Business Unit 3 Flashcards
Capital expenditure:
Capital expenditure: is the finance spent on fixed assets
Revenue expenditure:
Renvue expendtuire: refers to payments for the daily running of a business
Internal Sources (definiton and types)
Interal sources of finnace comes from withinthe business
Includes: Personal funds, sales of assets, retained proifts
Personal funds is the peronsla money owners put it
Sales of assets; business can sell their dormant assets
External sources of finnace (what is IPO, deinfiton + types of external sources of finance)
External sources of finance: is finance that comes from outside of the business
it includes things such as share cpaita, loan, overdrafts, trade credit, grants, debt factoring,
Share capital:
Business can raise money by selling shares
Loan capita: Business can obtain loans from commercial lenders such as banks
Overdrafts: When business tem;ortarly overdraft on its bank balance (taking more money than they have)
Trade credit: Allows customers to buy now and pay laters
Gransts: are governmental financial gifts
Business angles:
are wealthy individuals who choose to invest their own money to business that offer high growth potienal
Venture capital:
Refer to a high risk loan given small-medium size business that have high growth poiteinal
IPO: when business sell their share son a. stock exchange for the first time
Types of costs (8)
running costs: are the onoging costs of operation the business
Set up costs: are the items of expenditure needed to start a business
Fixed costs: are cost of production that a business has to pay regardless of how much it products or sells (stays the same)
Variable costs: Are the costs of productthat change in proportion with the level of production or sales
Semi-variable costs:
Contain both variable and fixed costs, so it costs a certain amount of money b ut once exeneed a certain level of output then the costs change
Direct costs:
Are costs specifically related to the individual project or product, example employees who create it, raw materials etc)
Indirect costs:
Are costs that cannot be traced to the product or sale of any product but are necessary, example rent, light etc adveritinsg
Formulas:
For total cost, Average cost (2 ways) , Total variable cost, Average revenue.
Total costs = Total variable cost + Total fixed costs
Average cost = Fixed cost + variable cost / Unit sold
Total Variable Costs = Cost Per Unit x Total Number of Units.
Average revenue = Total revenue /Quantity
(AVC)= VC/Q
Formulas + Defintion)
Contribution per unit
Total contribution
Profit
Break even
Margin of safety
Mos perctenge
Output (2 ways)
Total costs
Sales revenue
Contrinubtion refers to the sum of money that remains after all direct and variable costs have been taken way from sales revenue
Contribution per unit = price - average variable cost (average cost)
Total contrinubtion = (p-AVC) x Q
BREAK EVEN:
Breaking even refers to the position in the graph when total costs = total revenue
OR
BEQ= FIxed cost / Unit contribution.
Therefore we can use the formula TR=TC, to find the quantity needed
example, price = 30. VC = 10, fixed = 3500
TR = TC
P*Q = TFC + TVC
30Q = 3500 + 10Q
20Q = 3500
Q=175
2) way
BEQ= TFC / Price - AVC
IMPORtant steps for Break even chart:
1) Y axis = Cost and revenue
2) X axis = Output
3) Must be Break even point
4) Must be Fixed Cost
5) There must be Margin of Safety
6) Must be Total profit and Total Costs
7) Must be Loss before Break even and Profit after
Profit = Total contribution -TFC
Break even = fixed cost / contrinubtion per unit
Margin of saefty = Level of demand - BEQ
OR Margin of safety = output - BEQ
Margin of safety = output - BEQ
Output = Divide the total cost (TC) by the quantity of goods produced by the firm (Q) to find it
Total costs = Total variable cost + Total fixed costs
Sales revenue = price quantity sold
Profit and loss account. And balance sheet
How to find equity
Profit and loss account: is a finanical statement of a firms trading activities over a period of tiem
The balance sheet: shows the assets and liabilities of a business at a paricpluar point of time.
Equity = Share capital + retained profit
The profit and loss account, trading account, profit and loss account (profit statement), approaption account
The profit and loss account is a financial statement of a firms trading activities over a period of time
Trading account:
Trading account is the first section of the profit and loss account and shows the gross profit
Gross profit = Sales revenue = COGS
COGS = Openting stock + purchases - closing stock
Profit statement
Which shows the net profit before tax and interest
Profit statement = Gross Profit - Less expenses
Approation account: dividends and retained profitn
Net current assets vs net asset. Net asset (formula)
Net current assets vs net assets.
Net asset = Net assets are the value of a company’s assets minus its liabilities. It is calculated ((Total Fixed Assets + Total Current Assets) – (Total Current Liabilities + Total Long Term Liabilities)).
What is equity:
What is asset, and fixed asset, and current asset
Equity represents the shareholders’ stake in the company
Assets: are items of monterey value owned by the business
A fixed asset: is any asset used for
busness operations
A current asset: refers to any asset thats likely to be turned into cash within 12 mont
What is libabilites
What is total assets (formula)
Long term libalites:
Libalities: Are legal oblgiions of abusiness
Total asset = fixed asset + working capital
Long term libalities = must be dealt within 12 months
Share capital: refers to the money raised though sales of shares
Intaignel assets: Are non physics-assets that have the ability to earn revenue for a business (ex. Brand names, Goowdill, patens, copyright tradmarks)
Brands recongiiction: help drive global sales for companies
Patens: produce legal protection fr invetnros, prevening other from copying their creating for a ficed number of nears
CopyrightL provides legal protectio for ht eorignal arctic work of the creator
Goodwill: w=value of the orgnaizations name
Tradmersl: Distinctive signs that unqitly identify a brand.
GPM (gross profit margin) , NPM (net profit margin) deinfitnnon + formukwhlat type of ratio are they
ROCE
They are both profability ratio
Gross prfoti margins hows the value of gross profit as a perctange of sales revenue
GPM = (Gross profit / Sales revenue ) * 100
So if gross profit was 5 million and sales revenue was 10 million then GPM is 50%, and therefore for every 100$ in sales 50$ is gross profit
NPM:
Net profit shows the net profit shows as percentage of sales revenue
NPM= (Net profit / Sales revenue ) *100
ROCE is a effeicny ratio that measures how well firs financial resources are being used: the roce ratio measures the financial peromfmace of a firm compared with the amount of capital invested
ROCE = Net profit before tax and interest / Capital employed * 100
Capital employed: is the value of all long term sources of finance
Capital employed = loan capital + share capital + retained profit
Share capital:
Intagienal assets (there are 4)
Share capital: refers to the money raised though sales of shares
Intaignel assets: Are non physics-assets that have the ability to earn revenue for a business (ex. Brand names, Goowdill, patens, copyright tradmarks)
Brands recongiiction: help drive global sales for companies
Patens: produce legal protection fr invetnros, prevening other from copying their creating for a ficed number of nears
CopyrightL provides legal protectio for ht eorignal arctic work of the creator
Goodwill: w=value of the orgnaizations name
Tradmersl: Distinctive signs that unqitly identify a brand.
Types of Ratio ANalysis:Liquity ratio, defintinon + types
Profabibility: NPM and GPM
Liquidty: Current ratio and Acid test ratio
Effiency: ROCE
Liquity ratio looks at the ability of a firm to pays its short term liabilities, such as comparing working capital to short term debts
Current ratio = current assets / current liabilities
Acid test ratio = current assets - stock / current liabilities
