Finance Flashcards
(56 cards)
What are the 4 financial objectives?
- return on capital employed targets
- shareholders returns
- cost minimisation
- cash flow targets
What are the 4 internal influences on the financial objectives?
- the corporate objectives
- the nature of the product that is sold
- the managers objectives
What are the 3 external influences on the financial objectives?
- actions of other businesses
- availability of external finance
- state of the market
what 2 types of financial statements are there?
balance sheets and income statements
what is a balance sheet?
a financial statement that records the assets and liabilities
what are assets?
something the business owns
what are non current and current assets?
non current - assets they expect to own for over a year e.g land
current - assets that will be quickly converted into cash e.g stock
what are liabilities?
a debt owed by a business
what are current and non current liabilities?
current - debts to pay back in less than a year
non current - debts not repayed for over a year e.g mortgages and bank loans
what is total equity?
Used to be known as shareholders funds. it is money invested into the business which one day has to be paid back or generate a return every year.
Why do you need to record the assets and liabilities?
it shows how the business has made money and what that has been spent on
who is interested in the balance sheets?
shareholders, suppliers and managers
why does a balance sheet always balance?
because when a business buys something, lets say it costs £100, they owe the seller £100 which is a liability but they also now have a new asset which is worth £100
What is working capital
working capital is the money you have to pay day to day transitions such as fuel and raw materials.
what is wrong with having too much working capital?
having working capital doesn’t earn you anything
What is depreciation?
the reduction in the value of an asset over time
why do firms depreciate assets
because if they buy a machine for £100, every year it will be older and therefore worth less.
Why does depreciation matter?
because it provides an accurate value of assets so you can see the truth worth of a business
What is an income statement
it states a businesses income
what is gross profit?
the profit of a business once direct costs have been taken away
what is net profit?
revenue minus both the direct and indirect costs (e.g rent)
Describe the 3 types of new profit
- operating profit - profit from regular trading activities. Ignores profit from one off sales.
- net profit before tax - operating profit plus profits from one off activities
- net profit after tax - profit once corporation tax has been deducted
what is high quality profit
profit that will continue into the future. This includes operating profit as it excludes one offs and products that have high demand as you know you will continue getting profit for it
Do public limited companies have to publish their income statement?
yes but they provide as little information as possible
