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business > Finance and Account > Flashcards

Finance and Account Flashcards

1
Q

What is capital expenditure?

A

When a business spends on non-current assets or capital equipment of a business

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2
Q

What are some examples of capital expenditure?

A

Machinery, tools, equipment, buildings, computers, printers

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3
Q

What is revenue expenditure?

A

When a business spends on its everyday and regular operations

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4
Q

What are some examples of recenue expenditure?

A

Raw materials, semi-finished goods and finished goods, rental paymets, wages and salaries, utility bills

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5
Q

What are sources of finance?

A

The ways that a business gets its money in order to run a business

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6
Q

What are internal sources of finance?

A

Those that come within the organization without a help of a third party

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7
Q

What are the 3 internal sources of finance?

A

Personal funds (only for sole traders), retained profit and the sale of assets

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8
Q

What are Personal Funds?

A

The savings of sole traders and partners to finance a start-up business

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9
Q

What is Retained Profti?

A

When a firm’s total revenue exceeds its total costs. (The extra profit that can be reinvested)

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10
Q

What is sale of assets?

A

Anything that a business owns and has marketable value, usually fixed assets (buildings, machinery, computers)

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11
Q

What are External Sources of Finance?

A

Those that come from outside the organization with the help of a third party provider

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12
Q

What are the 8 sources of External Finance?

A
  1. Share Capital
  2. Loan Capital
  3. Overdrafts
  4. Trade Credit
  5. Crowdfunding
  6. Leasing
  7. Microfinance Providers
  8. Business Angels
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13
Q

What are Business Angels?

A

Wealthy and successful private individuals who risk their own money in a business venture with high potential

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14
Q

What is Crowdfunding?

A

It involves raising small amounts of money from a large group of people to fund a business venture (usually online)

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15
Q

What is an Initial Public Offering (IPO)?

A

When a limited liability conpany sells its shares for the first time in a public stock exchange

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16
Q

What are Shares?

A

A unit of ownership in a business

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17
Q

What is the Interest Rate?

A

The price of money over a period of time. It can either be the cost of borrowing money or thr rewards of saving it, expressed in %

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18
Q

What is Leasing?

A

When a business or customer draw up a contract with the company to use a particular fixed asset for an agreed fee

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19
Q

What is Loan Capital (or debt capital)?

A

Borrowed funds from financial lenders to purchase fixed assets

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20
Q

What are Microfinance Providers?

A

They offer a financial service to those without a job or low incomes

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21
Q

What is an Overdraft?

A

A banking service thaf enables customers to withdraw more money from their account than exists there

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22
Q

What is Share Capital (or equity capital)?

A

Finance raised through the issuing of shares via a public stock exchange

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23
Q

What is Trade Credit?

A

It enables customers to purchase and obtain products but to pay for these at a later date

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24
Q

What is Short-Term Finance?

A

Sources of finance needed for the day-to-day running of a business

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25
Q

What are some examples of Short-Term Finance?

A

Personal Saving (ISF), Overdrafts (ESF), Sales of Assets (ISF), Trade Cedits (ESF)

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26
Q

What is Long-Term Finance?

A

Sources of finance og more than one year from the balance sheet date. Mainly used to pay for fixed assets

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27
Q

What is Share Capital?

A

The total nominal value of all shares which have been issued by a company

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28
Q

What are some examples of Long-Term Finance?

A

Share Capital, Crowdfunding, Leasing, Loan Capital, Microfinance Providers, Business Angels (all ESF)

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29
Q

When is it appropiate to use the sources of finance?

A

Remember the acronym SPACED

Size of the business
Purpose of funds
Amount required
Cost
External environment
Duration

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30
Q

What are Costs?

A

The charges that an organization incurs from its operations

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31
Q

What are the 4 types of Costs?

A

Fixed, Variable, Direct and Indirect

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32
Q

What are Fixed Costs?

A

Costs that have to be paid no matter how much is produced or sold.

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33
Q

What are some examples of Fixed Costs?

A

Rent payments, leasing costs of machinery and equipment, salaries to management

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34
Q

What are Variable Costs?

A

They changed with the level of output, this means that egen the firm’s output/sales volume increases, so do the costs

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35
Q

What are some examples of Variable Costs?

