Unit 5 Finance Flashcards
What is Start-up capital?
The finance needed by a new business to pay for essential fixed and current assets before it can begin trading
What is working-capital?
The finance needed by a business to pay its day-to-day costs.
What is capital expenditure
The money spent on fixed assets which will last for more than one year
What is revenue expenditure
The money spent on day-to-day expenses which do not involve the purchase of a long-term asset, for example wages or rent
What is internal finance?
The fincance obtained from within the business itself
What is external finance?
The obtained from sources outside of and separate from the business
What is Micro-finance?
The providing financial services including small loans to poor people not served by traditional banks
What is cash flow?
The cash flow of a business is the cash inflows and outflows over a period of time
What is cash inflows?
The sums of money received by a business during a period of timeWh
What is cash outflows?
The sums of money paid out by a business during a period of time
What is a cash flow cycle?
The stages between paying out cash for labour, materials etc. and receiving cash from the sale of goods
What is profit?
The surplus after total costs have been subtracted from sales revenue
What is a cash flow forecast?
The estimate of future cash inflows and outflows of a business, usually on a month-by-month basis. This then shows the expected cash balance at the end of each month
What is an opening cash balance?
The amount of cash held by the business at the start of the month
What is the net cash flow?
The differences between inflows and outflows.
What is closing cash balance?
The amount of cash held by the business at the end of each month. This becomes next month’s opening cash balance.
What is working capital?
The capital available to a business in the short term to pay for day-to-day expenses
What are accounts?
The financial records of a firm’s transactions
What are accountants
The professionally qualified people who have responsibility for keeping accurate accounts and the producing the final accounts
What are final accounts
The produced at the end of the financial ear and give details of the profit or loss made over the ear and the worth of the business
What is an income statement?
A document that records the income of a business and all costs incurred to earn that income over a period of time. It is also known as a profit and loss account
What is gross profit?
When sales revenue is greater than the costs of goods sold
What is sales revenue?
The income to a business during a period of time from the sale of goods or services
What is the cost of goods sold?
The cost of producing or buying in the goods actually sold by the business during a time period
What is a trading account?
It shows how the gross profit of a business is calculated
What is net profit?
The profit made by a business after all costs have been deducted from sales revenue. It is calculated by subtracting overhead costs from gross profits.
What is depreciation?
The fall in value of a fixed asset over time
What is retained profit?
The net profit reinvested back, into a company, after deducting tax and payments to owners, such as dividends
What is the balance sheet?
It shows the value of a business’s assets and liabilities at a particular time. Sometimes referred to as ‘statement of financial position’
What are Assets?
Those items of value which are owned by the business. They may be fixed or short-term current assets.
What are liabilities
The debts owned by the business
What are Non-current assets
Items owned by the business for more than one year
What are current assets
They are owned by a business and used within one year
What are Non-current liabilities
Long term debts owed by the business
What are current liabilities?
Short term debts owed by the business
What is Liquidity?
The ability of a business to pay back it’s short-term debts
What is capital employed?
Shareholders’ equity plus non-current liabilities and is the total long-term and permanent capital invested in a business
What is Illiquid
It is when assets are not easily convertible into cash
What are three Profitability ratios?
- Return on capitaly employed (ROCE)
- Gross profit margin
- Net profit margin
Give me the formula for ROCE and is it a percentage?
Net profit/ Capital employed * 100.
No it is not a percentage
Give me the formula for Gross profit margin and is it a percentage?
Gross profit/ Sales revenue * 100
Yes it is a percentage
Give me the formula for Net profit margin and is it a percentage?
Net profit/ Sales revenue * 100
Yes it is a percentage
Give me the two Liquidity ratios
- Current ratio
- Acid test / liquid ratio
Give me the formula for Current ratio and is it a percentage?
Current assets/ Current liabilities
No it is not
Give me the formula for Acid test ratio and is it a percentage?
Current assets - Inventories / Current liabilities
What does gross profit margin mean?
It means whatever the percentage is, it is that percentage of 1 dollar in profit per product sold.
EG. 400/1300 x 100 = 30.8%
For every 1dollar they make they make 30.8 cents in gross profit
What does the Net profit margin mean?
Same as gross profit but deducting expenses such as interests.
What does current ratio mean?
It determines if the business can pay of debts. If the answer is below 1 then they have more liabilities than assets, vice verca.
What does acid test ratio mean?
Same as current ratio but excluding inventories
