Finance unit glossary Flashcards
(54 cards)
What is the acid test ratio?
A more precise measure of liquidity, expressed as a ratio, that deducts stock from current assets. Aka liquid capital ratio.
Define assets in a business context.
Resources used by a business to generate output.
What does a balance sheet show?
Shows the financial structure of a business at a specific point in time. It identifies assets (resources used by business to generate output) and liabilities (debt that must be repaid) and specifies the capital (equity) used to fund operations. Shows what a business owns and owes, and how it finances its activities.
What is a bank overdraft?
An arrangement allowing business account holders to withdraw more than their account balance, typically short-term borrowing. E.g. a business account has $500 but owner can withdraw up to -$1000 if needed.
What is a bank loan?
A sum of money borrowed and repaid with interest, usually over a longer-term.
What is capital in a business?
The money needed to start and operate a business.
Define capital expenditure.
Purchase of physical assets (e.g. land, machinery) to meet long-term goals and increase output.
What does cash refer to in a business?
The full range of money flowing in and out of a business, including revenue from sales, operating expenses, investments, loans.
What is a cash-flow forecast?
A prediction of anticipated cash inflows and outflows over a specific period (typically for a 3, 6 or 12 month period).
What is the closing balance?
Cash held at the end of the month, which becomes the following month’s opening balance.
What is crowdfunding?
Accessing finance from a large number of small investors through voluntary donations.
Define cost of sales.
Cost of producing or buying goods sold during a specific period. Includes cost of raw materials, labour etc.
What are current assets?
Cash or cash equivalents that can be quickly converted to cash (e.g. debtors (trade receivables), stock).
What are current liabilities?
Short-term financial obligations, usually repayable within one year (e.g. creditors, overdrafts, short-term loans).
What does the current ratio indicate?
A quick way to measure liquidity, expressed as a ratio. Result indicates how many currency units (e.g. $s) of CURRENT ASSETS are available to COVER each $1 (or other currency unit) of short-term DEBT. E.g. if current ratio is 3.07:1, it means the company has $3.07 of current assets to cover each $1 of short-term debt.
Define debentures.
Long-term loan certificates issued by limited companies that must be repaid with interest.
What is debt factoring?
Business can sell invoices (accounts receivable) to a third party at a discount. Third party pays business immediately. Customers then pay third party over agreed time frame.
What are external sources of finance?
Money that comes from outside a business, such as loans and share capital.
Define grants and subsidies.
Sums of money provided by governments and some outside agencies.
What is gross profit?
The difference between money received from selling goods and cost of making/providing them. Sales revenue- cost of sales= gross profit.
What is gross profit margin?
The proportion of revenue that is turned into a gross profit, shown as a percentage (profitability ratio). Gross profit/sales revenue x 100= gross profit margin.
What characterizes an illiquid business?
A business that cannot pay its current debts. Less severe than insolvency. A company can still be solvent if its assets exceed liabilities.
What does an income statement record?
The income and costs of a business incurred over a period. 4 types of profit are calculated: gross, net, profit after tax, retained profit. Inform whether business is making a profit or loss.
What are inflows in a business context?
Money coming into the business (e.g. receipts from sales, money from new bank loan, money from sale of assets or investors).