A

The costs of raw materials, comission paid to sales staff, and wages

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36
Q

What are Direct Costs?

A

Items of expenditure that can be associated with the ouput/sale of a certain good, service or business operation

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37
Q

What is the difference between Variable and Direct Costs?

A

Variable costs vary with the amount of output, while Direct costs are expenses directly traced to the product

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38
Q

What are some examples of Direct Cost?

A

Direct raw material and direct labour costs (Variable Costs), third party motor insurance such as a taxi (Fixed Costs)

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39
Q

What are Indirect Costs (or overhead costs)?

A

Costs that aren’t easily identifiable with the output/sale of a specific good, service, department or business operation. It’s not related to production

40
Q

What are some examples of Indirect Costs?

A

Rent on premises, salaries for administrative staff, fees paid for accounting services and utility bills, general insurances

41
Q

What is Revenue?

A

The money coming into a business from the sale of goods and services

42
Q

What are Revenue Streams?

A

The various sources of revenue for a business

43
Q

What is the difference between Profit and Revenue?

A

Profit is the amount your business has after accounting for all the businesss expenses, while Revenue is the money earned by selling a good/service

44
Q

What is Total Revenue (TR)?

A

It’s the sum of income received by a business from its trading activities

45
Q

What are some examples of Revenue Streams?

A

Memebership fees, Royalties, Merchandise sales, Sponsorship revenues

46
Q

What are Final Accounts?

A

The published accounts of an organization, made available to be used

47
Q

What are Final Accounts conformed of?

A

The profit and loss account (income statement) and the balance sheet (the stamente of financial position)

48
Q

What are Internal Stakeholders?

A

They can use the Final Account to gauge the performance if the business. Conformed by managers, employees and shareholders

49
Q

What are External Stakeholders?

A

They’re interested in an organization’s Final Account in order to make sensible and conherent decisions. Conformed by banks, supplies, customers and rhe government

50
Q

What is the Profit & Loss Account (or income statement)?

A

It shows a firm’s profit or loss after all productions costs have been substracted from the organization’s revenue, each year

51
Q

What is Sales Revenue?

A

The money an organization earns by selling goods/services

52
Q

What is Gross Profit?

A

Profit from a firm’s everyday activities

53
Q

What are the Costs of Goods Sold (COGS)?

A

The direct costs of production, such as thr cost kf raw materials, component parts, etc

54
Q

What is a Tax?

A

The compulsory deductions paid to the government as a proportion of a firm’s profit

55
Q

What are Dividends?

A

The payments from a company’s net profit (after interest and tax) paid to the shareholders of the business.

56
Q

What is Retained Profit?

A

Any funds left over the net profits (after interest and tax) that is not paid to shareholders

57
Q

What is Balance Sheet (statement of financial position)?

A

Shows the value of an organization’s assets, liabilities, and the owner’s investment in the business at a particular point in time

58
Q

What are Assets?

A

The possessions of a business that have monetary value

59
Q

What are some examples of Assets?

A

Buildings, land, machinery, equipment, stock and cash

60
Q

What are Liabilities?

A

The debts of a business

61
Q

What are some examples of Liabilities?

A

Any money owed to financiers (banks), trade creditors, and the government (taxes)

62
Q

What is Depreciation?

A

The fall in the value of a fixed asset. (Ex. A printer that has been used too much)

63
Q

What are Intangible Assets?

A

Type of Fixed Asset that are non-phyeical with monetary value to the business

64
Q

What are the 4 types of Intangible Assets?

A

Goodwill, Patents, Copyrights and Trademarks

65
Q

What is Goodwill?

A

The reputation and established networks of an organization. (Ex. That the employees are willing to go above and beyond the call of duty)

66
Q

What are Patents?

A

The official rights given to a business to exploit and invention or process for commercial putposes

67
Q

What are Copyrights?

A

They give the registered owner the legal rights to creative pieces ktf work

68
Q

What are Trademarks?

A

They give the listed owner the legal and exclusive commercial use of the registered brands, logos, and slogans

69
Q

What is Profability Ration

A

They examine the level and value of a firm’s profit

70
Q

What are the 3 types of Profability Ratios?

