Financial information and decisions Flashcards

1
Q

What does a finance department
do?

A
  • Record financial transactions
    -Prepare final accounts
    -Cash flow forecast
    -Make important decisions
  • Provide info to managers
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2
Q

what is startup capital?

A

Capital which is needed to buy the factors of production and inventories so that a firm can begin trading.

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3
Q

why do businesses need finance?

A
  • to start up the business by buying land, equipment and advertising
  • expanding the business by buying more land to expand factory, buying new shops or upgrading machines.
    -running the business by paying for day to day expenses such as wages and salaries.
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4
Q

what is long term finance

A

long term investments (for more than a year) that pay off fixed assets

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5
Q

what are examples of fixed assets

A
  1. Buildings
    2Vehicles
  2. Office equipment
    4.furniture
  3. machinery
    6.software
    7.land
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6
Q

What is capital expenditure

A

money spent on non –current assets

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7
Q

what is short term finance

A

Finance that needs to pay things that last less than a year. Working capital for day to day operations.

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8
Q

What is revenue expenditure

A

money spent on day to
day, recurring expenses

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9
Q

What are the main sources of capital?

A

Internal Sources – Obtained by business itself
External Sources – Obtained from outside business

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10
Q

what are some types of internal sources of finance?

A
  1. Retained profits
    2.Sale of existing assets
    3.Sale of inventories
    4.Owner’s savings
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11
Q

What are factors of retained profit?

A
  • profit that is not distributed to shareholders dividends but is reinvested/kept s reserve for specific objectives
    factors include:
    1. doesn’t need to be paid back
    2.Doesn’t incur interest
    4.Small firms won’t be able to gain enough money
    5.Reduces owners’ payments
    6.new owners cant use it
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12
Q

What are factors of Selling existing assets?

A

-Assets not needed can be sold to earn money.
1.Better use of unwanted capital
2.Doesn’t increase debts of a business
3.Takes time
4.Not available for new firms
5.Could have been used during expansion

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13
Q

What are factors of selling inventory?

A

1.Reduces opportunity cost
2.Reduces storage costs
3.May disappoint customers if sudden change in
4.demand is not met

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14
Q

What are factors of Owner’s savings?

A

1.Quick availability
2.No interest is paid
3.Savings may be low
4.Increases risks of owners

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15
Q

What are types of External sources?

A

1.Issue of shares
2.Bank loans
3.Selling debentures
4.Factoring of debts
5.Grants and subsidies
6.Micro finance

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16
Q

What are the factors of Issue of shares?

A

-Permanent source of capital
-Doesn’t need to be paid back
-No interest
-Shareholders expect dividends
-Ownership of the company may get shared

17
Q

What are the factors of Bank loans?

A

A sum of money obtained from a bank which must be repaid with interest
1.Quick, easy to arrange
2.Available for varying length of time
3.Large companies receive low interest 4.rates if large
5.sums are taken
6.Must be repaid with interest
7.Collateral security must be given

18
Q

What are the factors of Sell debentures?

A

-Debentures a certificate that is issued to a debenture holder for the money they lent which has to be repaid within a span of 20 – 25 years.
-Long term finance
-High interest

19
Q

What are the factors of factoring of debts?

A

-Debt factors are specialist agencies that buy the claims on debtors of firms for immediate cash.
-Availability of immediate cash
-The risk of collecting the debtors becomes the factors not the business’s
-Firm doesn’t receive 100% amount

20
Q

What are the factors of Grants and subsides?

A

-Don’t have to be repaid
-Given with strings attached

21
Q

What are the factors of Micro finance?

A

-Mostly banks don’t give loans to poor people
-Special institutions have been set up which lend poor people
-High interest rates
-Greater risk for the lender

22
Q
A