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IB Business > Topic 3 - Finance and Accounts > Flashcards

Topic 3 - Finance and Accounts Flashcards

1
Q

Business Angels

A

wealthy entrepreneurs who risk their own money by investing in small to medium-sized businesses that have high grotwth potential

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2
Q

Capital Expenditure

A

investment spending on fixed assets such as the purchase of land and buildings

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3
Q

Debt Factoring

A

a financial service whereby a factor (such as a bank) collects debt on behalf of other businesses, in return for a fee

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4
Q

External sources of finance

A

getting funds from outside the organization

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5
Q

Grants

A

government financial gifts to support business activities and are not expected to be repaid

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6
Q

Initial Public Offering (IPO)

A

a business converting its legal status to a public limited company by floating (selling) its shares on the stock exchange for the first time

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7
Q

Internal sources of finance

A

getting funds from within the organization

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8
Q

Leasing

A

A form of hiring whereby a contract is agreed between a leasing company (the lessor) and the customer (the lessee). The lessee pays rental income to hire assets from the lessor, who is the legal owner of the assets

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9
Q

Loan Capital (debt capital)

A

medium to long-term sources of interest bearing finance obtained from commercial lenders, e.g. mortgages, business development loans and debentures

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10
Q

Long-term finance

A

sources of finance of more than five years, used for the purchase of fixed assets or to finance the expansion of a business

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11
Q

Medium-term finance

A

sources of finance of one to five years in duration, used mainly to pay for fixed assets, i.e. capital expenditure

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12
Q

Overdrafts

A

allows a business to spend in excess of the amount in its bank account, up to a predetermined limit. they are the most flexible form of borrowing in the short term.

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13
Q

Personal Funds

A

a source of internal finance, referring to the use of an entrepreneur’s own savings, they are often used to finance business start-ups

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14
Q

Retained Profit

A

the value of surplus that the business keeps to use within the business after paying corporate taxes on its profits to the government and dividend to its shareholders

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15
Q

Revenue Expenditure

A

spending on the day-to-day running of a business, i.e. rent, wages and utility bills

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16
Q

Sale-and-leaseback

A

a source of external finance involving a business selling a fixed asset (such as its computer systems or a building) but immediately leasing the asset back. In essence, the lessee transfers ownership to the lessor but the asset does not physically leave the business

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17
Q

Share Capital

A

money raised from the sale of shares of a limited company, from its initial public offering (IPO) and any subsequent share issues

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18
Q

Share issue (share placement)

A

exists when an existing public limited company raises further finance by selling more of its shares

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19
Q

Short-term finance

A

sources of finance needed for the day-to-day running of a business, i.e. revenue expenditure

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20
Q

Sources of Finance

A

General term used to refer to where or how businesses obtain their funds, such as from working capital, commercial lenders and/or government assistance

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21
Q

Stock Exchange

A

a highly regulated marketplace where individuals and businesses can buy and/or sell shares in public limited companies (joint stock companies)

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22
Q

Subsidies

A

funded by the government to lower a firm’s production costs as output provides extended benefits to society, e.g. farmers are often provided with subsidies to stabilize food prices

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23
Q

Trade Credit

A

Allows a business to “buy now and pay later”. The credit provider does not receive any cash from the buyer until a later date.

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24
Q

Venture Capital

A

a high-risk capital invested by venture capital firms, usually at the start of a business idea. The finance is usually in the form of loans and/or shares in the business venture.

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25
Q

Examples of internal sources of finance

A

Personal funds, retained profit, sale of assets

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26
Q

Examples of external sources of finance

A

share capital, loan capital, overdrafts, trade credit, grants, subsidies, debt factoring, leasing, venture capital, business angels

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27
Q

Debentures

A

Long-term loans issued by a business.

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28
Q

Dividends

A

a share of the net profit distributed to shareholders at the end of the tax year

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29
Q

Balance Sheet

A

contains financial information on an organization’s assets, liabilities and the capital invested by the owners on one specific day, thus showing a ‘snapshot’ of the firm’s financial situation

30
Q

Book value

A

the value of an asset as shown on a balance sheet

31
Q

Costs of goods sold (COGS) or cost of sales (COS)

A

shown in the trading account and represents the direct costs of producing or purchasing stock that has been sold

32
Q

Creditors

A

suppliers who allow a business to purchase goods and/or services on trade credit

33
Q

Current Assets

A

the short-term assets that belong to a firm, which are expected to remain in the business for up to 12 months, e.g. cash, debtors and stock (inventory)

34
Q

Debtors

A

a category of current assets, referring to customers who have bought goods or services on credit, i.e. they owe money to the business

