxes
1) current (short term debts)
2) fixed (mortgages)
Return of assets:
Indicator of how profitable a company is relative to its total assets
Working capital:
-finance available for the day to day running of the business
money that you have left after you have paid your short- term debts –
-money to ‘play around with’, or a contingency
High working capital
Pay supplier cash on delivery Hold high inventory levels Grant customers 45 days credit Low cash flow Low return of assets (how profitable a company assets are in generating revenue)
Low working capital
45 days credit from suppliers ‘Just in time’ inventory levels Customers pay cash on delivery High cash flow High return of assets
Capital:
Amount of cash/other assets owned
accumulated wealth of business (assets - liabilities)
Can also mean stock/ownership
Capital intensity:
Using more machines than people
‘Becoming more capital intensive’
Sources of finance:
Types:
Options available to a business seeking to raise funds = support future business actions
1) internal (within business) e.g retained profit
2) external (outside business) e.g loans, selling shares
Capital expenditure:
- Spending on business resources
- used repeatedly over a period of time e.g buildings, equipment
Revenue expenditure:
Spending in business resources that have already been consumed or will be very shortly e.g. raw materials, packaging
Internal source of finance:
Capital generated by business/current owners
Need sources of finance for:
Investing in product development
Running (utilities)
Start up
Expansion/growth
Equity:
amount of money that would be returned
to a company’s shareholders
if all of the assets were liquidated
Owners capital or Shareholders Equity or personal savings
money:
business owners (if sole proprietorship or partnership) or shareholders (if it is a corporation)
invested in their businesses.
Money invested by the business owner such as personal savings
