Finance Flashcards
Finance function
Finance function is the department
Sole trader finance function
Maybe an accountant
Larger company’s finance function
Ltd or pod may have there own personal finance function
Finance department will look at
Costs and the revenues
Cash flow
Profit and loss
Rate of return how much money you will get back for every pound
What they will do in the finance function
Expansion
Stock
Branches
Influence of a finance
So the company can know how much money they have to spend
Where you can get money from
Shares
Savings
Loads
Over draft
Reasons for needing finance
Start of your business Replace equipment Expand cash flow Research and development Marketing campanes Recruitment
Types of finance function
Cash flow forecast
Budgeting
Costs and revenues
Profit and loss
Rate of return
The money you put in and the money you get out
Key terms
Revenue - money businesses receive from selling goods
What would you do if the country was in Resection
Prices may be dropped
Short term finance (1 year)
Owners capital (dont have to pay it back so there is no interests)
Sale of assets (car machinery property)
Overdraft (day to day expenses)
Trade credit (delayed payment for goods for an agreed amount of time)
Why short term finance
Develop business or expand
Liquidate the business
Medium term finance (1-5 years)
Retain profit (reinvesting back into the business)
Loans
Crowd funding (donations from public sponsors)
Shares (shares of equities could be sold)
Long term (5 years + more)
Bank loans
Selling shares
New partner
Crowd funding
Security
Something you offer to the bank in case you can’t pay
Revenue
Income that is coming into the business
= quantity sold times by
Costs
Payments the business makes to make the product or provide a service
Includes variable and fixed costs
Variable costs
A variable cost is a corporate expense that changes in proportion to production output.
Fixed costs
A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold.
Loss
When your costs are mor than revenue
Profit
Gross profit = revenue- costs of sales
Net profit = gross profit - running cost
Profitability
Cash flow
Profitability ratios
Are used to measure performance of the business
Have your costs increased
Have your profits increased
Gross profit margin is calculated with formula gross profit divided revenue times 100
Net profit margin is calculated with formula net profit divided by revenue times 100
Making decisions on revenue
External environment actions are competitors
Pricing of competitors and cost
Change revenue
Increase in sales increase price changes range of products Product development Diversification
Decision about profit and loss
Reinvestment in equipment
Reinvestment in expanding the business
How much dividends to pay
If your making a los you need to make decisions about
about weather you need to increase your prices or yo reduce your costs