35
Q

Depreciation

A

the fall in the value of fixed assets over time, from wear and tear or outdated

36
Q

Final Accounts

A

the published annual financial statements that all limited liability companies are legally obliged to report, i.e. the balance sheet and the profit and loss accounts

37
Q

Fixed Assets

A

items owned by a business, not intended for sale within the next twelve months, but used repeatedly to generate revenue for the organization, e.g. land, premises and machinery

38
Q

Goodwill

A

an intangible asset which exists when the value of a firm exceeds its book value

39
Q

Gross Profit

A

the difference between the sales revenue of a business and its direct costs incurred in making or purchasing the products that have been sold to its customers

40
Q

Historic cost

A

the purchase cost of a particular fixed asset

41
Q

Intangible assets

A

fixed assets that do not exist in a physical from, e.g. goodwill, copyrights, brand names and registered trademarks

42
Q

Long-term liabilities

A

the debts owed by a business, which are expected to take longer than a year from the balance sheet date to repay

43
Q

Net assets

A

show the value of a business by calculating the value of all its assets. this must match the equity in a balance sheet

44
Q

Net profit

A

the surplus that a business makes after all expenses have been paid for out of gross profit

45
Q

Profit and Loss Account (income statement)

A

a financial record of a firms trading activity over the past 12 months, consisting of three parts: the trading account, the profit and loss account and the appropriation account

46
Q

Reducing balance method

A

a method of depreciation that reduced the value of a fixed asset by the same percentage each year throughout its useful like

47
Q

residual value

A

an estimate of the scrap or disposal value of the asset at the end of its useful life

48
Q

Retained Profit

A

the amount of net profit after interest, tax and dividends have been paid

49
Q

Share Capital

A

the amount of money raised through the sale of shares

50
Q

Shareholders’ Funds

A

show the equity if the owners, i.e. the share capital invested by the owners and the retained profit and reserves that have been accumulated

51
Q

Straight Line Method

A

a method of depreciation that reduces the value of a fixed asset by the same value each year throughout its useful life

52
Q

Trading Account

A

the first section of a profit and loss account, showing the difference between a firm’s sales revenue and its direct costs of trading, i.e. it shows the gross profit of a business

53
Q

Window Dressing

A

the legal act of creative accounting by manipulating financial data to make the results look more flattering

54
Q

Acid Test Ratio

A

a liquidity ratio that measures a firms ability to meet its short-term debts

55
Q

Capital Employed

A

the value of all long-term sources of finance for a business, e.g. bank loans, share capital and accumulated retained profit

56
Q

Current Ratio

A

a short-term liquidity ratio that calculates the ability of a business to meet its debts within the next twelve months

57
Q

Efficiency Ratio

A

indicates how well a firm’s resources have been used, such as the amount of profit generated from the available capital used in the business

58
Q

Gross Profit Margin (GPM)

A

a profitability ration that shows the percentage of sales revenue that turns into gross profit

59
Q

Liquid Assets

A

the possessions of a business that can be turned into cash quickly without losing their value, i.e. cash, stock, debtors

60
Q

Liquidity Crisis

A

a situation where a firm is unable to pay its short-term debts, i.e. current liabilities exceed current assets

61
Q

Liquidity Ratio

A

looks at the ability of a firm to pay its short-term liabilities, such as by comparing working capital to short-term debts

62
Q

Net Profit Margin (NPM)

A

the percentage of sales revenue that turns into net profit, i.e. the proportion of sales revenue left over after all direct and indirect cost have been paid

63
Q

Profitability Ratio

A

examine profit in relation to other figures, e.g the GPM and NPM ratios

64
Q

Ratio Analysis

A

a quantitative management tool that compares different financial figures to examine and judge the financial performance of a business

65
Q

Return on Capital Employed (ROCE)

A

an efficiency ratio measuring the profit of a business in relation to its size

66
Q

Credit Control

A

the ability of a business to collect its debts within a suitable timeframe

67
Q

Creditor Days Ratio

A

an efficiency ratio that measures the average number of days it takes for a business to pay its creditors

68
Q

Debtor Days Ratio

A

an efficiency ratio that measures the average number of days it takes for a business to collect the money owed from debtors

69
Q

Gearing Ratio

A

measures the percentage of an organizations capital employed that comes from external sources, such as debentures and mortgages

70
Q

Profit Quality

A

the ability of a business to earn profit in the foreseeable future

71
Q

Stock Turnover Ratio (Inventory Turnover Ratio)

A

measures the number of times a business sells its stocks within a year

IB Business (8 decks)

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