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Business Studies > Business Finance > Flashcards

Business Finance Flashcards

1
Q

Payback

A

How long it takes for an investment to pay for itself

Amount still to be paid back / next years cash inflow

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2
Q

Accounting rate of return

A

The profitability of the investment as % of the cost of the investment.
Total inflows - cost of investment = profit
Profit / life of asset (average annual profit)
Aap/ cost of investment

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3
Q

Net present value (NPV)

A

Considers the value of money changing over time

Net return x discount factor

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4
Q

Overdraft

A

When more money can be taken out of the account then is in it

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5
Q

Loan

A

A fixed amount borrowed from a lender on which interest is paid

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6
Q

Trade credit

A

Deferring a payment to a supplier until a later date

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7
Q

Factoring

A

Selling off debts to raise finance

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8
Q

Hire purchase

A

Paying for an item in instalments over a set period of time

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9
Q

Leasing

A

Paying for an asset in instalments but you don’t keep it at the end

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10
Q

Debentures

A

A bond sold by a business to raise capital. Interest is paid to the holder of the bond

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11
Q

Retained profit

A

Using profit kept by the business

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12
Q

Share issuing

A

Selling a part of the business

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13
Q

Sale and Leaseback

A

An asset is sold and rented back to the business

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14
Q

Venture capitalist

A

People lend money to a business in return for a part of it

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15
Q

Government assistance

A

Businesses that operate in certain areas can get money for doing so

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16
Q

Fixed costs

A

Do not change in relation to output

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17
Q

Variable costs

A

Costs that change in relation to output

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18
Q

Total costs

A

Fixed + variable costs

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19
Q

Direct costs

A

Costs that go directly into making the product

20
Q

Indirect

A

Any other cost not going directly pay into production

21
Q

Unit cost

A

The cost to produce, store and sell one unit

22
Q

Average costs

A

Total costs divided by the number produced

23
Q

Marginal cost

A

The cost of producing an extra unit

24
Q

Opportunity cost

A

What is given up when a choice is made

25
Q

Social cost

A

The cost to society when a transaction takes place. Can be negative or positive

26
Q

Accounting principles:

A 
Consistency
Going concern
Matching (accruals)
Materiality
Objectivity
Prudence
Realisation
27
Q

Margin of safety

A

The difference between actual output and the break even output

28
Q

Break even

A

The amount of products you have to sell to make money back

29
Q

Cost centre

A

A specific part of a business where costs can be identified and allocated with reasonable ease

30
Q

Profit centre

A

A separately identifiable part of a business for which it is possible to identify revenues and costs

31
Q

Absorption costing

A

Treats al, costs of production as production costs regardless of whether they’re variable or fixed

32
Q

Standard costs

A

Forecasted costs (what a business expects them to be)

33
Q

Budget

A

A financial plan for the future concerning the revenues and costs of a business

34
Q

Budgeting control

A

The process by which financial control is exercised within a business

35
Q

Cashflow

A

The movement of cash in and out of the business

36
Q

Cash inflows

A

Money coming into a business

37
Q

Cash outflows

A

Money leaving a business

38
Q

Net cash flow

A

Difference between totals inflows and outflows

39
Q

Opening balance

A

Balance at start of period

40
Q

Closing balance

A

Balance at end of period

41
Q

Depreciation

A

The drop in value of an asset over time

42
Q

Net book value

A

Cost - the amount written off

43
Q

Accumulated depreciation

A

Depreciation added up

44
Q

Residual value

A

Value at the end of an assets life

45
Q

Straight line method

A

The value of the asset is reduced equally per year over its life time
Initial cost - residual value all divided by life of asset

46
Q

Reducing balance method

A

Applies a constant percentage rate of depreciation each year

Business Studies (7 decks)

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