finance Flashcards
how can the finance department help improve business success?
-aid decision making as accurate financial records and balances enable better decisions to be taken as key figures known
-control costs to stop overspending by identifying increasing expenses so action can be taken and bankruptcy prevented
-monitor cashflow as poor cash management can result in poor liquidity (inability to pay debts) and lead to business failure
-forecast trends using ratio analysis by analysing financial statements which helps managers predict what may happen and reduce business risk
what will the source of finance chosen depend upon?
-available finance in the organisation ie current balance as you only borrow what is needed to keep repayments as low as possible
-purpose or what it is to be used for as different sources are used for different things eg mortgage for premises or trade credit to buy inventory
-how long it is required for as some sources are only available in the short or medium term or may not be affordable
-type of organisation as certain sources may only be available to companies eg new equity or to be better known companies eg debentures
previously known sources of finance
-leasing, paying a fee to ‘rent’ use of equipment or vehicles from leasing company
-bank overdraft, used for short-term cash flow difficulties where more money is taken from an account than is in it
-trade credit, buy goods now and pay for them at a later date
-grant, money given to a business from a government etc
-bank loan, borrowing money over a specific period and repaying in fixed instalments with added interest
-commercial mortgage, loan from bank to buy land/property
-retained profit, profits made previously kept for reinvestment
sources of finance
