Business finance Flashcards
what is business finance
how businesses get money to finance growth
What is capital expenditure?
Money needed to invest in fixed assets like buildings and equipment, especially for new businesses.
what is working capital
Money needed to finance the day-to-day running of a business, like buying stock and paying wages or bills.
what is investment capital
Money that helps the business grow.
What are some internal sources of finance?
Reinvested profits, working capital, sale of assets, and owners’ savings.
What is retained profit?
A source of finance that comes from reinvested business profits, often used for growth
What is a key advantage of using retained profit?
It’s the cheapest form of finance as no interest has to be paid.
What is an overdraft?
A facility allowing a business to withdraw more money than it has in its bank account, creating a negative balance.
What is a key disadvantage of using retained profit?
It ties up money in the business, creating an opportunity cost, and can restrict profit distribution to owners.
What is a bank loan?
Borrowing a fixed amount for a fixed period, such as 3-5 years, with monthly interest and capital payments.
What is a key advantage of a bank loan?
Provides immediate funds for medium to long-term borrowing.
what is leasing
Gaining use of an asset without owning it, with the leasing company covering maintenance and repair.
What is a disadvantage of a bank loan?
Interest must be paid, and security (collateral) may be required.
What is trade credit?
When businesses buy goods and pay for them at a later date, typically between 30-90 days.
what is factoring
A method where businesses sell invoices to a financial organization to get cash quickly.
