Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

business > debt finance and business accounts (w8) > Flashcards

debt finance and business accounts (w8) Flashcards

1
Q

which 2 methods do companies use to raise money throughout their lifecycle

A

1- equity finance
2- debt finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

define debt finance

A

company borrows money which may be secured by fixed or floating charge over its property, machinery and assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

define equity finance

A

raised by share dealings- so some founders transfer shares to others or company issues new shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what are the 3 main ways to raise equity

A

1- retained earnings
2- rights issue
3- new issue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

define retained earnings

A

cumulative profits that are reinvested in business instead of being paid to shareholders as dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

define rights issue

A

additional allotment of shares to existing shareholders - which they will pay subscription price for

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what considerations should company take into account during rights issue

A
  • cost of issuing new shares
  • consequent change in control
  • shareholders’ reaction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

define new issue

A

the new issue of shares to the public

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

define preference and ordinary shares

A
  • preference shares require dividends paid out each period ahead of other shareholders but no voting rights
  • ordinary shares require right to vote in company but no requirement of set dividend to be paid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what are the 2 ways companies propect themselves against under subscription of shares within issuing new shares? + define

A
  1. underwriting- promise by institution(s) to buy any shares not subscribed by public in return for fixed fee
  2. Offer for tender- not to fix the price but to invite public to tender for shares at price they are happy to pay
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what is the share capital

A

the sum value of all shares in a company
- permanent fund to creditors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

define nominal value of shares

A

the figure attributed to each share on incorporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

define paid up shares

A

on issuing shares, company can require shareholders to pay up all or part or nominal value of shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

define called up shares

A

if shares not fully paid for on allotment, company may require remainder to be paid at later date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

define share premium

A

the difference between nominal value and market value of shares (extra amount you pay on top pf nominal val)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

define market value

A

value that share can be purchased for on market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is the doctrine of maintenance of share capital?

A

law requires for companies to not artificially reduce or diminish share capital in unauthorised ways other than ordinary course of business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what are the main methods of a company altering their share capital

A
  • allotment
  • share buyback
  • subdivision or consolidation
  • statutory reduction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

define subdivision or consolidation altering of share capital

A

-subdivision- company may subdivide shares into with the same class into smaller nominal valued shares
- consolidation- company may consolisate existing shares with same class right but higher nominal val
requires SR + court authorisation!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

define statutory reduction to alter share capital

A

company could reduce its capital to:
1- pay back shareholders
2- company assets no longer represent true value of company
3- to create distributable reserves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

true or false?
public companies cannot give financial assistance to individuals to enable them to purchase company shares

A

True- public companies are prohibited from doing this

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

name the 4 different types of debt finance

A

1- overdraft
2- term loan
3- resolving credit facility
4-bonds

23
Q

name pros and cons of overdraft

A

+flexible
+instant access to funds
- expensive
- repayable to bank on demand

24
Q

name pros and cons of term loan

A

+borrower has certainty
+allows borrower to budget
- difficult
- expensive
- less flexible than overdraft

25
Q

name pros and cons of resolving credit facility

A

+ flexible
- borrower may be required to maintain balance of £0
- bank charges commitment fee to keep facilities open
- less flexible than overdraft

26
Q

name pros and cons of bonds

A

+ certainty by setting out all details
+ can also be treated as capital markets
- returns exposed to interest rate = expensive

27
Q

what does it mean for debt to be secured

A

lender has taken security- giving it rights river asset of company in event that company cannot repay back its debts or goes insolvent
* secured creditors rank higher on liquidation

28
Q

what are the 6 forms of security?

A

1- debenture
2- fixed charge
3- floating charge
4- mortgage
5- guarantee
6- book debt

29
Q

define debenture - security

A

form of debt security issued by a company

30
Q

define fixed charges- security

A

charge taken over identified asset, preventing borrower from disposing of asset without consent of lender
- if borrower defaults on loan, lender can taken possession of property

31
Q

define floating charges- security

A

a charge over a class of assets which in ordinary course of business would change from time to time and until some future step is taken to crystallise, company may carry on trade in ordinary way regarding these assets

32
Q

what does it mean to crystallise a floating charge

A

make floating charge a fixed charge where:
- company is becoming insolvent
- company is ceasing to trade
- company is appointing a receiver

33
Q

define a mortgage security

A

it transfers title to asset to mortgagee subject to equity of redemption
* title will be transferred back to mortgagor on repayment of debt
* company cannot sell asset without permission

34
Q

define a guarantee security

A

An enforceable promise by third party that in event of borrower’s default, guarantor will repay money to lender

35
Q

how is a charge registered?

A

MR01 form, charge instrument and a fee sent to Companies House

36
Q

what is the deadline to register a charge (security)

A

Within 21 days beginning day after date of charge, otherwise, charge is void and immediately payable.

37
Q

what is the priority of securities?

A

all fixed and floating charges are ranked by date of creation
** fixed charges will always have priority over floating charges

38
Q

how is charge by way of legal mortgage registered and prioritised?

A

via land registry by date of registration

39
Q

which 2 parts does a business’ main financial statement consist of?

A

1- balance sheet
2- profit and loss account

40
Q

what is a gearing ratio & its formula

A

compares the size of company’s share capital with the amount it has borrowed to see how highly leverage is
*formula= long term liabilities divided by share capital and reserves x 100 (p147)

41
Q

what is current ratio & its formula?

A

aims to establish if a company would be able to pay all of its short-term liabilities using its current assets
*formula= current assets divided by current liabilities

42
Q

what is quick ration & its formula?

A

variant of current ratio but considers only liquid assets
*formula= current assets less stock divided by current liabilities

43
Q

what is return on capital employed & its formula?

A

measure of how efficiently a company is utilising its capital to generate profit
*formula= net pre-tax profit divided by shareholder funds + long term liabilities x 100

44
Q

what is earnings per share & its formula

A

how profitable each ordinary share in a company is once the effect of any preference shares has been accounted for
*formula= net income - preferred dividends divided by numbers of ordinary shares

45
Q

what are trial balances

A

-shows all credit and debit entries for business in its accounting period
- information from this is used for P&L accounts & balance sheet
- ALCIE is each ledger on the trial balance sheet (p149)

46
Q

define the profit and loss account

A

records income minus expenses of business over accounting period- showing if business made profit or loss

47
Q

define the balance sheet

A

records assets, liabilities and capital of business at specific point in time
- top half= Net Asset Value
- bottom half= equity or capital in business
*top half and bottom half must always balance

48
Q

what are year-end adjustments?

A

adjustments made to trial balance to ensure that accounts truely reflect the incoming and outcomings in any accounting period

49
Q

what are 4 forms of year-end adjustments?

A

1- depreciation
2- accruals
3- prepayments
4- bad and doubtful payments

50
Q

define depreciation adjustments and the 2 ways to calculate depreciation

A

net book value = original asset cost minus accumulated depreciation= current value of assets
1- straight-line method- same charge of depreciation applied each year
2- reducing balance method- if asset is likely to depreciate more rapidly soon after being purchased

51
Q

define accrual adjustments

A

where business has benefitted from service or goods within an accounting period but hasn’t paid for them yet

52
Q

define prepayment adjustments

A

business has paid for goods or services in advance and has not benefitted from them in current accounting period

53
Q

define bad debt adjustments

A

money owed to business that business knows it will not recover so they can be written off as bad debt

54
Q

define doubtful debt adjustments

A

when a business thinks some of its debts might not be paid off- shown on balance sheet as liability and deducted from total receivables

business (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions