Capital Flashcards
What is capital?
Capital is a general term for resources that can create value for the business. It can refer to financial assets, physical resources, or human skills.
State the 4 types of capital
Start up capital
Working capital
Investment capital
Venture capital
What is start-up capital?
Start-up can be defined as the resources needed when creating a business. For example the funding required for the business.
State the steps in starting a business
Market research
Business plan
Start-up capital
Funding
Buy/Franchise
Choose a structure
Register for VAT
Business bank account
Insurance
Financial management
What is working capital?
Working capital is the money available to meet the day to day needs of the business. It is calculated as CURRENT ASSETS – CURRENT LIABILITIES.
What assets are in the current assets?
- Stock/inventory
- Debtors/accounts receivables
- Bank
- Prepayments
- Cash
What liabilities are in current liabilities?
- Creditors
- Accruals
- Bank overdraft
- Short term loans
Outline the difference between liquidity a profitability?
Liquidity is the amount of physical cash a business has while profitability is the amount a business makes.
Explain the difference between overtrading and over-capitalisation?
This is when working capital is too low to support daily operations and too high leading to inefficiency.
Define investment capital.
This is capital required for the purchase of assets for the business.
State the difference between debit and equity financing.
Debit financing is when a business borrows money from a financial institute, while a equity financing is when a business sell its shares/ ownership to someone to gain money.
NB: A business may apply for a loan from someone but later on they could decide to give that person a portion of ownership if they cannot pay back the interest.
What is a bank overdraft?
An agreement where a business is allowed to draw cheques in excess of its account balance at the bank. The limit of the overdraft would be specified in the
agreement.
State the differences between the money market, capital market, and stock exchange.
A market where financial institutions such as banks lend and borrow money from each other on a short-term basis. A capital market involves the buying and selling of company stocks and shares and government bonds. The stock exchange is where the trading in the stock market is done.
