Unit 5 - Financial Management Flashcards
A financial objective
Is a goal or target pursued by the finance department (or function) within an organisation
Profit
Is the surplus of total revenue over total costs for a business over a trading period
Cash flow
Is the movement of cash into and out of a business over a period of time
Income statements record a business’s sales revenue over a trading period and all relevant costs incurred as well as the business’s profit or loss
Gross profit
Is income received from sales minus the cost of goods and services sold
Direct costs
Are expenditure that can clearly be allocated to a particular product or area of the business. Examples include raw materials and components
Indirect costs
Are expenditure that relates to all aspects of a business’s activities, such as maintenance costs for buildings or senior managers salaries
Operating profit
Is the financial surplus arising from a business’s normal trading activities and before taxation
Profit for the year
Is a measure of a business’s profits that takes into account a wider range of expenditures and incomes including taxation
Budgets
Are financial plans that forecast revenue from sales and expected costs over a period of time
Variance analysis
Is the process of investigating any differences between forecast data and actual data
Cash flow forecasts
State that inflows and outflows of cash that the managers of a business expect over some future period
Contribution
Is the difference between revenue and variable costs
Margin of safety
Measures the amount by which a business’s current level of output exceeds breakeven output
Profitability
Is a measure of financial performance that compares a business’s profits to some other factors such as revenue
Profit margin
Is a ratio that expresses a business’s profit as a percentage of its revenue over some trading period
Primary market research
Collects and analyses data for the first time to use for marketing purposes
Internal sources of finance
Is a source that exists within the business
External sources of finance
Is an injection of funds into the business from individuals, other businesses or financial institutions
Short term finance
Finance needed for a limited period of time , normally less than one year
Long term finance
Sources of finance that are needed over a longer period of time,usually more than one year
Bank loan
Is an amount of money provided to a business for a stated purpose in return for payment in the form of interest charges
Overdraft
Exist when a business is allowed to spend more than it holds in its current account up to an agreed limit
Venture capital
Funds advanced to business thought to be relatively high risk in the form of share and loan capital
Share capital
Finance invested Into a company as a result of the sale of shares in the business
Crowdfunding
A practice of funding a project or venture by raising small amounts of money from a larger number of individuals (usually via the internet)
Opportunity cost
Is the next best alternative that is foregone
Trade credit
Is offered when purchasers are allowed a period of time (frequently 30,60,or 90 days) to pay for products they have bought
Investment
Is the purchase of assets such as property, vehicles and machinery that will be used for a considerable time by the business
Non current assets
Are items that a business owns and which it expects to retain for one year or longer
Capital expenditure
Is spending undertaken by businesses to purchases non current assets such as vehicles and property
Capital structure
Refers to the way in which a business has raised the capital it requires to purchase assets
