FINANCIAL INFORMATION AND DECISIONS Flashcards
Finance department
Recording all financial transactions Preparing/Producing final accounts Producing accounting information for managers Forecasting cash flows Making important financial decisions
why do businesses need finance
Starting a business
Expanding an existing business
Additional Capital
capital expenditure
long term - money spent on fixed assets which will last for more than one year
Working capital
short term - finance needed by a business to pay its day-to-day cost
Revenue expenditure
short term - money spent on a day to day expenses, including long-term asset purchases
internal sources of finance
Retained profit
Selling existing asset
Selling existing inventory
Owners’ savings
external sources of finance
Issue of shares Bank loans Selling debentures Factoring of debts Grants and subsidies from outside agencies Micro-finance crowd funding
short term of finance
Overdraft
Trade Credit
Factoring of debts
long term finance
Hire purchase(in rate) Leasing
Gearing ratio
proportion of total capital raised from long term loans
long-term liabilities (loans) / total capital
Will banks lend and shareholders invest?
How do financiers evaluate/decide? Cash flow? Income statement Exising loans and sources of finance being used “Security” - available? (to reduce bank’s risk) Business plan? Share price? Dividends: low or high? opportunity cost(other companies?) Good reputation for future growth?
Income statement structure
Sales Revenue - variable costs = Gross profit - trading account \+other incomes (non-trading) -overhead (fixed costs) -depreciation/capital consumption = net profit (pre-tax) -corporate tax =profit after tax -Dividends(distribution of profits by a corporation to its shareholders) =Retained profit for the year
Balance sheet (statement of financial position)
shows the value or worth of a business at just one moment in time (snapshot)
Shareholders’ equity/ Owner’s equity/ Shareholders’ funds
total sum of money invested into the business by owners.
Equity capital (money put in by shareholders) Retained profit/loss
Working capital
finance needed for day to day operations
