Financial management (defintions) Flashcards
(22 cards)
Return on investment (ROI)
Measure of the profitability of an investment
Gross profit
Difference between revenue and the cost of goods sold
Representing the profit earned from primary business activities before deducting other expenses
Operating profit
Profit earned from a company’s core business operating after deducting operating expenses from gross profit
Profit for the year
Net income or profit earned by a company over a specific accounting period
Adverse variance
Difference between actual performance and budgeted or expected performance that results in a negative impact on a company’s financial results
Favourable variance
Difference between actual performance and budgeted or expected performance that results in a positive impact on a company’s financial results
Break even output
Level of output at which total revenue equals total costs, resulting in neither profit nor loss
Margin of safety
Difference between actual sales and the break even point
Representing amount by which sales can drop before a company incurs losses
Contribution per unit
Amount of revenue remaining after deducting variable cost per unit for selling price
Representing the contribution of each unit sold towards covering fixed costs
Total contribution
Total amount of revenue remaining after deducting variable costs from sales revenue, available to cover fixed costs and contribute profit
Payables
Amount owner by a business to its suppliers or creditors for goods or services purchased on credit
Receivables
Amounts owed to a business by its customers or debtors for goods or services provided on credit
Profit from operations
Profit earned from a company’s core business activities before deducting interest in taxes
Break even analysis
Financial technique used to determine the level of sales or output needed to cover total costs and break even
Helping businesses make informed decisions
Debt factoring
A financial arrangement
Business sells its accounts receivable to a third party at a discount to obtain immediate cash
Overdrafts
Short term loans provided by banks that allow businesses to withdraw more money from their bank accounts than they have available, up to an agreed limit
Retained profits
Portion of a company’s net income that is retained and re invested in the business rather than distributed to shareholders as dividends
Share capital
Total value of fund raised by a company through the issuance of shares to shareholders
Representing ownership in the company
Loans
Funds borrowed by a company from external sources
Typically financial institutions or lenders which must be repaid with interest over a specified period
Venture capital
Equity financing provided to early stage, high potential start ups or small businesses by investors in exchange for ownership stakes, with high expectation of high returns
Crowdfunding
Method of raising capital for a project or venture by soliciting small contributions from a large number of individuals, often through online platforms
Cash flow
Movement of money in and out of a business, reflecting its liquidity and ability to meet financial obligations
