Finance Flashcards
Name 7 short term sources of finance
Owners personal finance Retained profits Sale of assets Sell and lease back Bank overdraft Trade credit Debt factoring
Name 9 long term sources of finance
Share issue Debentures Grants Bank loan Leasing Hire purchase Mortgage Venture capital Business angels
Name factors affecting sources of finance
Short/long term Interest rates Payback term Size and type of organisation Previous credit history
Name users of financial statements
Owners Employees HMRC Trades unions Competitors Investors Lenders
Trading profit and loss
Revenue:- money from sales Cost of sales: money spent on sales Gross profit: revenue – cost of sales Expenses: running costs Net profit: gross profit – expenses
Balance Sheet
Fixed assets: items owned for more than 1 year
Current assets: items owned for less than 1 year.
Current liabilities: items owed for less than 1 year
Working capital: current assets- current liabilities
Total net assets: fixed assets + working capital
Financed by: how business has been financed
Name solutions to cash flow problems
Use JIT Sell off excess stock Offer discount for cust to pay cash Charge interest on credit sales Switch suppliers to interest free credit Pay for fixed assets in instalments ie hp Reduce expenses Adapt marketing mix to increase sales Sell debts to factoring co.
Issues for cash flow
Too much money in stock Too many credit sales Too long payment for credit sales Not enough credit purchases Spending on fixed assets Increasing expenses Too many drawings by owners Not enough sales revenues Too many unpaid debts
Uses for a cash budget
Predict positive cash flow Predict negative cash flow Allow and plan investment Action to prevent a deficit Compare actual to measure performance
Uses of ratios
Compare performance with previous years Compare performance with competitors Compare industry averages Highlight areas needing attention Highlight trends for decision making
Limitations of ratios
Historical not relevant to future No account of PESTEC No account of internal factors No account of product development Comparisons hard as no businesses are exactly the same
Profitability Ratios
Gross profit %age : GP/revenue X 100
Net profit %age: NP/revenue X 100
ROCE: profit/ capital X 100
Liquidity ratios
Current Ratio: current assets/current liabilities
Acid test ratio: (current assets- closing stock)/ current liabilities
Efficiency
Stock turnover=cost
of sales/ av stock
Name technology in finance
Spreadsheets Presentation sw E mail On line banking On line payment
