Financial information and decisions Flashcards
What does a finance department
do?
- Record financial transactions
-Prepare final accounts
-Cash flow forecast
-Make important decisions - Provide info to managers
what is startup capital?
Capital which is needed to buy the factors of production and inventories so that a firm can begin trading.
why do businesses need finance?
- 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.
what is long term finance
long term investments (for more than a year) that pay off fixed assets
what are examples of fixed assets
- Buildings
2Vehicles - Office equipment
4.furniture - machinery
6.software
7.land
What is capital expenditure
money spent on non –current assets
what is short term finance
Finance that needs to pay things that last less than a year. Working capital for day to day operations.
What is revenue expenditure
money spent on day to
day, recurring expenses
What are the main sources of capital?
Internal Sources – Obtained by business itself
External Sources – Obtained from outside business
what are some types of internal sources of finance?
- Retained profits
2.Sale of existing assets
3.Sale of inventories
4.Owner’s savings
What are factors of retained profit?
- 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
What are factors of Selling existing assets?
-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
What are factors of selling inventory?
1.Reduces opportunity cost
2.Reduces storage costs
3.May disappoint customers if sudden change in
4.demand is not met
What are factors of Owner’s savings?
1.Quick availability
2.No interest is paid
3.Savings may be low
4.Increases risks of owners
What are types of External sources?
1.Issue of shares
2.Bank loans
3.Selling debentures
4.Factoring of debts
5.Grants and subsidies
6.Micro finance