key financial terms Flashcards
(22 cards)
define Payment Terms
refer to the conditions under which a seller will complete a sale. This includes the time frame for payment, the method of payment, and any discounts for early payment.
define revenue
Revenue is the total income generated from the sale of goods or services before
any expenses are deducted.
define creditors
Creditors are individuals or institutions that extend credit to a business, allowing it
to purchase goods or services with the promise of future payment.
define debtors
Debtors are individuals or entities that owe money to a business, typically as a
result of purchasing goods or services on credit.
define cashflow
Cashflow refers to the total amount of money being transferred into and out of a
business, particularly concerning its liquidity.
define profit
Profit is the financial gain obtained when the revenue from business activities
exceeds the expenses, costs, and taxes.
define loss
Loss occurs when a business’s expenses exceed its revenues, resulting in a
negative financial outcome.
define breakeven
Breakeven is the point at which total revenues equal total costs, resulting in
neither profit nor loss.
define gross profit
Gross profit is the difference between revenue and the cost of goods sold (COGS). It
represents the amount of money a company makes from its core business activities before
deducting operating expenses, taxes, and interest.
Gross Profit = Revenue - Cost of Goods Sold (COGS)
define net profit
Net profit, often referred to as the bottom line, is the total profit of a company after all
expenses, including operating expenses, interest, taxes, and depreciation, have been
deducted from total revenue.
Net Profit = Total Revenue - Total Expenses
define source of finance
Sources of finance refer to the various means through which individuals or businesses can
obtain funds to support their activities and investments.
difference between external and internal sources
Internal sources of finance are funds generated from within the organisation. External sources of finance are funds obtained from outside the organisation.
Equity Finance
Equity finance involves raising capital by selling shares of the company.*
Initial Public Offering (IPO): When a company first sells shares to the public to raise
funds.
* Venture Capital: Investment from firms or individuals in exchange for equity, often in
startups or small businesses
Define Government Grants
Government grants are funds provided by the government to support specific projects or
initiatives, often with no requirement for repayment.
Define Alternative Finance
Alternative finance refers to non-traditional methods of funding, often used by start-ups or
businesses that may not qualify for conventional financing.
Examples of alternative finance
Crowdfunding: Raising small amounts of money from a large number of people,
typically via online platforms like Kickstarter or Indiegogo.
Peer-to-Peer Lending: Borrowing from individuals through online platforms that
connect lenders with borrowers, bypassing traditional banks.
Key Criteria for Something to Be Considered an Asset
Ownership: The individual or entity must have legal rights to the resource.
2. Future Economic Benefits: The asset must have the potential to generate future cash
flows or provide value.
3. Measurable Value: The asset’s value must be quantifiable in monetary terms.
4. Control: The owner must have control over the asset, meaning they can use it to
derive benefits.
define Tangible Assets
Tangible assets are physical items that can be touched and measured. They have a concrete
existence and can be easily valued.
define Intangible Assets
Intangible assets are non-physical resources that provide value to an individual or
organisation. They are often more challenging to value than tangible assets.
examples of intangible assets
- Patents: Legal rights granted for inventions or processes.
- Trademarks: Brand names, logos, or symbols that distinguish products or services.
- Copyrights: Rights to creative works such as literature, music, or art.
- Goodwill: The value of a company’s brand reputation and customer relationships.
define Current Assets
Current assets are resources that are expected to be converted into cash or used up within
one year. They are essential for day-to-day operations and liquidity.
define Non-Current (Fixed) Assets
Non-current assets, also known as fixed assets, are resources that are expected to provide
economic benefits over a period longer than one year. They are typically used in the
production of goods and services
