Business Finance

Question 1

Business finance

Answer 1

Monetary funds that are required to start a business.

Question 2

Administration

Answer 2

When the administrators manage a business that is unable to pay its debts with the intention of selling it as a going concern.

Question 3

Bankruptcy

Answer 3

The legal procedure for liquidating a business which cannot fully pay its debts out of its current assets.

Question 4

Liquidation

Answer 4

When a business ceases trading and its assets are sold for cash to pay suppliers and other creditors.

Question 5

Start up capital

Answer 5

Capital required by an entrepreneur to start a business.

Question 6

Working capital

Answer 6

The capital needs to pay for the raw material, day to day running
costs and credit offered to customers.
Working capital/Net Current Assets = Current Assets - Current Liabilities

Question 7

Capital expenditure

Answer 7

The capital needed to purchase of the assets that are expected to last for more than one year, such as land, building and machinery.

Question 8

Revenue expenditure

Answer 8

The expenditure involved on all costs other than the fixed assets. E.g.: Salary, wages, materials bought for stock etc.

Question 9

Short-term finance

Answer 9

Money required for short periods of time of up to one year.

Question 10

Long-term finance

Answer 10

Money required for more than one year.

Question 11

Profit

Answer 11

The value of goods sold (revenue) less costs.

Question 12

Liquidity

Answer 12

The ability of a business to pay its short-term debts.

Question 13

Current assets

Answer 13

Assets that either are cash or likely to be turned into cash within 12 months (inventory and trade receivables or debtors)

Question 14

Current liabilities

Answer 14

Debts that usually have to be paid within one year

Question 15

Retained earnings

Answer 15

Profit after tax retained in a company rather than paid out to shareholders as dividends.

Question 16

Internal sources

Answer 16

Raising finance from the business’s own assets or from profits left in the business (retained earnings).

Question 17

External sources

Answer 17

Raising finance from sources outside the business, for example banks.

Question 18

Non-current assets

Answer 18

Assets kept and used by the business for more than one year.

Question 19

Overdraft

Answer 19

A credit that a bank agrees can be borrowed by a business up to an agreed limit as and when required.

Question 20

Factoring

Answer 20

Selling of claims over trade receivables (debtors) to a specialist organisation (debt factor) in exchange for immediate liquidity.

Question 21

Hire purchase

Answer 21

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.

Question 22

Leasing

Answer 22

Obtaining thee 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.

Question 23

Long-term loans

Answer 23

Loans that do not have to be repaid for at least one year.

Question 24

Debentures

Answer 24

Long-term bonds issued by companies to raise debt finance, often with a fixed rate of interest.

Question 25

Share (or equity) capital

Answer 25

Permanent finance raised by companies through the sale of shares.

Question 26

Business mortgages

Answer 26

Long-term loans to companies purchasing a property for business premises, with the property acting as collateral security on the loan.

Question 27

Venture capital

Answer 27

Risk capital invested in business start-ups or expanding small businesses that have good profit potential but do not find it easy to gain finance from other sources.

Question 28

Collateral security

Answer 28

An asset which a business pledges to a lender and which must be sold off to pay a debt if the loan is not repaid.

Question 29

Rights issue

Answer 29

Existing shareholders are given the right to buy additional shares at a discounted price.

Question 30

Microfinance

Answer 30

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.

Question 31

Crowd funding

Answer 31

The use of small amounts of capital from a large number of individuals to finance a new business venture.