Financial Management Flashcards
What is a financial manager
Someone that makes financial decisions , financial record keeping , sourcing capital, investing capital and communicating with other departments
The financial function
Ensure business makes a profit
Predicting financial performance of a business
What is used for financial decisions making
Income statement- overall profit of the business
Balance sheet - shows the financial position
Income statement
Used to calculate the net profit of a business
All income - expenses
Why is the gross profit important
It’s an indication of sales
If it’s low then the sales are low
Balance sheet
Provides information on the assets( add value to the business)
Owners Equity
Owners investment or withdrawals from the business
Liabilities
When the business owes money to another party
Own capital
Investment made by owner of the business
Sole trader: one person contributes to the business
Partnerships: more than one person contributes to the business
Companies: sells shares
Borrowed capital
Any money the business borrows with the intention of paying it back
Factors to consider when deciding between own/borrowed capital
3
Finance period: how long it takes to pay something off
Control: if the owner wants to retain control will use borrowed capital or owner can recruit partner then owner will have less control
Solvency: the ability of the business to pay debt more than 1(solvent) less (insolvent)
Type of capitals
2
Long term: items that intend to be used in the business for long term “vehicles “
Short term: used to cover day to day operation
E.g. Of short term capital
6
Overdraft: bank allows you to withdraw more money than you have
Short term: pay back usually within a year
Credit card: swipe your card pay with interest
Installment: you buy something but you pay overtime
Trade credit: suppliers sell assets on credit but pay on credit
Lease: you rent an item but never own it
Factors that influence the demand for long term and short term capital
Nature of business Stage of development Time of production Rate of stock Buying/selling items Size of the business
Nature of business
Manufacturers need more fixed capital than retailers
