Topic 3 - Finance Flashcards
Business Angels
Wealthy entrepreneurs that risk their own money to invest in a small / medium sized business/es that have high growth potential.
Capital Expenditure
An investment on fixed assets such as property or land
Debt Factoring
Financial service whereby a factor (e.g. bank) collects your debt on behalf of other businesses in return for a fee.
Overdrafts
Allows for a business to spend in excess to what is in its account up to a predetermined limit. They are a short-term borrowing plan.
Venture Capital
High-risk capital invested by capital firms, usually at the start of a business idea.
Dividends
A share of net profit that is divided at the end of the tax year between shareholders.
Break Even Analysis Layout
X-axis as output, Y-axis as revenue, TFC as a horizontal line from the amount, find the BEQ by using TFC/(P-AVC), draw a line of TR starting from TFC and going through the BEP, draw TC starting from 0 and going through the BEP.
Benefits of Break-Even
More accurate than guesswork, beneficial if a business sells a single standardised product, if it operates in a single market.
Limitations of Break-Even
Assumes cost and revenue functions are linear, assumes that a business will sell all of its output, static model and does not react to external environment changes.
Gross Profit
Sales revenue - COGS
COGS
opening stock + purchases - closing stock
Profit and Loss Account Layout
Sales Revenue, COGS, Gross Profit, Expenses, Net profit before interest and tax, interest, net profit before tax, tax, net profit after interest and tax.
Balance Sheet Layout
Fixed Assets,
Annual Depreciation,
Net fixed assets,
Current assets,
Stock, Cash, Debtors,
Total Current assets,
Current liabilities,
Creditors, Overdraft, Short-term loans,
Total current liabilities,
Net current assets,
Total assets less current liabilities,
Less long-term liabilities,
Net assets,
Financed by,
Share Capital, Accumulated retained profit,
Equity
Liquidity
how easily an asset can be turned into cash
