Finance Function [10] *G10 Flashcards
What are the elements emphasized by triple bottom line reporting
Profit
Planet
People
Explain the concept of triple bottom line reporting
*Looking at the issues [people, planet, profit] when reporting on how well the business has performed.
*No business will be able to uplift the community or look after the environment unless it’s making profit.
Income statement aka…
Statement of comprehensive income
Balance sheet aka
Statement of financial position
What is statement of comprehensive income purpose
*used to calculate net profit for the financial year
*all income - all expenses = net profit
What is statement of financial position purpose
*Shows all assets, owners equity and liabilities of the business
*Total assets = owners equity + total liabilities
Total assets =
Total assets = owners equity + total liabilities
Net profit =
Net profit = all income - all expenses
Borrowed capital aka
Foreign capital
Where to borrow money on long term
Loan from bank
Borrow money on short term
Overdraft, short term loan, credit card, trade credit installment sale transactions, leases
Long term capital aka
Fixed capital
Short term capital aka
Working capital
Name the factors that influence the demand for long term vs short term capital
Nature of bs
Size of bs
Stage development
Time production
Rate of stock turnover
Buying and selling terms
Explain this factor: nature of the business
Manufacturers need more capital than retailers to buy fixed assets to establish the manufacturing plant.
Explain this factor: the size of the business
The bigger the business the more fixed capital it would need to buy machines, equipment, salaries, vehicles, rent, electricity, etc
The stage of development
If the business is still expanding l, it would need more fixed capital to buy additional equipment
Explain the factor: rate of stock turnover
The higher the stock turnover (fast inventory sold) the less capital needed since there’s a consistent stream of money coming into the business
Explain the factor: buying and selling terms
If the business buys inventory for cash but sells on credit, it would need more working capital than a business that sells for cash when selling on credit.
What is a budget
A tool that assists the business with planning:
* how much money will be available and * how it should best be spent
Name the types of budgets
*Capital
*Cash
Explain a capital budget
It’s a budget used to planning fixed capital requirements.
E.g land n buildings, vehicles, equipment
Explain a cash budget
A budget used to do short term financial planning.
It plans for working capital requirements to pay *creditors, *finance debtors, *buy inventory for cash, *pay for expenses associated with day to day running, etc
What is the purpose of a budget
- A tool for financial planning as it forces the financial manager to think about what’s needed for future.
- Helps with the process of financial decision making bc info Is available when needed
- Amount spent helps with financial evaluation of different departments and the business overall
