Unit 5 Flashcards
Start up Capital
The capital needed by an entrepenuer when first starting up a business
Working Capital
Working Capital - finds to pay for day to day costs, that do not involve buying equipment (something you would buy for the business on a day to day time, not heavy machinery)
Capital
Capital - the finance necessary for a business to carry out its plans (machinery, equipment, finance)
Venture Capitalist
Venture Capitalist - People who have a lot of experience in business and lend money to other businesses.
What are Current Assets and Non Current Assets (fixed)!?
CA: Assets that a business expects to convert into cash within 12 months (cash, inventories)
NCA: resources owned by a business which will be used for a period longer than one year
When do Businesses need finance?
When starting up - start up costs are initially hiring workers and buying the first bits of equipment for the business
Running costs - day to day running costs are Energy Bills and Rent
When Expanding - a cost of expanding are buying a new store when expanding in a new location
Replacing Fixed assets -equipment such as work vehicles usually last about 3 - 10 years, replacing fixed assets is when you replace or change these assets
Cash flow shortage - when a business is low on cash
Retained Profits
Retained Profits - the money that you have already made from the business going back in to the business.
What is Long Term Finance?
debt or equity used to finance the purchase of non current assets or finance expansion plans
What is short term finance?
loans or debt that a business expects to pay back in one year
What is Internal and External Finance?
Internal Finance comes from within the business or is provided by its owners
External Finance comes from outside the business or its owners.
Cash Flow
The movement of cash in and out of the business
What is a Cash Flow Forecast?
Cash Flow Forecast - Forecast or Estimate of your cash (bank balance) at the end of each week or month
How do you calculate the Net Cash Flow?
Net Cash flow = total inflow - Total Outflow
What is the Opening Balance?
Opening Balance = The Closing Balance of the Previous Month
How to calculate Net Profit
Net Profit = Gross Profit - Business Expenses
What is the Owners Equity?
Owners Equity - The money invested in the business
What are some Internal Sources of Finance?
Owner’s Savings
Retained Profits
Some of the Businesses working capital
What are External Sources of Finance in Short Term Sources and Long Term Sources?
Short Term Source - Overdraft: An agreement with the bank which allows a business to spend more money than it has in it’s account up to ana greed limit. The loan can be repaid within 12 months
Long Term Source - Bank Loan: Provision of finance by a bank which the business will repay with interest over an agreed period of time
Leasing: Obtaining the use of a non current asset by paying a fixed amount per time period for a fixed period of time
What is Equity?
The Networth of the company
What does a Balance Sheet show?
Shows the financial position of a business at a point in time
The idea is to check wether the business assets balances it’s liabilities-
How to calculate Total Shereholder’s Equity?
Total Shareholder’s Equity = Share Capital + Retained Profit
What is Debt Financing?
The act of raising capital by borrowing money from a lender or a bank, to be repaid at a future date.
Equity Finance
selling a portion of a company’s equity in return for capital.
The process of raising capital through the sale of shares.
What are Benefits and Limitations of Debt Financing?
Benefits: Doesn’t change the ownership of the company. The lenders have no way in the running of the company
Limitations: Interest is charged on the amount borrowed and this increases business costs. The amount borrowed must be repaid
