Financial Information and Decisions Flashcards
Aligned with 5.1 Kognity. (53 cards)
What is start-up capital?
Initial capital needed for starting up a new business.
What do you need start-up capital for?
Registration
Renting or buying machines and equipment
Wages
Buying raw materials or components
Renting premises for production
Administrative needs
What does collateral mean? Provide an example regarding a bank loan.
Something pledged as security for repayment of a loan, to be forfeited in the event of a default:
“she put her house up as collateral for the bank loan”
What are public limited companies?
Public limited companies sell shares to the public through the stock exchange.
What is capital expenditure?
Money spent by a business on purchasing land, buildings, equipment and other non-current assets.
What would capital be used for?
Research and Developing.
Explain the expansion of a business.
A successful business will often need to expand. This expansion requires capital, as owners need to consider the cost of a new factory or shop, the equipment needed, the components they need to purchase and the additional employees who need to be hired.
What kind of assets are land, buildings and machinery?
Machinery, land and buildings are a business’s non-current assets.
What are the finance needs – for starting up, expansion or additional working capital? Divide them into categories.
Finance needs – for starting up, expansion or additional working capital – can be divided into two major categories:
- Finance needed for capital expenditure – Money to purchase non-current assets, which will be used for a long time
- Finance needed for revenue expenditure – Money to pay wages and cover other day-to-day costs
What is working capital, and why is in important?
Working capital is the finance a business needs to meet its day-to-day costs, such as paying employees, paying rent on a property and paying bills. It is important that businesses have sufficient working capital at any time or they may be forced to stop their business activities.
What are the two main categories of sources of finance for businesses?
Internal (belonging to the business) and external (from outside the business).
What is retained profit?
The profit that a business keeps after taxes are paid and dividends are distributed to shareholders.
What is revenue from asset sales?
Finance raised by selling assets that the business no longer needs, such as buildings, machinery, and equipment.
What is revenue from inventory sales?
Finance raised by selling raw materials and components kept as inventory.
What are owner’s savings?
Finance raised by using the business owner’s personal savings for additional capital.
What is a bank loan?
Money borrowed from a bank, a common source of capital for businesses.
What is issuing shares?
A method for limited companies to raise finance by selling new shares to existing shareholders or the public.
What are debentures?
Long-term loan certificates sold by limited companies to raise finance, ensuring interest is paid at the end of the loan period.
What is debt factoring?
Selling unpaid debts to a debt factoring company to receive most of the owed money quickly.
What are grants and subsidies?
Money provided by the government to businesses considered beneficial for the economy, which does not need to be repaid.
What are the benefits of retained profit?
No interest is paid, and the money does not need to be paid back.
What are limitations of retained profit?
It might be limited, especially for sole traders and partnerships. A new or small business does not usually have any retained profit.
Keeping part of the profit as a retained profit may upset shareholders as their dividend will not be as high.
What are the benefits of selling assets?
It allows the business to use capital instead of having it tied up in assets. It does not add to the business’s debt as the assets are owned by the business. The business can get capital fast.
