BUSINESS FINANCE Flashcards
(38 cards)
What are short-term finance needs?
Borrowed for 1 year or less, used to fund day-to-day expenditure
What are long-term finance needs?
Borrowed for more than 1 year, used to buy resources that will be used repeatedly
What is start-up capital?
Needed when a business is starting up, resources needed are often one-off purchases
What is the purpose of borrowing from short-term sources?
To manage seasonal trade effects, delays in customer payments, and emergency expenses
List some reasons why businesses need finance.
- To meet contingencies
- To purchase fixed assets
- To meet day-to-day expenses
- To fund expansion and growth
- To adopt new technology
- To fill the gap between buying materials and selling finished goods
- To hire skilled staff or resources
What are some finance options for businesses?
- Shares
- Bank loan
- Crowdfunding
- Overdraft
- Loan from family or friends
- Mortgage
Define external sources of finance.
Finance obtained from outside the business
What is own capital?
Savings used as finance, short-term, with no direct cost but opportunity cost
What is an overdraft?
A facility offered by banks allowing businesses to borrow up to a certain limit for a period of time
What is trade credit?
Suppliers give time to pay for goods supplied, typically 30 days
What is debt factoring?
The debt is collected by a specialist finance company, providing immediate cash
Define a bank loan.
Borrowing a sum which has to be repaid with interest over a period such as 1–5 years
What is leasing?
Renting of assets such as vehicles
What is share capital?
Shares sold, giving away part ownership of the business
What is venture capital?
Large amount of capital provided by investors in return for a share of the business
Define debentures.
Public loans made to a PLC for a fixed period at a fixed rate of interest
What is retained profit?
Profit which is kept by a business and used for reinvestment
What does working capital refer to?
Use of trade credit and reducing stock held
What is cash flow?
Money coming in and out of the business, distinct from profit
Why do businesses need cash?
- To pay suppliers
- To cover overheads
- To pay employees
- To prevent business failure
What is a cash flow forecast?
A financial document that shows expected cash inflows and outflows over a future period
Define fixed costs.
Costs that do not vary with the level of output, such as rent
Define variable costs.
Costs that change when output levels change, such as raw materials
What is total cost?
The cost to a firm of producing all output over a period of time
