Finance Flashcards
Sources of Finance
External: Bank loans
Loans (from family/friends)
Trade credit
Government grants
Internal: Personal savings
Fixed assets
Retained profits
What is a balance sheet?
A financial report that summarises the financial state of a business at a point in time
What is an income statement?
A financial statement that shows you the company’s income
Types of assets
Current Assets - Any asset a company can convert to cash within a short time, usually one year
Fixed Assets - Tangible, long lived assets used by a company in its operations (machinery, factories, tools, furniture and computers)
Types of liabilities
Current liabilities - debts a company must pay within a normal operating cycle, usually less than 12 months
Long-term liabilities - debts a company owes third-party creditors that are payable beyond 12 months
What are fixed costs?
They are costs that are constant whatever the amount of goods produced
What are variable costs?
A cost that varies with the level of output
What is Break even?
When the profits are equal to the costs
What is the Margin of safety?
The difference between your gross revenue and your break-even point
What is a Break even Analysis?
It’s how companies work out at what point they will cover their costs
Advantages of Break Even analysis
-It’s easy to work out
-It’s quick
-It allows businesses to predict how changes in sales may affect costs, revenues and profits
Disadvantages of Break Even analysis
-All of the products are sold, without any waste
-If the data is wrong then the results of the analysis will be wrong
-Can be complicated it it involves more than one product
What is cash flow?
The total amount of money being transferred into and out of a business
What is cash inflow?
Money going into the business which could be from sales, investments or financing
What is cash outflow?
Money leaving the business
