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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
What are some examples of Short-Term Finance?
Personal Saving (ISF), Overdrafts (ESF), Sales of Assets (ISF), Trade Cedits (ESF)
26
What is Long-Term Finance?
Sources of finance og more than one year from the balance sheet date. Mainly used to pay for fixed assets
27
What is Share Capital?
The total nominal value of all shares which have been issued by a company
28
What are some examples of Long-Term Finance?
Share Capital, Crowdfunding, Leasing, Loan Capital, Microfinance Providers, Business Angels (all ESF)
29
When is it appropiate to use the sources of finance?
Remember the acronym SPACED Size of the business Purpose of funds Amount required Cost External environment Duration
30
What are Costs?
The charges that an organization incurs from its operations
31
What are the 4 types of Costs?
Fixed, Variable, Direct and Indirect
32
What are Fixed Costs?
Costs that have to be paid no matter how much is produced or sold.
33
What are some examples of Fixed Costs?
Rent payments, leasing costs of machinery and equipment, salaries to management
34
What are Variable Costs?
They changed with the level of output, this means that egen the firm's output/sales volume increases, so do the costs
35
What are some examples of Variable Costs?
The costs of raw materials, comission paid to sales staff, and wages
36
What are Direct Costs?
Items of expenditure that can be associated with the ouput/sale of a certain good, service or business operation
37
What is the difference between Variable and Direct Costs?
Variable costs vary with the amount of output, while Direct costs are expenses directly traced to the product
38
What are some examples of Direct Cost?
Direct raw material and direct labour costs (Variable Costs), third party motor insurance such as a taxi (Fixed Costs)
39
What are Indirect Costs (or overhead costs)?
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
What are some examples of Indirect Costs?
Rent on premises, salaries for administrative staff, fees paid for accounting services and utility bills, general insurances
41
What is Revenue?
The money coming into a business from the sale of goods and services
42
What are Revenue Streams?
The various sources of revenue for a business
43
What is the difference between Profit and Revenue?
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
What is Total Revenue (TR)?
It's the sum of income received by a business from its trading activities
45
What are some examples of Revenue Streams?
Memebership fees, Royalties, Merchandise sales, Sponsorship revenues
46
What are Final Accounts?
The published accounts of an organization, made available to be used
47
What are Final Accounts conformed of?
The profit and loss account (income statement) and the balance sheet (the stamente of financial position)
48
What are Internal Stakeholders?
They can use the Final Account to gauge the performance if the business. Conformed by managers, employees and shareholders
49
What are External Stakeholders?
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
What is the Profit & Loss Account (or income statement)?
It shows a firm's profit or loss after all productions costs have been substracted from the organization's revenue, each year
51
What is Sales Revenue?
The money an organization earns by selling goods/services
52
What is Gross Profit?
Profit from a firm's everyday activities
53
What are the Costs of Goods Sold (COGS)?
The direct costs of production, such as thr cost kf raw materials, component parts, etc
54
What is a Tax?
The compulsory deductions paid to the government as a proportion of a firm's profit
55
What are Dividends?
The payments from a company's net profit (after interest and tax) paid to the shareholders of the business.
56
What is Retained Profit?
Any funds left over the net profits (after interest and tax) that is not paid to shareholders
57
What is Balance Sheet (statement of financial position)?
Shows the value of an organization's assets, liabilities, and the owner's investment in the business at a particular point in time
58
What are Assets?
The possessions of a business that have monetary value
59
What are some examples of Assets?
Buildings, land, machinery, equipment, stock and cash
60
What are Liabilities?
The debts of a business
61
What are some examples of Liabilities?
Any money owed to financiers (banks), trade creditors, and the government (taxes)
62
What is Depreciation?
The fall in the value of a fixed asset. (Ex. A printer that has been used too much)
63
What are Intangible Assets?
Type of Fixed Asset that are non-phyeical with monetary value to the business
64
What are the 4 types of Intangible Assets?
Goodwill, Patents, Copyrights and Trademarks
65
What is Goodwill?
The reputation and established networks of an organization. (Ex. That the employees are willing to go above and beyond the call of duty)
66
What are Patents?
The official rights given to a business to exploit and invention or process for commercial putposes
67
What are Copyrights?
They give the registered owner the legal rights to creative pieces ktf work
68
What are Trademarks?
They give the listed owner the legal and exclusive commercial use of the registered brands, logos, and slogans
69
What is Profability Ration
They examine the level and value of a firm's profit
70
What are the 3 types of Profability Ratios?
Gross profit margin, Profit margin, Return on capital employed (ROCE)
71
What is the Gross Profit Margin?
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
What is the Profability Margin Ratio?
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
What is Return of Capital Employed (ROCE)?
it measures a firm's efficiency and profitability in relation to its size
74
What is Capital Employed?
The value of all sources of finance available for a business at a point in time
75
Whag is Liquidity Analysis?
Financial ratios that examine an organization's ability to pay its short-term liabilities and debts
76
What is Liquidity?
A firm's ability to repay short-term liabilities without using external sources of finance
77
What are the 2 types of Liquidity Analysis?
Current Ratio and Acid Test Ratio
78
What is the Current Ratio?
It's a short-term Liquidity Ratio used to calculate the ability of an organization to meet its short-term debts
79
What are some examples of Liquid Assets?
Cash, Stock (inventory) and Debtors
80
What are some examples of current liabilities (short-term debts)?
Bank overdrafts, Trade creditors and Short-term loans
81
What is the Acid Test Ratio (or quick ratio)?
A short-term liquidity ratio that measures an organization's ability to pay its short-term debts, without selling their stock/inventory
82
Ehat is the difference between the Current Ratio and the Acid Test Ratio?
In the Current Ratios the stock is excluded from the calculations, while in the Acid Test Ratio it's included
83
What is the bare minimum for an Acid Test Ratio in a firm?
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
How can a business improve its GPM (Gross Profit Margin) Ratio?
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
How can a business improve its Profit Margin Ratio?
By reducing any type of excessive or unnecessary expenses. (Ex. Utility bills, Insurance, Phone and Internet Services)
86
How can a business improve its ROCE (Return on Capital Employed)?
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
How can a business improve the Current Ratio?
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
How can a business improve its Acid Test Ratio?
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
What are Efficiency Ratios?
They examine the use of an organization's resources in terms of its assets and liabilities
90
What are the 4 types of Efficiency Ratios?
1. Debtors days ratio 2. Stock control ratio 3. Creditor days ratio 4. Gearing ratio
91
What is Stock Turnover Ratio?
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
What is Debtors Days Ratio?
It measures the number of days an organization takes to collect debts from its customers
93
What is Creditor Days?
It measures the number of days that an organization takes to repay its creditors
94
What are Creditors?
Suppliers who the business has bought products from using trade credit
95
What is Gearing Ratio?
It measures the extent to which an organization is financed by external sources of finance
96
What is Insolvency?
Where a person or a business is unable to meet their bill/debt obligations
97
What is Bankruptcy?
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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