29 - Business finance

Question 1

Define start-up capital

Answer 1

the capital needed by an entrepreneur to set up a business

Question 2

Define working capital

Answer 2

the capital needed to pay for raw materials, day-to-day running costs and credit offered to customers

Question 3

Define short-term finance

Answer 3

money required for short periods of time of up to one year

Question 4

Define long-term finance

Answer 4

money required for more than one year

Question 5

Define profit

Answer 5

the value of goods sold(revenue) less costs

Question 6

Define liquidity

Answer 6

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

Question 7

Define bankruptcy

Answer 7

the legal procedure for liquidating a business which cannot fully pay its debts out of its current assets

Question 8

Define liquidation

Answer 8

when a business ceases trading and its assets are sold for cash to pay suppliers and other creditors

Question 9

Define current assets

Answer 9

assets that either are cash or likely to be turned into cash within 12 months

Question 10

Define current liabilities

Answer 10

debts that usually have to be paid within one year

Question 11

Define capital expenditure

Answer 11

is money spent on fixed assets such as factories and machinery, these items are used for the long term

Question 12

Define revenue expenditure

Answer 12

the money spent on everyday running costs of the business such as raw material and components of products

Question 13

Define internal sources of finance

Answer 13

raising finance from the business’s own assets or from profits left in the business

Question 14

Define external sources of finance

Answer 14

raising finance from outside the business, for example banks

Question 15

Define retained earnings

Answer 15

profit after tax retained in a company rather than paid out to shareholders as dividends

Question 16

Define non-current assets

Answer 16

assets kept and used by the business for more than one year

Question 17

Define overdraft

Answer 17

a credit that a bank agrees can be borrowed by a business up to an agreed limit as and when required

Question 18

Define Debt factoring

Answer 18

selling of claims over trade receivabled to a specialist organisation in exchange for immediate liquidity

Question 19

Define hire price

Answer 19

a company purchases an asset and agrees to pay fixed repayments over an agreed time period. the asset belongs to the purchasing company once the final payment has been made

Question 20

Define leasing

Answer 20

obtaining the use of an asset and paying a leasing charge over a fixed period, avoiding the need to raise long-term capital to buy the asset. the asset is owned by the leasing company

Question 21

Define long-term loans

Answer 21

loans that do not have to be rapid for at least one year

Question 22

Define debentures (loan stock or corporate bonds)

Answer 22

long-term bonds issued by companies to raise debt finance, often with a fixed rate of interest

Question 23

Define share capital

Answer 23

permanent finance raised by companies through the sale of shares

Question 24

Define business mortgages

Answer 24

long-term loans to companies purchasing a property for business premises, with the poperty acting as collateral security on the loan

Question 25

Define venture capital

Answer 25

risk capital invested in business startups or expanding small businesses that have good profit potential but do not find it easy to gain finance from other sources

Question 26

Define collateral security

Answer 26

an asset which a business pledges to lender and which must be sold off to pay a debt if loan is not repaid

Question 27

Define rights issue

Answer 27

existing shareholders are given to buy additional shares at a discounted price

Question 28

Define microfinance

Answer 28

providing financial services for poor and low-income customers who do not have access to the banking services, such as loans and overdrafts, offered by traditional commercial banks

Question 29

Define crowd funding

Answer 29

the use of small amounts of capital from a large number of individuals to finance a new business venture