Unit 5 Finance Sheet

Question 1

Internal Source

Answer 1

Sources of finance that exist within a business eg retained profit

Question 2

External Source

Answer 2

Funds injected from outside the business (eg bank loan)

Question 3

Profitability

Answer 3

A measure of financial performance that compares a business profits to some other factors such as revenue/capital invested/ previous years profit/ industry averages

Question 4

Profit

Answer 4

Measures the extent to which revenues exceed the costs incurred in producing it

Question 5

Debt Factoring

Answer 5

A company buys the right to collect money owed by customers of a business

Question 6

Variable costs

Answer 6

The sum of those costs that vary directly with output in the short run

Question 7

Venture Capital

Answer 7

Capital that is provided to small or medium sized firms that seek rapid growth but may be considered as risky by typical share buyers of other lenders.

Question 8

Bank Loan

Answer 8

Loan capital (money) provided to a firm or individual for a specific agreed purpose usually at a fixed rate or interest

Question 9

Overdraft

Answer 9

When a business is allowed to spend more than it holds in its current back account up to an agreed limit. Interest is paid on the amount spent.

Question 10

Margin of safety

Answer 10

The difference between the actual output and the break even output

Question 11

Capital Expenditure

Answer 11

Spending on items used time and time again (fixed or non current assets). Eg machinery. It may take a long time before these items generate enough revenue to pay for themselves, so a long term source of finance is ideal

Question 12

Short term loans

Answer 12

Finance that is normally intended for repayment within 12 months. It is usually intended for revenue expenditure eg pay bills or overcome temporary cash shortages.

Question 13

Return on investment

Answer 13

A measure of the efficacy of an investment in financial terms, used to compare the financial returns of alternative investments

Question 14

Ordinary share capital

Answer 14

Finance invested into a company as a result of the sale of shares in the business

Question 15

Mortgage

Answer 15

Long term loans repaid over periods of up to 50 years and used to purchase property

Question 16

Debenture

Answer 16

Loans with fixed interest rates that are long term and may not even have a repayment date

Question 17

Crowdfunding

Answer 17

The practice of funding a project or venture by raising small amounts of money from a large number of people typically via the Internet

Question 18

Opportunity cost

Answer 18

The next best alternative is forgone

Question 19

Financial Objective

Answer 19

The goal or target pursued by the finance department (or function) within an organisation

Question 20

Credit score

Answer 20

An estimate of the ability of a person or organisation to fulfil their financial commitments based on previous dealings h