Finance Key Terms Flashcards
Objectives
A specific result that a person/business aims to achieve within a time frame and with available resources
Corporate objectives
A realistic goal set by a company that often influences its internal strategic decisions
Functional objectives
Set for each major function and are designed to ensure that the corporate objectives are achieved
Aims
An attempt to reach a certain goal. A specific goal or purpose
Strategies
A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem
Tactics
Means by which a strategy is carried out
Balance sheet
A document describing the financial position of a company at a particular point in time. It’s done by comparing the items owned by the organisation (its assets) with the amounts that it owes (its liabilities)
Income statement
An account showing the income and expenditure (the profit or loss) of a firm over a period of time (usually a year)
Management accounting
The creation of financial information for the use by internal users in the business, in order to predict, plan, review and control the financial performance of the business
Financial accounting
The provision of financial information to show external users the financial position of the business/it concentrates on historical data
Assets
Items that are owned by an organisation
Non-current assets
Resources that can be used repeatedly in the production process, although they do wear out or lose value. For example, land, building, machinery and vehicles
Tangible assets
Non-current (fixed) assets that exist physically
Intangible assets
Non-current assets that do not have a physical presence, but are nevertheless of value to a firm. For example, a brand name or patent
Current assets
Short term items that circulate in a business on a daily basis and can be expected to be turned into cash within a year
Liabilities
Debts owed by an organisation to suppliers, shareholders, investors or customers who have paid in advance
Total equity
Funds provided by shareholders to set up the business, fund expansion and purchase fixed assets
Revenue expenditure
Spending on day to day items such as raw materials, inventories (stock), wages and power to run the production process
Capital expenditure
Spending on non- current (fixed) assets - those assets used repeatedly in the production process, such as buildings, vehicles and machinery
Depreciation
The fall in value of an asset over time, reflecting the wear and tear of the asset as it becomes older, the reduction in its economic use or its obsolescence
Obsolescence
When an asset is still functioning but it’s no longer considered useful because it is out of date
Working capital
The day to day finance used in a business, consisting of current assets (cash and inventories) minus current liabilities (bank overdraft and tax owed)
Liquidity
The ability to convert an asset into cash without loss or delay
Liquid assets
Items owned by an organisation that can be converted into cash quickly and without a loss of value. The most liquid asset that a business can possess is cash
Gross profit
Revenue minus cost of sales. The gross profit shows how efficiently a business is converting its raw materials or stock into finished products
Operating profit
The revenue earned from everyday trading activities minus the costs involved in carrying out those activities
Profit quality
A measure of whether profit is sustainable in the long run. High quality profit is profit that will continue, low quality profit arises from exceptional circumstances that are unlikely to continue
Profit utilisation
The way in which a business uses its profit or surplus
Trend
The underlying pattern of change shown within a set of numerical data
Ratio analysis
A method of assessing a firms financial situation by comparing two sets of linked data
Solvency
A measure of a firms ability to pay its debts on time. A firm that can meet its financial commitments is described as solvent. A firm that cannot meet its financial commitments is described as insolvent
Trading profit
The difference between the incomes received from an organisations normal activities and the expenditure it incurs in operating
Retained profit
The part of a firms profit that is reinvested in the business rather than distributed to shareholders
Ordinary share capital
Money given to a company by shareholders in return for a share certificate that gives them part ownership of the company and entitles them to a share of the profits
Loan capital
Money received by an organisation in return for the organisations agreement to pay interest during the period of the loan and to repay the loan within an agreed time
Debenture
A long term loan made to a business at an agreed fixed percentage rate of interest and repayable on a stated date
Bank loan
A sum of money provided to a firm or an individual by a bank for a specific, agreed purpose
Bank overdraft
When a bank allows an individual or organisation to overspend its current account in the bank up to an agreed limit and for a stated time period
Profit centre
An identifiable part of an organisation for which costs and revenue can be calculated
Investment decision making
The process of deciding whether or not to undertake capital investment (the purchase of non-current assets) or major business projects
Investment appraisal
A scientific approach to investment decision making, which investigates the expected financial consequences of an investment, in order to assist the company in its choices
Payback period
The length of time that it takes for an investment to pay for itself from the net returns provided by that particular investment
Average rate of return
Total net returns divided by the expected lifetime of the investment (usually a number of years), expressed as a percentage of the initial cost of the investment
Net present value
The net return on an investment when all revenues and costs have been converted to their current worth
