Financial Terms Flashcards
Reasons why a business would need finance
Start up a business (pay for premise, new equipment and ads)
Run the business (paying off staff wages,and suppliers)
Expand the business (pay for a new branch in a different city or country)
What is the calculation for REVENUE
Selling price per unit x number of units sold
All the money coming in
What is the calculation for PROFIT
Total revenue - Total cost
How much money you make out of your product/ service
What is the calculation for COST
Fixed cost + Variable
All the money going out
Fixed:(Salary, rent, company car) stays the same
Variable:(Wages, electrical bill, stock) changes according to the output
What is a RECIPT
Money that comes in for you to use
Sales, government loan, family
What is a PAYMENT
What your spending money on
Rent, adverts, product
What is finance
The money needed to start up a business
What i the difficulty in raising finance
New businesses find it difficult to raise finance because they usually have just a few customers and many competitors. Lenders are put off by the risk that the start-up may fail. If that happens owner might be unable to repay borrowed money
What are the internal sources of finance
Retained profit
Share capital
Sale and lease back
Owners capital
Retained profit
the profit kept in the company rather than paid out to shareholders as a dividend.the most important long-term source of finance for a business
Advantage:there is more money to reinvest into the company;money available for growth and higher returns on investments
Disadvantages:the company will owe more income taxes and will not pay as many dividends(distribution of profits between shareholders)
Share capital
For companies, its the funding invested by shareholders
Advantage:shareholders can buy as many stocks as possible,they can elect a new board of directors, right to vote
Disadvantages:company can go broke, a lot of hard work and the shares can fluctuate
What is Fixed cost
Costs that remain constant
Rent or machinery
What is variable costs
Costs that vary with output
Usually increase at a constant rate relative to labour and capital
Wages, utilities and materials used in production
Why is revenue and profit important
For a company to keep going they need to generate enough revenue to cover its cost and earn profit
They are the details that show on a companies income, or profit and loss statement
Start up and running costs
Start up costs are costs that you pay when starting the business (E.G. For a bakery the ovens)
Running costs are costs that you keep paying (the ingredients)
