Finance Essay Flashcards
How do they make profit?
Source fundings Ensure finances are spent efficiently Audit and control finances Allocate the sufficient funds to the different departments Find the best investments
What is the main aim of a finance department
To make profit
Name to sources of finance
Bank loan
Asset based loan
What is a bank loan
When an entrepreneur borrow money from a bank, it will have an interest rate attached to it. Entrepreneurs use cars or houses as suretys for loans. Long term financing
What is an asset based loan
Usually offered to business that are already successful and want to expand further. Money is lent to the entrepreneur to buy a specific asset that will help them with the business. The asset belongs to the lender until it is paid off. If it is not paid off in then the lender will take it back as payment.
What is budgeting?
Planning tool to estimate the amount of money flowing into the business (expected income) and the amount of money flowing out of the business(expected expenditure)
Once budget drawn up it is essential to compare it to actual income and expenditure which helps the business keep trac of finances and ensure profitability.
Each department is expected to draw up its own budget.
Capital budget?
Estimates fixed capital. Usually drawn up every three to five years.
Plans purchasing, upgrading and changing of fixed assets such as buildings and machinery
Cash budget?
Estimates working capital
Usually drawn up after end of every financial year for the next one.
Asses whether business has enough money to purchase what it needs to operate and predict sales for the next year.
Investments?
Once business makes a profit it is important that it invest well so that the business has ongoing finds.
A business can choose to invest in financial institutions, government bonds or public companies
Short term investments
Enables business to access money in a short period of time
Returns are not as good as long term investments
Examples are savings account, money market accounts
Long term investments
Better returns but they have no access to their money in the short term
Can have restrictive conditions
Examples are fixed deposit accounts, unit trust
Fixed capital
Consist of those elements a business uses over a long period of time
E.g. Land and buildings, vehicles, machinery
Working capital
Aka . Operating capital
Covers short term needs
Often monthly expenses such as wages, salaries, water and electricity, telephone
Conclusion
In order for a business to be profitable and successful it must have a good financial department that can budget money well and invest extra money in fastest growing shares and source a good find.
The structure of this essay?
Introduction
Body :-Sources of finance
- Budgeting
- Investments
- Types of capital
Conclusion
