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Business Management > FINANCE AND ACCOUNTS > Flashcards

FINANCE AND ACCOUNTS Flashcards

1
Q

capital expenditure

A

finance spent on fixed assets

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2
Q

revenue expenditure

A

payments for the daily running of a business

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3
Q

personal funds

A

using personally owned money - most commonly used for sole traders and partnerships

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4
Q

retained profits

A

the profits after tax and dividends that the organisation keeps to use for the business

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5
Q

sale of assets

A

firms can sell their dormant assets that have been replaced to raise capital

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6
Q

share capital

A
  • money raised from selling shares of the company
  • main source of finance for a limited liability company
  • ownership becomes diluted
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7
Q

overdrafts

A

allows a business to temporarily overdraw and take more money than it has in its account

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8
Q

mortgages

A

long term loan from a financial statement used to buy property or land

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9
Q

grants

A

government financial gifts to support business activities - tend to be offered in one off payments

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10
Q

subsidies

A

governmental grants to reduce costs of production, to provide benefit to society - dont cut into profit margins

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11
Q

debt factoring

A

when a firm sells its products, it issues an invoice stating the amount due. When a debtor fails to pay its bill in time, the factor returns these funds

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12
Q

venture capital

A

venture capital firms find small businesses with high growth potential and interest

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13
Q

fixed costs

A

costs of production paid that stay the same regardless of production levels

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14
Q

variable costs

A

the costs of production paid that change in proportion with the level of output or sales

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15
Q

direct costs

A

costs specifically related to a certain product or output

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16
Q

indirect costs

A

costs that cant be clearly linked to the production or sale of a single product

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17
Q

break even analysis

A

used to determine what quantity of a good a business needs to sell in order to cover costs of production

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18
Q

break even

A

fixed costs / contribution per unit

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19
Q

contribution per unit

A

selling price - average variable cost

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20
Q

margin of safety

A

current output - break even output

21
Q

causes for change in break even

A
  • level of demand may change
  • reducing prices
  • introduction of new technologies
22
Q

advantages of break even

A
  • works for business with standardised products
  • works for businesses in one single market
23
Q

disadvantages of break even

A
  • assumes costs functions are linear
  • assumes all output is sold
  • only suitable for single product firms
24
Q

purpose of final accounts for shareholders

A

interested to see where money was spent and return on investments

25
Q

purpose of final accounts for employees

A

staff want to assess the likelihood of pay increase and job security

26
Q

purpose of final accounts for managers

A

use financial accounts to judge the operational efficiency

27
Q

purpose of final accounts for competitors

A

to make comparisons of financial performance

28
Q

depreciation

A

indicates how much of fixed assets value has been used up

29
Q

straight line depreciation

A

assumes fixed assets depreciate by the same value every year

original cost - residual value / expected value

30
Q

strengths of straight line depreciation

A
  • practical for small businesses with predictable decline in value
  • suitable when assets usefulness is expected to decline steadily over time
  • predictability can be helpful for budgeting and financial planning
31
Q

weaknesses of straight line depreciation

A
  • if an asset is heavily used it may not accurately represent the value
  • may not match the actual wear and tear of an asset leading to inaccurate representation
32
Q

net profit margin

A

measures how well a business controls its overheads

net profit before interest and tax / sales revenue x 100

33
Q

how to improve net profit margin

A
  • negotiate payment terms with creditors and suppliers
  • negotiate cheaper rent
  • reduce indirect costs
34
Q

return on capital employed (ROCE)

A

compares the profit made by the business with the amount of money invested

net profit before interest and tax / capital employed x 100

35
Q

how to improve ROCE

A
  • reduce the amount of capital employed
  • increase the profitability of the company
36
Q

liquidity ratios

A

illustrate the solvency of a business

37
Q

current ratio

A

current assets / current liabilities

38
Q

acid test

A

current assets - stock / current liabilities

39
Q

how to improve liquidity ratios

A
  • raising the value of current assets
  • reducing the value of current liabilities
40
Q

stock turnover

A

measures how quickly a business uses or sells its stocks

average stock / cost of goods sold x 365

41
Q

how to improve stock turnover

A
  • holding lower stock levels to replenish more often
  • disposal of stocks which are slow to sell
  • reducing range of products being stocked
42
Q

gearing ratio

A

shows the relationship between loan capital and share capital

loan capital / capital employed x 100

43
Q

how to improve gearing ratio

A
  • repay creditors
  • depend on external finance sources
44
Q

cash flow

A

a continuous movement of cash in and out of the business

45
Q

profit

A

the positive difference between a firms total sales revenue and its total costs of productions

46
Q

investment

A

the purchase of capital goods used in production of other goods. expenditure is likely to provide yield

47
Q

investment appraisal

A

how a business might objectively evaluate an investment project to determine whether its likely to be profitable

48
Q

payback period

A

the amount of time it takes for a project to recover or payback the initial outlay

payback in last negative year / net cash flow in first positive year x 12

49
Q

average rate of return

A

the net return each year as a percentage of the capital cost of the investment

Business Management (5 decks)

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