Unit 5

Question 1

Start-up capital

Answer 1

The capital needed by an entrepreneur when first starting a business

Question 2

Working capital

Answer 2

The capital needed to finance the day-to-day running expenses and pay the short-term debts of a business

Question 3

Non-current (fixed) assets

Answer 3

Resources owned by a business which will be used for a period longer than one year, for example buildings and machinery

Question 4

Capital expenditure

Answer 4

Spending by a business on non-current assets such as machinery and buildings

Question 5

Long-term finance

Answer 5

Debt or equity used to finance the purchase of non-current assets or finance expansion plans. Long-term debt is borrowing a business does not expect

Question 6

Short-term finance

Answer 6

Loans or debt that a business expects to pay back within one year

Question 7

Retained profit

Answer 7

Profit remaining after all expenses, tax and dividends have be paid and which is ploughed back into the business

Question 8

Overdraft

Answer 8

An agreement with the bank which allows a business to spend more money than it has in its account up to an agreed limit. The loan has to be repaid within 12 months

Question 9

Trade receivables

Answer 9

Amount owed to a business by its customers who bought goods on credit

Question 10

Debt factoring

Answer 10

Selling trade receivables to improve business liquidity

Question 11

Bank loan

Answer 11

Provision of finance by a bank which the business will repay with interest over an agreed period of time

Question 12

Leasing

Answer 12

Obtaining the use of a non-current asset by paying a fixed amount per time period for a fixed period of time. Ownership remains with the leasing company

Question 13

Hire purchase

Answer 13

The purchase of an asset by paying a fixed repayment amount per time period over an agreed period of time. The asset is owned by the purchasing company on completion of the final repayment

Question 14

Mortgage

Answer 14

A long term loan used for the purchase of land or buildings

Question 15

Debenture

Answer 15

A bond issued by a company to raise long-term finance usually at a fixed rate of interest

Question 16

Share issue

Answer 16

A source of permanent capital available to limited liability companies

Question 17

Equity finance

Answer 17

Permanent finance provided by the owners of a limited company

Question 18

Micro-finance

Answer 18

Small amounts of capital loaned to entrepreneurs in countries where business finance is often difficult to obtain. These loans are usually repaid after a relatively short period of time

Question 19

Crowd-funding

Answer 19

Financing a business idea by obtaining small amounts of capital from a large number of people, most often using the internet and social media networks

Question 20

Cash-flow forecast

Answer 20

An estimate of the future cash inflows and outflows of a business

Question 21

Net cash flow

Answer 21

Cash inflow minus cash outflow

Question 22

Liquidity

Answer 22

The ability of a business to pay its short-term debts

Question 23

Credit sales

Answer 23

Goods sold to customers who will pay for these at an agreed date in the future

Question 24

Gross profit

Answer 24

The difference between revenue and cost of sales

Question 25

Profit

Answer 25

The difference between revenue and cost of sales

Question 26

Profit

Answer 26

The difference between revenue and total costs

Question 27

Total cost

Answer 27

Costs of sales plus expenses

Question 28

Revenue

Answer 28

The amount earned from the sale of products

Question 29

Cost of sales

Answer 29

The cost of purchasing the goods used to make the products sold

Question 30

Expenses

Answer 30

Day-to-day operating expenses of a business

Question 31

Income statement

Answer 31

A financial statement which records the revenue, costs and profits of a business for a given period of time

Question 32

Statement of financial position

Answer 32

An accounting statement that records the assets liabilities and owners equity of a business at a particular date

Question 33

Assets

Answer 33

Resources that are owned by a business

Question 34

Liabilities

Answer 34

Debts of the business that will have to be paid sometime in the future

Question 35

Non-current (fixed) assets

Answer 35

Resources that a business owns and expects to use for more than one year

Question 36

Current assets

Answer 36

Resources that the business owns and expects to convert into cash before the date of the next statement of financial position

Question 37

Trade recievables

Answer 37

The amount of money owed to the business by customers who have been sold goods on credit

Question 38

Current liabilities

Answer 38

Debts of the business which it expects to pay before the date of the next statement of financial positions

Question 39

Trade payables

Answer 39

The amount a business owes to its suppliers for goods bought on credit

Question 40

Non-current liabilities

Answer 40

Debts of the business which will be payable after more than one year

Question 41

Owner’s equity

Answer 41

The amount owed by the business to its owners; includes capital and retained profits

Question 42

Shareholders equity (funds)

Answer 42

Alternative term for owner’s equity, but can only be used by limited liability companies

Question 43

Gross profit margin %

Answer 43

Ratio between gross profit and revenue

Question 44

Profit margin %

Answer 44

Ratio between profit before tax and revenue

Question 45

Adding value

Answer 45

Selling a product for more than it cost to produce it

Question 46

Return on capital employed (ROCE)

Answer 46

Ratio between profit before tax and capital employed

Question 47

Liquidity

Answer 47

The ability of a business to pay its short-term debts

Question 48

Current ratio

Answer 48

Ratio between current assets and current liabilities

Question 49

Acid test ratio

Answer 49

Ratio between liquid assets and current liabilities

Question 50

Acid test ratio formula

Answer 50

(Current assets - inventories)
Current liabilities