Topic 4 - Finance Flashcards
What does it mean by internal sources of finance
Money sourced from within the business e.g. owners capital, retained profit and selling assets
What does it mean by Owners capital (internal)
Money put into the business by its owners
What does it mean by Retained Profit (internal)
Profit made by the business in earlier years
What does it mean by Selling assets (internal)
Selling something that is owned by the business but no longer used e.g. machinery, building
What does it mean by External sources of finance
Money sourced from outside the business e.g. bank loan, overdraft, venture capitalist
What does it mean by Family and friends
Borrowing money from family and friends
What does it mean by Trade credit
Trade credit is a period of time which suppliers allow customers before payment for supplies must be made. It is usually a period of 30, 60 or 90 days before payment has to be made
What does it mean by Leasing
Renting an asset, never owning them. This allows them to be updated regularly. However, the business are permanently paying for them.
What does it mean by Hire purchase
Purchasing an asset and paying in instalments. The asset is owned at the end of the agreement. It is an expensive way of buying something
What does it mean by Government grants
A grant is a sum of money given to an entrepreneur or a business for a specific reason e.g. job creation
What does it mean by Share issue
LTD’s and PLC’s selling shares in their business
What does it mean by New partners
Partnerships can invite new partners to join the business
What does it mean by Venture capitalists
Wealthy people or organisations that provide finance to businesses that are thought to be risky
What does it mean by Business angels
Tend to invest in smaller amounts of money into newly established businesses
What does it mean by Bank loan
Involves giving a business a large sum of money in return for the business agreeing to repay the amount in instalments over a number of years
What does it mean by Overdraft
A special form of short term loan. It allows a business to borrow money from the bank by going overdrawn in their bank account
What does it mean by Sales revenue and what is the formula
All the money generated from sales
Sakes revenue = price x quantity sold
What does it mean by Fixed costs
Costs that do not change according to sales / output e.g. rent
What does it mean by Variable costs
Costs that do change according to sales / output e.g. materials
How do you work out total costs
Fixed costs + variable costs
What does it mean by Profit and what is the formula
Surplus money left over after all costs have been paid
Profit = Sales revenue – total cost
What does it mean by Break even
Break-even is the level at which a businesses total costs and total revenue from sales are even
What is the Break even formula
Fixed costs divided by contribution per unit
What is the formula for Contribution
Contribution is the revenue a business receives from the sales of the product, minus the variable cost of the product
(revenue - variable costs)
