Finances Flashcards
Why Businesses need capital?
Start up, expand a business, additional working capital
What is Start up Capital?
Finance needed to pay for essential non current and current assets before it can start trading
How can finance be used for expansion?
Purchasing additional non current assets, purchase another building through takeover, developing new products
What is Working Capital?
Finance needed by a business to pay for its day to day costs.
What is Capital Expenditure?
Capital Expenditure is money spent on Non Current Assets that will last for more than a year
What is Revenue Expenditure?
Revenue Expenditure is money spent on day to day expenses
What is the difference between internal finance and external finance?
Internal Finance is obtained from within the business while external finance is obtained from sources separate from the business
What is Retained Profit?
Retained Profit is profit left in the business after owners have taken their share
What are Advantages of Retained Profit?
It doesnt have to be repaid, and there is no interest
What are Disadvantages of Retained Profit?
New businesses will not have access, small firms may not be high- nit enough for expansion, and payment to owners may be less if more profit is kept in the business
What is sale of existing assets?
Sale of Assets no longer required by the business
What are Advantages of selling existing assets?
It makes better use of the capital tied up in the business, and doesn’t increase debts
What are Disadvantages of selling existing assets?
It may take time to sell these assets and the amount raised is uncertain until it is sold. It is also not available to new businesses
What are Advantages of selling inventories?
Reduces the opportunity cost and storage cost of high inventory levels
What are Disadvantages of selling inventories ?
Must be done carefully to ensure that customers aren’t disappointed if demand rises suddenly
