Financial information and decisions Flashcards
Start-up capital
The capital needed by an entrepreneur when first starting a business
Working capital
The capital needed to finance the day-to-day running expenses and pay the short-term debts of a business
Non-current (fixed)
Resources owned by a business which will be used for a period longer than a year, for example buildings and machinery
Capital expenditure
Spending by a business on non-current assets such as machinery and buildings
Long-term finance
Debt or equity used to finance the purchase of non-current assets or finance expansion plans. Long-term debt is borrowing a business does not expect to repay in less than five years
Short-term finance
Loans or debt that a business expects to pay back within one year
Retained profit
Profit remaining after all expenses, tax and dividends have been paid and which is put back into the business
Overdraft
An agreement with the bank which allows a business to spend more money than it has in its account up to an agreed limit
Trade receivables
Amount owed to a business by its customers who bought goods on credit
Bank loan
Provision of finance by a bank which the business will repay with interest over an agreed period of time
Leasing
Obtaining the use of a non-current asset by paying a fixed amount per time period for a fixed period of time. Ownership remains with the leasing company
Hire purchase
The purchase of an asset by paying a fixed repayment amount per time period over an agreed period of time
Mortgage
A long-term loan used for the purchase of land or buildings
Debenture
A bond issued by a company to raise long-term finance usually at a fixed rate of interest
Share issue
A source of permanent capital available to limited liability companies
Equity finance
Permament finance provided by the owners of a limited company
Micro-finance
Small amounts of capital loaned to entrepreneurs in countries where business finance is often difficult to obtain
Crowd-funding
Financing a business idea by obtaining small amounts of capital from a large number of people, most often using the internet and social media networks
Cash-flow forecast
An estimate of the future cash inflows and outflows of a business
Net-cash flow
Cash inflow minus cash outflow
Net-cash flow = cash inflow - cash outflow
Liquidity
The abillity of a business to pay its short-term debts
Credit sales
Goods sold to customers who will pay for these at an agreed date in the future
Gross profit
The difference between revenue and cost of sales
Gross profit = revenue - cost of sales
Profit
The difference between revenue and total costs
Profit = gross profit - expenses
Total cost
Cost of sales plus expenses
Total cost = cost of sales + expenses
Revenue
The amount earned from the sale of products
revenue = selling price x quantity sold
Cost of sales
The cost of purchasing the goods used to make the products sold
Expenses
Day-to-day operating expenses of a business
Income statement
A financial statement which records the revenue, costs and profits of a business for a given period of time
Statement of financial position
An accounting statement that records the assets, liabilities and owner’s equity of a business at a particular date
Assets
Resources that are owned by a business
Liabilities
Debts of the business that will have to be paid sometime in the future
Non-current (fixed) assets
Resources that a business owns and expects to use for more than a year
Current assets
Resources that the business owns and expects to convert to cash before the date of the next financial position
Trade receivables
The amount of money owed to the business by customers who have been sold goods on credit
Current liabilities
Debts of the business which it expects to pay before the date of the next statement of financial position
Trade payables
The amount a business owes to its suppliers for goods bought on credit
Non-current liabilities
Debts of the business which will be payable after more than one year
Owner’s equity
The amount owed by the business to its owners; includes capital and retained profits
Shareholder’s equity (funds)
Alternative term for owner’s equity, but can only be used by limited liability companies
Gross profit margin %
Ratio between gross profit and revenue
Gross profit margin = gross profit/revenue x 100
Profit margin %
Ratio between profit before tax and revenue
Profit margin = profit/revenue x 100
Adding value
Selling a product for more than it costs to produce it
Return on capital employed (ROCE)
Ratio between profit before taxt and capital employed
ROCE = profit/capital employed x 100
Current ratio
Ratio between current assets and current liabilites
current ratio = current assets/current liabilities
Acid test ratio
Ratio between liquid assets and current liabilities.
Acid test ratio = (current assets - inventories)/current liabilites
