29 - Business finance Flashcards
Define start-up capital
the capital needed by an entrepreneur to set up a business
Define working capital
the capital needed to pay for raw materials, day-to-day running costs and credit offered to customers
Define short-term finance
money required for short periods of time of up to one year
Define long-term finance
money required for more than one year
Define profit
the value of goods sold(revenue) less costs
Define liquidity
the ability of a business to pay its short-term debts
Define bankruptcy
the legal procedure for liquidating a business which cannot fully pay its debts out of its current assets
Define liquidation
when a business ceases trading and its assets are sold for cash to pay suppliers and other creditors
Define current assets
assets that either are cash or likely to be turned into cash within 12 months
Define current liabilities
debts that usually have to be paid within one year
Define capital expenditure
is money spent on fixed assets such as factories and machinery, these items are used for the long term
Define revenue expenditure
the money spent on everyday running costs of the business such as raw material and components of products
Define internal sources of finance
raising finance from the business’s own assets or from profits left in the business
Define external sources of finance
raising finance from outside the business, for example banks
Define retained earnings
profit after tax retained in a company rather than paid out to shareholders as dividends
Define non-current assets
assets kept and used by the business for more than one year
Define overdraft
a credit that a bank agrees can be borrowed by a business up to an agreed limit as and when required
Define Debt factoring
selling of claims over trade receivabled to a specialist organisation in exchange for immediate liquidity
Define hire price
a company purchases an asset and agrees to pay fixed repayments over an agreed time period. the asset belongs to the purchasing company once the final payment has been made
Define leasing
obtaining the use of an asset and paying a leasing charge over a fixed period, avoiding the need to raise long-term capital to buy the asset. the asset is owned by the leasing company
Define long-term loans
loans that do not have to be rapid for at least one year
Define debentures (loan stock or corporate bonds)
long-term bonds issued by companies to raise debt finance, often with a fixed rate of interest
Define share capital
permanent finance raised by companies through the sale of shares
Define business mortgages
long-term loans to companies purchasing a property for business premises, with the poperty acting as collateral security on the loan
Define venture capital
risk capital invested in business startups or expanding small businesses that have good profit potential but do not find it easy to gain finance from other sources
Define collateral security
an asset which a business pledges to lender and which must be sold off to pay a debt if loan is not repaid
Define rights issue
existing shareholders are given to buy additional shares at a discounted price
Define microfinance
providing financial services for poor and low-income customers who do not have access to the banking services, such as loans and overdrafts, offered by traditional commercial banks
Define crowd funding
the use of small amounts of capital from a large number of individuals to finance a new business venture
