Week 6 Flashcards
What is investment decisions?
The manager has to decide what is needed for the business to achieve its goals. There are many factors to be investigated and considered.
What is financing decisions?
The manager or owner needs to make decisions about the best ways to finance the required assets and resources. This is the responsibility of financial management to acquire the needed capital for a business and ensure that the best use is made of it
What are the two aims of financial planning?
- Determine the variety of needs for assets and therefore the required capital
- Decide what the best way to finance these needs
What are the two kinds of investments involved in getting capital?
- Initial research and development costs
- The once-off setup costs
What are initial setup costs?
Costs before the business can be regarded as on-going.
- agreements
- rental
-acquiring assets
- capital needed to break even
What are fixed assets? Give examples.
Assets needed in a business for periods exceeding 12 months.
- land and building
- machinery and equipment
- furniture and fittings
- vehicles
What are current assets? Give examples.
These includes things needed to do business and is consumed within 12 months.
- raw materials
- stock (inventory)
- outstanding debtors
- cash
What is permanent capital? Give examples.
Permanent capital is capital that is needed at all times.the absolute minimum amount of capital a business requires to operate.
- stock
- outstanding debtors
- cash
What is the two important principles?
- Permanent capital needs should only be financed through long term capital sources
(All required fixed assets like machinery & the permanent part of the needed current assets like minimum levels of inventory) - The variable capital needs are only part of the total capital needs that should be financed from short term capital sources
List factors that influence the capital need.
- the type of industry
- the length of the working capital cycle
- forecasted sales figures
- external factors
- growth and expansion
What is the difference between ongoing and new businesses with regards to capital requirements?
Capital requirements for ongoing: straightforward matter - involves collecting relevant information like past & present financial performance and then used to determine present and future trends
Capital requirements for new business: challenging - no past customer figures like sales. No past/present internal sources of information.
Explain this source of capital: own capital
Often first source of capital available
Retained earnings
Serves as basis for other forms of capital
It is permanent
Not easy to withdraw
Explain this source of capital: outside capital
Capital that comes from sources outside the business
- usually available to business on short-term/long-term basis
- has to be repaid at some point
- example is a loan
- suppliers of this is paid financing fees (interest)
- if business is sold/liquidated: suppliers have preferential claims when it comes to being paid
What is the difference between own capital and outside capital? 5 points each.
Look at powerpoint
What are the 4 sources of finance?
- Permanent finance
- Long term finance
- Medium term finance
- Short term finance
