Finance Flashcards
Capital expenditure
Finances spent on fixed assets
Revenue expenditure
Finances spent on daily operations
Examples of capital expenditure
- capital
- Land
- vehicles
-furniture
Examples of revenue expenditures
- electrical bills
- insurance
-wages and salaries - supplies and raw materials
Collateral
Assets which look good to investors and and the bank
Internal sources of finance
Money or funds that come from within the business
Business angels
Extremely wealthy individuals who invest their own money into small/ medium sized businesses which have growth potential
Crowd funding
The practice of easing finance for a business venture or project by getting small amounts of money from large numbers of people , usually though online platforms
External sources of finance
When the funds are sourced form outside the business
Internal public offering ( IPO)
When a business converting its legal status to a publicly traded company by selling shares on the stock market for the first time
Internal sources of finance
Funds generated from within the business
Leasing
Form of hiring whereby a lessee pays rental income to hire assets from the lessor , the legal owner of the asset .
Loan capital ( debt capital )
Medium to long term sources of interest baring finance , obtained from commercial lenders , like banks
Long term sources of finance
Finance available for over 12 months
Micro finance
A financial service aimed at entrepreneurs of small businesses
Overdrafts
Allows a business to spend in excess of the amount in their bank account , up to a pre-arranged limit .
Personal funds
Source of initial finance ; referring to the use of an entrepreneur’s own savings
Retained profit
The value of the surplus That a business keeps to use after paying all its required costs
Sale of assets
Selling existing items of value that a business owns , such as dormat assets and absolute assets ( outdated )
Share capital
The money raised from selling shares in a limited liability company
Share issue
An already existing publicly held company raises further finance by selling more of its shares
Short term sources of finance
Finances available for less than 1 year
Stock exchange
A highly regulated market place where individuals and businesses can buy or sell shares in publicly traded companies
Trade credit
Allows a business to postpone payments, but now pay later
Average costs
Average cost per unit of output
Average revenue
Refers to the value of sales received from customers per unit of good
Cost
The sum of money a business pays during the production process
Direct costs
Costa specifically attributed to the production of a specific project or service
Fixed costs
Costa which do not change depending on output
Indirect costs / overheads
Costs which do not directly relate to the production or sale of a specific product
Price
Refers to the amount of money a product is sold for
Profit
Positive difference between a businesses revenue and total costs
Revenue
The amount of money a business earns from the sale of goods and services
Revenue stream
Refers to the money coming into a business from various business activities
Running costs
Ongoing costs of operating a business
Set up costs
The items of expenditure needed to start a business
Total costs
The sum of all variable costs and all fixed costs of production
Total revenue
All the money coming into a business usually from sales of good
Variable costs
Costs that change with output
Total costs Formula
Total fixed costs + total variable costs
Total variable costs Formula
Average variable costs x quantity
Total fixed costs Formula
Average fixed costs x quantity
Average variable costs Formula
Total costs \ quantity
Sales revenue Formula
Price x quantity sold
Gross profit margin formula
(Gross profit / sales revenue ) x 100
Profit Margin
( profit before Interest and tax / sales revenue ) x 100
Return on capital employed ratio
( profit before interest and tax / capital employed ) x100
Capital employed ratio
No current liabilities + equity
Current ratio
Current assets / current liabilities
Acid test ratio
(Current assets -stock ) / current liabilities
Profit ratio
Total revenue -total costs
Gross profit formula
Sales revenue -cost of goods
Cost of goods sold formula
(Opening stalk + purchases) - closing stalk
Net profit formula
Gross profit -expenses
Net assets formula
Total assets -total liabilities
Total equity
Total assets -total liabilities = net assets = total equity
