Role of Financial Management Flashcards
Goal
A measurable and observable long-term aim. It identifies the business’s direction and focus for the future. Goals may involve several objectives.
Objectives
A series of short-term steps or targets needed to achieve the final goal.
Bankruptcy
A legal declaration that a person or business has more liabilities than assets. A consumer or business that is unable to pay its bills may be formally declared bankrupt by a court. A business may declare itself bankrupt voluntarily as part of the process of closing the business.
Profit
What remains from revenue after all expenses have been paid.
Drawings
Money taken out of a business by a sole trader or partner for their personal use.
Sole trader
An unincorporated business with one owner.
Dividend
The income earned from owning shares in a company. It is usually paid every six months and is based on the profits the company makes.
Gross profit
The revenue remaining after paying the cost of goods sold; that is, the expenses of purchasing the goods wholesale (wholesale cost) and transporting them to the business ready for sale (freight or cartage inwards).
Net profit
The final amount of revenue remaining after all expenses haven been paid.
Profitability
The earnings of the business after expenses have been paid.
Growth
The size of the business compared to its competitors in the same market.
Accounts receivable
A current asset that represents money owed to the business in the short term. This money is owed to the business by customers who are yet to pay for goods or services they have already received. Accounts receivable is also known as debtors.
Invoice
A bill sent to a customer requiring payment by a specified date. Invoices are primary documents in accounting because they are records of credit sales.
Liquidity
A measure of how quickly an asset may be converted into cash and therefore determines the ability of the business to pay short-term debts as they fall due.
Current assets
Assets (such as cash in the bank, accounts receivable and stock) that earn revenue for a business in the short term; usually within 12 months.
Debtors
The businesses or individuals that owe money to a business. Also known as accounts receivable.
Liability
The amount of money owed to individuals and businesses (creditors; for example, suppliers or institutions such as a bank).
Current liabilities
Money that is owed to an external business or person that will be repaid in the sort term; usually within 12 months.
Accounts payable
The money a business owes to its suppliers and service providers. Accounts payable is also known as creditors or trade creditors.
Creditors
The businesses, financial institutions and individuals to which a business owes money. Also known as accounts payable.
Solvency
The ability of a business to pay both short- and long-term liabilities as they fall due. It is a measure of whether a business is financially stable.
Gearing
How much debt finance the business has acquired to fund its operations compared to its use of equity finance.
Short-term
In less than a 12-month period.
Long-term
Longer than a 12-month period.
