Business Finance Flashcards
Definitions
Business finance
Monetary funds that are required to start a business.
Administration
When the administrators manage a business that is unable to pay its debts with the intention of selling it as a going concern.
Bankruptcy
The legal procedure for liquidating a business which cannot fully pay its debts out of its current assets.
Liquidation
When a business ceases trading and its assets are sold for cash to pay suppliers and other creditors.
Start up capital
Capital required by an entrepreneur to start a business.
Working capital
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
Capital expenditure
The capital needed to purchase of the assets that are expected to last for more than one year, such as land, building and machinery.
Revenue expenditure
The expenditure involved on all costs other than the fixed assets. E.g.: Salary, wages, materials bought for stock etc.
Short-term finance
Money required for short periods of time of up to one year.
Long-term finance
Money required for more than one year.
Profit
The value of goods sold (revenue) less costs.
Liquidity
The ability of a business to pay its short-term debts.
Current assets
Assets that either are cash or likely to be turned into cash within 12 months (inventory and trade receivables or debtors)
Current liabilities
Debts that usually have to be paid within one year
Retained earnings
Profit after tax retained in a company rather than paid out to shareholders as dividends.
Internal sources
Raising finance from the business’s own assets or from profits left in the business (retained earnings).
External sources
Raising finance from sources outside the business, for example banks.
Non-current assets
Assets kept and used by the business for more than one year.
Overdraft
A credit that a bank agrees can be borrowed by a business up to an agreed limit as and when required.
Factoring
Selling of claims over trade receivables (debtors) to a specialist organisation (debt factor) in exchange for immediate liquidity.
Hire purchase
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.
Leasing
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.
Long-term loans
Loans that do not have to be repaid for at least one year.
Debentures
Long-term bonds issued by companies to raise debt finance, often with a fixed rate of interest.
