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Business > Finance - Definitions > Flashcards

Finance - Definitions Flashcards

1
Q

Finance

A

The capital needed to start up and run a business

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2
Q

Internal

A

Capital found inside the business

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3
Q

External

A

Capital found outside the business

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4
Q

Internal - Retained profit

A

The profit made by the business in earlier years

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5
Q

Internal - Owners capital

A

The owner provide the money for the business. Capital invested by owners

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6
Q

Internal - Share capital

A

Selling shares for money

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7
Q

Internal - Selling assets

A

Can provide a business with large sums of money, depending on what is sold

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8
Q

External - Business angels

A

Individuals who invest in your business, and help support your business.

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9
Q

External - Bank loan

A

A loan given by the bank. High interest

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10
Q

External - Trade credit

A

A supplier gives a customer a period of time to pay a bill (30 days)

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11
Q

External - Overdraft

A

The bank will allow the business to withdraw more money than it actually has in its account

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12
Q

External - Hire purchase / leasing

A

A business can rent a piece of machinery and pay monthly instalments.
Own the asset after last instalment

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13
Q

External - Government grant

A

Money given to a business for a particular reason

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14
Q

External - Venture capital

A

They buy shares in small and risky companies at the early stages of development

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15
Q

External - Mortgages

A

Loans from banks and building societies used to buy land and buildings

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16
Q

Cash flow

A

Is the amount of money moving in and out of a business on a day to day basis

17
Q

Who effects cash flow?

A
  • Season
  • External factors
  • Competitors
  • Changes in demand
18
Q

Cash flow statement

A

A cash flow statement is financial amount that records the receipts and payments of a business (previous year)

19
Q

Net cash flow

A

Net cash flow is the difference between the cash coming in and the cash flowing out

20
Q

Cash flow forecast

A

A financial plan to predict receipts and payments over a future period

21
Q

Why is it useful to forecast cash flow?

A
  • Identify if and when business has a cash flow problem
  • Helps business to plan ahead
  • Identify / find sources of finance to resolve
  • Show it to the bank to get a loan
  • Assess whether business is viable
22
Q

Liquidity (CF problem)

A

If a business experiences problems where they do not have enough cash to cover their payments they cannot continue to trade

23
Q

What causes CF problems?

A
  • If a business overspends
  • Unexpected costs
  • Seasonal changes
  • External factors - e.g. competitor, economy
24
Q

Trade credit:
1. How can this improve cash flow?

  1. What if you are giving trade credit to customers?
A
  1. You might refuel receipts firn selling the goods, before you have to pay your suppliers leading to a positive cash flow
  2. You might have money going out to pay your suppliers, but do not get the inflows from your customers until later
25
Q

Breakeven

A

The level of output at which the business makes neither profit or a loss

26
Q

Why is breakeven important?

A
  • Monitor their performance
  • Know when they will earn profit
  • See if business is viable
  • Assess how changes effect breakeven
27
Q

Margin of safety

A
  • The difference between your actual output and the breakeven.
  • Measures the amount by which a businesses current level of production exceeds its break even level of production
28
Q

How is breakeven useful to a business?

A
  • See how long it will take to be profitable
  • See if need any sources of finance
  • Wether business is worthwhile
  • Assess the impact of change in variables
29
Q

Breakeven limitations:

A
  • Made assumptions that aren’t true
  • Doesn’t consider external factors
  • If a time selle product at different prices it is difficult to use
30
Q

Investment project

A

When a business invests in an asset in the hope of making a profit from its use

31
Q

Income statements

A

A record of the costs and revenues of a business over a period of time (1 year)

32
Q

Reasons why income statements are useful

A
  • If a business is making a loss it shows directors what is causing it
  • Assess business performance in terms of profitability
  • Identify which costs need to be reduced
33
Q

Profitability ratios

A

These ratios are ways of measuring how profitable a business is so that its performance can be assessed

Business (8 decks)

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