A

Gross profit margin, Profit margin, Return on capital employed (ROCE)

71
Q

What is the Gross Profit Margin?

A

It measures an organization’s Gross Profit expressed as a % of its sales revenue. It indicates how well a business can manage its direct costs of production

72
Q

What is the Profability Margin Ratio?

A

It measures a firm’s overall profit (after deducting all Costs of Production) as a % of its sales revenue. It’s an indicstor of how well a business can manage its indirect costs

73
Q

What is Return of Capital Employed (ROCE)?

A

it measures a firm’s efficiency and profitability in relation to its size

74
Q

What is Capital Employed?

A

The value of all sources of finance available for a business at a point in time

75
Q

Whag is Liquidity Analysis?

A

Financial ratios that examine an organization’s ability to pay its short-term liabilities and debts

76
Q

What is Liquidity?

A

A firm’s ability to repay short-term liabilities without using external sources of finance

77
Q

What are the 2 types of Liquidity Analysis?

A

Current Ratio and Acid Test Ratio

78
Q

What is the Current Ratio?

A

It’s a short-term Liquidity Ratio used to calculate the ability of an organization to meet its short-term debts

79
Q

What are some examples of Liquid Assets?

A

Cash, Stock (inventory) and Debtors

80
Q

What are some examples of current liabilities (short-term debts)?

A

Bank overdrafts, Trade creditors and Short-term loans

81
Q

What is the Acid Test Ratio (or quick ratio)?

A

A short-term liquidity ratio that measures an organization’s ability to pay its short-term debts, without selling their stock/inventory

82
Q

Ehat is the difference between the Current Ratio and the Acid Test Ratio?

A

In the Current Ratios the stock is excluded from the calculations, while in the Acid Test Ratio it’s included

83
Q

What is the bare minimum for an Acid Test Ratio in a firm?

A

No less than 1:1 (Ex. $1.33 is 1.33:1). If it’s below 1:1, it means the business has a serious liquidity problem

84
Q

How can a business improve its GPM (Gross Profit Margin) Ratio?

A

By any combination of increasing Sales Revenue and reducing its direct costs. (Ex. Launching new goods and/or services that have a higher GPM or outsourcing production to third-party suppliers)

85
Q

How can a business improve its Profit Margin Ratio?

A

By reducing any type of excessive or unnecessary expenses. (Ex. Utility bills, Insurance, Phone and Internet Services)

86
Q

How can a business improve its ROCE (Return on Capital Employed)?

A

By using strategies that improve its profit before interest and tax. (Ex. Selling unnecessary assets, Increasing a firm’s Sales Revenue by reducing prices to attract more customers)

87
Q

How can a business improve the Current Ratio?

A

By increasing its current assets and/or reducing its current liabilities. (Ex. Encourage customers to pay by cash improving the firm’s cash inflows, Using any available cash to pay short-term loans to reduce interest)

88
Q

How can a business improve its Acid Test Ratio?

A

Increase its current assets and/or reduce current liabilities (just like Current Ratio) and Improve its stock control management system (to reduce unnecessary cash outflows)

89
Q

What are Efficiency Ratios?

A

They examine the use of an organization’s resources in terms of its assets and liabilities

90
Q

What are the 4 types of Efficiency Ratios?

A
  1. Debtors days ratio
  2. Stock control ratio
  3. Creditor days ratio
  4. Gearing ratio
91
Q

What is Stock Turnover Ratio?

A

It measures the number of days it takes a business to sell its stock, it can show if a business needs to restock/replace its inventory

92
Q

What is Debtors Days Ratio?

A

It measures the number of days an organization takes to collect debts from its customers

93
Q

What is Creditor Days?

A

It measures the number of days that an organization takes to repay its creditors

94
Q

What are Creditors?

A

Suppliers who the business has bought products from using trade credit

95
Q

What is Gearing Ratio?

A

It measures the extent to which an organization is financed by external sources of finance

96
Q

What is Insolvency?

A

Where a person or a business is unable to meet their bill/debt obligations

97
Q

What is Bankruptcy?

A

When a person or business declare that they can no longer pay back their debts, so the entity collapses

business (5 decks)

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