2.3 Raising Finances Flashcards
Why do businesses raise finance?
-To pay debts
-To help a business over a slow trading period
-To expand
-To start-up a business
-To buy stock
What are some examples of ways to raise finance internally?
-Owners capital
-Retained profit
-Sale of assets
What are peer loans?
These are unsecured loans without going to a bank.
What are some examples of peer loans?
-Student loans
-Payday loans
-Debt factoring
-Lease agreements
What is angel financing?
When an investor takes shares of your business in return for providing equity finance.
What does the gearing ratio measure?
This measures how reliant a firm is on borrowed money.
How do you calculate the gearing ratio.
Loan capital
————————– x100
Capital employed
Why is gearing used?
If a business has a high gearing ratio(over 50%), then they may not sustain any further significant borrowing.
What is venture capital?
When a investor invests large sums of money in a business for shares in the company.
What is a lease?
When a business ‘rents’ equipment such as cars, so they can update them regulalry. They never own the equipment.
What is trade credit?
This is when the seller gives the buyer a period of time before they need to pay them. So they buyer can sell them before paying for them.
What are the types of profit?
-Gross profit
-Operating profit
-Net profit
How is gross profit calculated?
Sales revenue - Cost of sales
What is the gross profit margin?
Gross profit
———————- x100
Sales revenue
What is gross profit used for?
It allows the business to see their gross profit as a percentage of there sales revenue.
