Business finance 5.1 Flashcards
Define the term “Start-up capital”
The capital needed by an entrepreneur to set up a business.
Define the term “Working capital”
The capital needed to pay for raw materials, day-to-day expenses and credit offered to customers.
Define the term “Liquidity”
The ability of a firm to be able to pay its short-term debts.
Define the term “Liquidation”
When a firm ceases trading its assets are sold for cash to pay suppliers and other creditors.
Define the term “Capital expenditure”
The purchase of assets that are expected to last for more than one year, such as building and machinery.
Define the term “Revenue expenditure”
Spending on all costs and assets other than fixed assets and includes wages and salaries and materials bought for stock.
Define the term “Overdraft”
The term overdraft refers to the situation where an individual or institution borrow more money than what they own from the bank though interest must be paid on the extra money borrowed.
Define the term “Factoring”
Selling of claims over trade receivables to a debt factor in exchange for immediate liquidity. Only a proportion of the value of the debts will be received will be received as cash.
Define the term “Hire purchase”
An asset is sold to a company that agrees to pay fixed repayments over an agreed time period - the asset blonds to the company.
Define the term “Leasing”
Obtaining the use of equipment or vehicles and paying a rental or leasing charge over a fixed period, this avoids the need for the business to raise long-term capital to buy the asset; ownership remains with the leasing company.
Define the term “Equity finance”
Permanent finance raised by companies through the sale of shares.
Define the term “Long-term loans”
Loans that do not have to be repaid for at least one year.
Define the term “Long-term bonds or debentures”
Bonds issued by companies to raise debt finance, often with a fixed rate of interest.
Define the term “Rights issue”
Existing shareholders are given the right to buy additional shares at a discounted price.
Define the term “Venture capital”
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.
