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Finance Flashcards

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1
Q

Sources of finance

A

Bank loan
Bank mortgage
Bank overdraft
Share issue
Venture capitalist
Angel investor
Hire purchase
Leasing
Trade credit
Debentures
Debt factoring
Own equity
Retained profit
Sale of assets
Sell and lease back

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2
Q

Internal sources of finances

A

Own equity
Retained profit
Sale of assets
Sell and lease back

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3
Q

External sources of finance

A

Bank loan
Bank mortgage
Bank overdraft
Share issue
Venture capitalist
Angel investor
Hire purchase
Leasing
Trade credit
Debentures
Debt factoring

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4
Q

Short term sources of finance

A

Bank overdraft
Trade credit
Gov grant
Retained profit
Own equity
Debt factoring

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5
Q

Long term finance sources

A

Bank loan
Bank mortgage
Debentures
Venture capitalist
Share issue

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6
Q

Bank loan

A

Where a business borrows finance from a bank, and pays it back over a long period of time in monthly instalments, with interest.

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7
Q

Bank mortgage

A

Where a business borrows finance from a bank specifically to purchase property, which the business pays back in monthly instalments with interest over a 25 year period.

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8
Q

Bank overdraft

A

Where a bank allows a business to use slightly more finance than there is in their account.

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9
Q

Share issue

A

Where a business sells new shares to the public, either on the stock market (PLC) or to approved members (LTD) for finance.

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10
Q

Venture capitalist

A

Organisations which invest in other businesses for a share of ownership, they typically only invest in established businesses.

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11
Q

Angel investors

A

Where an individual invests in a business for a share of the business ownership.

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12
Q

Hire purchase

A

Where a business purchases an asset, by paying for it in instalments for a higher overall price.

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13
Q

Leasing

A

Where a business pays to use an asset for a certain period of time.

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14
Q

Trade credit

A

Where a business or customer gets to purchase a product or asset now and pay for the product or asset later.

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15
Q

Debentures

A

A form of loan given out by a business, or individual over the stock market, which has to be paid back with interest.

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16
Q

Debt factoring

A

Where another different business purchases another businesses customer debt, for a lower price, to increase the business cash flow.

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17
Q

Own equity

A

Where a business uses the owners personal capital (finance) as a source of finance.

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18
Q

Retained profit

A

Where a business uses the profit made from last year to grow and cover business payments.

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19
Q

Sale of assets

A

Where a business sells off a piece of equipment or valuable item the business owns, to increase finance.

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20
Q

Sell off and lease back

A

Where a business sells of an asset which they still need, and then lease the asset from the individual/ business they just sold to to still use the asset.

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21
Q

Cash budget

A

A document which forecasts the cash flowing into and out of the business.

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22
Q

Liquidity

A

The amount of finance a business can access quickly or has on had.

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23
Q

Liquid asset

A

An asset which can easily be converted back into cash.

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24
Q

Asset

A

An item or property owned by a business.

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25
Reasons for cash budget
Predicts a surplus Predicts a deficit Compare actual figures to cash budget Helps financial investors Set targets + budgets Predict cash flow.
26
Features of cash budget
Opening balance Receipts Total receipts Total cash available Payments Total payments Closing balance
27
Cash budget columns
Right hand side -totals Left hand side - receipts + payments,
28
Cash flow issues
Too much money tied up in capital Too much credit time Purchase assets outright instead of hire purchase Decrease in sales Increase in payments Inflation
29
Cash flow solutions
Selling unnecessary assets Financial incentives to fast payments Increase product price Advertise to increase sales Owners draw less finance.
30
Types of ratios
Profitability Liquidity Efficiency
31
Purpose of ratios
Compare performance of business to competitors Calculate profitability liquidity and efficiency Compare against previous years Highlights areas of business needing attention Can be used to support decision making.
32
Limitations of ratios
Information is historical Don’t take external factors into account Doesn’t take internal factors such as employees into account Must compare same size and type of company to be effective.
33
Types of profitability ratios
Gross profit percentage Profit for year percentage (net profit) Return on equity
34
Gross profit percentage
Gross profit /sales x100 Percentage of profit made by buying stock and selling product.
35
What influences gross profit percentage
Increase/ decrease of selling price Sales quantity
36
Profit for the year percentage
Profit for year/ sales x 100 The percentage of overall profit after all expenses have been payed.
37
Factors affecting profit for year percentage
Profit margins Expenses Sales
38
Return on equity employed
Profit for year/ opening equity x100 calculates finance an investor will get back after a period of time.
39
Factors affecting return on equity employed ratio
Sales Expenses
40
Liquidity ratios
Current Acid test
41
Current ratio
Current assets /current liabilities The ability of a business to pay back short term debt
42
Acid test ratio
Current assets - closing stock /current liabilities The ability of a business to pay back short term debt in a crisis situation
43
Efficiency ratio
Rate of stock turnover
44
Rate of stock turnover
Cost of sales/average inventory The number of times a business restocks their inventory during the year
45
Average inventory
(Opening inventory + closing inventory)/ 2
46
Ways to improve efficiency ratio
Use JUST IN TIME
47
Ways to improve liquidity ratio
Use just in time Increase spending
48
Income statements
A financial document which shows the gross profit and profit for the year.
49
Key features of an income statement
Sales revenue Cost of sales Gross profit Expenses Profit for the year.
50
Purpose of creating an income statement
To show the profit or loss made by the business each year. To compare gross profit and profit for the year, from different years. To compare different businesses in the same industry To compare expenses and sales and find ways to improve of minimise spending
51
Sales revenue definition
The finance generated by selling the business products.
52
Cost of sales definition
The opening stock add the purchases minus the closing stock.
53
Gross profit def
The profit for the year before the expenses are taken off.
54
Expenses
The overhead charges the business pays to keep the business running.
55
Profit for the year def
The gross profit minus the expenses to run the business.
56
Statement of financial position def
The document which shows the assets and liabilities of a business
57
Statement of financial position features
Fixed assets Current assets Current liabilities Working equity Net assets employed Fixed liabilities Net assets Equity and reserves
58
Current assets
Short term Items that a business owns that can be quickly converted into cash.
59
Current liabilities
Short term Debts that can be quickly be payed off.
60
Fixed assets
Long terms Items which can’t be easily converted into cash.
61
Fixed liabilities
Long term debts that can’t be payed off quickly.
62
Working equity
Current assets - current liabilities
63
Net assets employed
Current assets - current liabilities + fixed assets .
64
Net assets
Current assets - current liabilities + fixed assets - fixed liabilities
65
Equity and reserves
Finance generated by the business
66
Purpose of a financial statement
Legal requirements To show the overall value of the business, to compare against competitors in the same market. To use to convince investors to invest in a business Can be used to aid decision making by showing current and fixed assets and liabilities.
67
Uses of financial information
HMRC - tax Investors - trying to find solvency if a business and see if a business is risky Banks used to make lending decisions Owners- aid decision making Employees - check if their job is secure Competitors - use to see how competition is doing.
68
Technology in finance
Spreadsheets Online banking Sage software BACs EFTPOS
69
Spreadsheets
Used to produce financial documents such as cash budget, income statement and statement of financial position

Higher business (20 decks)

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