Finance

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What is finance?

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44 Terms

1

What is finance?

Finance is the process of acquiring and managing money for a business.

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2

What is accounting?

Accounting is the process of recording money flows and assets for a business.

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3

What is capital expenditure? Give examples

What are fixed Assets? Give examples

The finance spend on fixed assets(non-current assets).

eg: Long term loans
eg: Mortgages

These are assets which a company holds onto for longer than 5 years

eg: factories
eg: machineries

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4

What is procurement?

It is the process of purchasing goods and services for a business

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5

What is used to fund capital expenditure

Long term finance (peep 3.2)

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6

Revenue expenditure + examples

financing the operational activities of a business

This spending will enable the business to generate ongoing revenue.

daily, weekly or monthly

eg: rent, salaries, electricity bills

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7

What is used to fund reveunue expenditure

Short term finance (peep 3.2)

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8

Revenue vs Capital

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9

What happens if company cannot pay its revenue expenditure

It becomes insolvent (unable to pay debts)

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10

Checklist 3.1

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11

What are three sources of internal finance

  • sale of assets

  • retained profit

  • persona funds

PSR

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12

One disadvantage of internal source of finance for money

  • significant opportunity cost involved - once used it cannot be available for other purposes

The money lost by not selecting a particular option in the decision making process

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13

Define one pitfall of using internal sources of finance (particularly sale of assets)

Cost on missing out on an opportunity after choosing one option over an other

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14

Three types of external finance

D ebt finance

E quity finance

O ther sources

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15

Acronym for Debt Finance

M icrofinance

O verdrafts

L oan Capital

T rade Credit

<p>M icrofinance</p><p>O verdrafts</p><p>L oan Capital</p><p>T rade Credit</p>
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16

Acronym for Equity FInance

Venture Capital

Share Capital

Business Angels

<p>Venture Capital</p><p>Share Capital</p><p>Business Angels</p>
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17

Other sources of finance

Crowd Funding

Leasing

<p>Crowd Funding</p><p>Leasing</p>
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18

Tip

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19

Choice affecting type of finance

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20

What word for “profit” for non profit organizations

SURPLUS

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21

Check List 3.2

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22
<p></p>

D

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23

How is trade credit helpful for both buyer and seller

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24

Main disadvantage of debt finance

Main advantage of debt finance

  • have to repay amount with interest (for loans, overdrafts)

  • do not need to give up equity in the company (DIRECTLY)

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25

Main disadvantage of equity finance

Main advantage of equity finance

  • have to give up equity stake in a company

  • need not repay the finance provided to you

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26

Venture capital

from group of people who are clients of company who invests for shares, and will probably sell them later at a higher value

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27

Business Angel

Individual Personal money invested in exciting new businesses, generally have high risk

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28

Share capital

Thru IPO- issuing shares on stock exchange for money, in exchange will give equity + dividends every year to SHAREHOLDERS

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29

UNLIMITED LIABILITY FOR- ?

  • Partnerships

  • Sole proprietorship

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30

Debt factoring

business sells its accounts to a third party in exchange for quick finance, to help ameliorate their working capital cycle

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31

are all sources of finance assets or liabilities

Liabilities for the most part

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32

What is cahs flow proportionate to

companies solvence (ie ability to pay off debts)

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33

Formula for equity

Share Capital + Loan Capital + Retained Earnings

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34

liquidity

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35

Liquidate

Conversion of asset into cash

Cash → debtors → stock

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36

profit

total revenue - total cost

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37

cash flow

inflow + outflow of money in a business

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38

working capital

the capital set aside by a business to finance its day to day activities

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39

working capital cycle

process of converting current asset to cash to purchase resources to produce a product

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40

best way to improve working capital cycle

  • extend payment terms w/ supplier

  • cheaper suppliers

  • convert debtors to stock

  • make use of short term borrowings

  • sell excess stock

  • tap into new revenue streams

just make all things CASH!

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41

equity

shared capital + retained earnings + loan capital

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42

investment

purchase of assets that are expected to generate value over time (revenue stream example)

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43

free cash flow

cash after deducting expenses and outflows

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44
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