Finance Flashcards
What’s the definition of share issue
Raising equity from share holders
What’s the definition of a over draft
An agreement to overspend on a bank account
What is a mortgage
A loan to purchase property
What is a bank loan
Money repaid from banks with interest
What is crowd funding
Raising finance for a project by gathering sums of money from a large group of people in the internet
What is debt factoring
Selling the value of invoices to a factor
What is hire purchase
Finance to buy a asset
What is a grant
Finance from the government
What is debentures
A long term loan sold on the stock market
What is venture capital
When a investor gives money to a risky business
What is a retained profit
Profit carried forwards from previous years
What is sale of assets
The selling of unnecessary equipment
What is a cash budget
Cash flow is all the money that comes into and goes out of a business in a month
What is a income statement?
An income statement shows the business’ financial performance over a given time period e.g. one year
What does a income statement show? (3)
Sales revenue - the amount of money received for selling goods or services
Gross profit - the profit made from buying and selling goods. Gross profit is calculated by deducting cost of sales from sales revenue
Profit for the year - the profit made after all other operating expenses have been deducted from the gross profit
What is the purpose of a income statement? (4)
- shows the profit/loss made by the company from the buying and selling of goods
- can be used to compare gross profit and profit for the year over different years of trading to identify any trends and to aid decision making
- comparisons can be made with similar companies in the same industry
- can be used to compare expenses and sales over the years or between department to see if there are any areas where they can be minimised or improved
What are ways you can fix cash flow problems ? (4)
- find a cheaper supplier, This will reduce the cost of purchases meaning more cash available from each sale
- less machinery or equipment-This allows a business to spread the cost of the purchase over many months
- Apply for a loan or overdraft from the bank, This will help to cover immediate cash flow problems but will need to be paid back over time with interest
- Increase advertising or sales promotion, This will increase sales meaning more cash coming into the business
What’s the benefits of preparing a cash budget? (4)
-It can identify any times where there may be a shortage of cash. This will allow the business to plan ahead and arrange extra funding such as a bank overdraft.
-It can help to regulate expenses. Any months where expenses are high will be highlighted by a cash budget.
—It will clearly show where a business has more cash than expected (surplus) or less cash than expected (deficit). This will allow a business to plan more effectively and make better decisions.
It can be used to show potential lenders or investors. This can help to secure investment in the business
What are the main items shown on a cash budgets (4)
- opening balance, cash set at start of financial period
- incomes- any money recieved
- expenditure p- any money spent
- closing balance, cash at end of financial period
What are reasons cash flow problems may arise(4)
-low sales
-too much money tied up in stock
-customers taking too long to pay their bills
suppliers not allowing credit or a limited credit period
-owner taking too much money out the business, this is also known as drawings
Impact on cash flow problems
- unable to pay suppliers meaning stock is not delivered and production stops
- may need to find a cheaper supplier which may reduce the quality of products
- costs may increase due to interest on any extra funds borrowed
- no money to invest in future growth
- owner may need to reduce their drawings
What’s the purpose of a cash budget (4)
- can measure performance
- helps motivate employees as it sets a target
- helps managers make decisions
- identifies deficits
What are the main items shown on a income statement (5)
Sales revenue- income made from trading
-cost of sales- costs of raw materials used in financial year
-gross profit- profits made from buying and selling stock
Expenses- overheads like wages
-profit of the year- overall profits deducting expenses
What’s an advantage and disadvantage of share issue
A -large amounts can be raised
DA- dilutes ownership as shareholders get a say in the running of the business
