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finance key definitions
Fichas del conjunto (51)
- 1short term financeloans or debt that a business expects to payback within 1 year
- 2long term financedebt or equity used to finance the purchase of non current assets or finance expansion plans. Long term debt is borrowing, a business does not expect to repay in less than 5 years
- 3external sourcessources from outside the business
- 4internal sourcessources that comes from inside the business ( often when business is more established)
- 5retained profit- profit remaining after all expenses.
- profit which is plowed back into business - 6sale of non current (fixed) assetsresources owned by a business which will be used for a period of time longer than a year.
eg- machinery
- buildings - 7//Internal sources// working capital & equationcapital needs dot finance the day to day running expenses & pay short term debts of a business
current assets - current liability
=working capital - 8//Internal sources// sale of assetsresources owned by a business which will be used for a period longer than 1 year
eg- machinery
- buildings - 9//External sources// Short term// Overdraftsagreement with the bank which allows business to spend more money than they have in their accounts up to an agreed limit.
Loan must be paid within 12 months - 10//External sources// Short term// Trade credityou have been given stock & you have a certain time period to pay it back
- 11//External sources// Short term// Debt factoringselling trade receivables to improve business liquidity
- 12//External sources// Long term// Bank loansprovision of finance which the business will repay with interest over an agreed period of time
- 13//External sources// Long term// Leasing- obtaining the use of a non-current asset by paying a fixed amount per time period for a fixed amount of time
- ownership remains with the leasing company - 14//External sources// Long term// Hire purchasePurchase of an asset by paying a fixed repayment amount per time period over an agreed period of time
- asset owned by purchasing company on completion of final payment - 15//External sources// Long term// Mortgagelong term loans used for purchase of land or building houses
- 16//External sources// Long term// Debenturebond issued by companies to raise long-term finance usually at a fixed rate of interest
- 17//External sources// Long term// Share issueSource of payment capital available to limited liability companies
- 18//External sources// Long term// Government grantGovernment support businesses (local) by providing grants & financial assistance to encourage business startups
Or
assist businesses growth / development - 19Microfinance- small amounts of capital loaned to entrepreneurs in countries where business finance is difficult to obtain
- loans usually repaid after a relatively short period of time. - 20//Cash flow// Cash flowthe amount of money flowing in & out of the business
- 21//Cash flow// Cash flow forecastpredicting the flow of money going in & out
- 22//Cash flow// working capitalcapital needs dot finance the day to day running expenses & pay short term debts of a business
current assets - current liability
=working capital - 23//Cash flow// working capital cycleperiod of time between payment for goods supplied to a business & the business receiving cash for their sale
- 24//Cash flow// Trade receivables ( Debtors )amount of money owed to the business by customers who have been sold goods on credit
- 25//Cash flow// Trade payable ( Creditor )amount a business owes to its suppliers for goods bought on credit
- 26//Cash flow// Opening balancefirst month is the money the business starts with for all other months its the closing balance from the previous month
- 27//Cash flow// Net cash flow ( equation )cash inflow - cash outflow
- 28//Cash flow// Closing balanceopening balance + net cash flow
- 29//Income statement// Income statementfinancial statement which records revenue, costs & profits of a business for a given period of time
- 30//Income statement// Cost of sales ( COS )how much it costs to make the goods or provide the services
eg. amount paid for raw materials - 31//Income statement// ExpensesOverheads (fixed costs) that have to be paid
- rent
- heating
- advertising
- admin costs - 32//Income statement// gross profit eqautionturnover - COS
- 33//Income statement// ProfitGross profit - expenses
- 34// Balance sheets // assetsresources that are owned by a business
- 35// Balance sheets // current assetsresources that business owns & expects to convert into cash before date of next balance sheet
eg. inventories/trade receivable/ cash - 36// Balance sheets // non current ( fixed assets)resources that a business owns & expects to use for more that a year
eg. machinery/ buildings/land/ computers/ motor vehicles - 37// Balance sheets // Trade recievablethe amount of money owed to the business by customers who have been sold on good credit
- 38// Balance sheets // trade payablethe amount a business owes to its suppliers for goods bought on credit
- 39// Balance sheets // Liabilitiesdebts of the business that will have to be paid sometime in the future
- 40// Balance sheets // current liabilitiesdebts of the business which it expects to pay before the date of the next balance sheet
- 41// Balance sheets // non current liabilitiesdebts of the business which will e payable after more than 1 year
- 42// Balance sheets // owners equitythe amount owed by the business to its owners, includes capital & retained profit
- 43// Ratio Analysis// Ratioinvolves taking key figures form the business accounts & then calculating financial ratios
- 44// Ratio Analysis// profitabilitymeasure the performance of the business & focus on profit, turnover & the amount invested in a business
- 45// Ratio Analysis// Gross profit margin %- shows the gross profit made on sales turnover
- higher better than lower - 46// Ratio Analysis// net profit margin- helps to measure how well a business controls its overheads & cost of sales
- of the difference between the gross profit margin & net profit margin is small, then overheads are probably low - 47// Ratio Analysis// return on capital employedcompares the profit (return) made by the business with the amount of money invested ( capital). relates profit to the size of the business
- 48// Ratio Analysis// liquidityratios that measure how easily a business can pa off debts
- 49// Ratio Analysis// current ratiofocuses on current assets and current liabilities
- 50// Ratio Analysis// acid test-more severe test of liquidity
-stocks are not always converted into cash, therefore excluded - 51—
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- The key definitions for finance. GCSE
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- Liv Gran
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