chapter 29 business finance Flashcards
start-up capital
the capital needed by an entrepreneur to set up a business
working capital
the capital needed to pay for raw materials, day-to-day running costs and credit offered to customers
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
administration
when administrators manage a business that is unable to pay its debts with the intention of selling it as going concern
bankruptcy
the legal procedure for liquidating a business (or property owned by a sole trader) which cannot fully pay its debt out of its current assets
liquidation
when a business ceases trading and its assets are sold for cash to pay suppliers and other creditors
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
capital expenditure
the purchase of non-current assets that are expected to last for more than one year, such as buildings and machinery
revenue expenditure
spending on all costs and assets other than non-current assets , which includes wages, salaries and inventory of materials
internal sources
raising finance from the business’s own assets or from profits left in the business (retained earning)
external sources
raising finance from sources outside the business for ex banks
retained earnings
profit after tax retained in a company rather than paid out to shareholders as dividends
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
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
factoring
selling of claims over trade receivables (debtors) to a specialist organisation (debt factor) in exchange for immediate liquidity
leasing
obtaining the 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 debts finance, often with a fixed rate of interest
share ( or equity ) capital
permanent finance raised by companies through the sales of shares
business mortgages
long-term loans to companies purchasing a property for business premises, with the property acting as collateral security on the loan
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
collateral security
an asset which a business pledges to a lender and which must be sold off to pay a debt if the loan is not repaid
rights issues
existing shareholders are given the right to buy additional shares at a discounted price
microfinance
providing financial services for poor and low-income customers who do not have access to the banking services, such as loans and overdrafts, offered by traditional commercial banks
crowd funding
the use of small amounts of capital from a large number of individuals to finance a new business venture
