Financial information and decisions

Start-up capital

the capital needed by an entrepreneur when first starting a business

Working capital

the capital needed to finance the day-to-day running expenses and pay the short term debts of a business

Non-current (fixed) assets

resources owned by a business which will be used for a period longer than one year, for example buildings and machinery

Capital expenditure

spending by a business on non-current assets such as machinery and buildings

Long-term finance

debt 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 five years

Short-term finance

loans or debt that a business expects to pay back within one year

Retained profit

profit remaining after all expenses, tax and dividends have been paid and which is ploughed back into the business

Overdraft

an agreement with the bank which allows a business to spend more money than it has in its account up to an agreed limit. The loan has to be repaid within 12 months

Trade receivables

amount owed to a business by its customers who bought goods on credit

Debt factoring

selling trade receivables to improve business liquidity

Bank loan

provision of finance by a bank which the business will repay with interest over an agreed period of time

Leasing

obtaining the use of a non-current asset by paying a fixed amount per time period for a fixed period of time. Ownership remains with the leasing company

Hire purchase

the purchase of an asset by paying a fixed repayment amount per time period over an agreed period of time. The asset is owned by the purchasing company on completion of the final repayment

Mortgage

a long-term loan used for the purchase of land or buildings

Debenture

a bond issued by a company to raise long-term finance usually at a fixed rate of interest

Share issue

a source of permanent capital available to limited liability companies

Equity finance

permanent finance provided by the owners of a limited company

Micro-finance

small amounts of capital loaned to entrepreneurs in countries where business finance is often difficult to obtain. These loans are usually repaid after a relatively short period of time

Crowd-funding

financing a business idea by obtaining small amounts of capital from a large number of people, most often using the internet and social media networks

Cash-flow forecast

an estimate of the future cash inflows and outflows of a business

Net cash flow

cash inflow minus cash outflow

Liquidity

the ability of a business to pay its short-term debts

Credit sales

goods sold to customers who will pay for these at an agreed date in the future

Gross profit

the difference between revenue and cost of sales

Profit

the difference between revenue and total costs

Total cost

cost of sales plus expenses

Revenue

the amount earned from the sale of products

Cost of sales

the cost of purchasing the goods used to make the products sold

Expenses

a day-to-day operating expenses of a business

Income statement

a financial statement which records the revenue, costs and profits of a business for a given period of time

Statement of financial position

an accounting statement that records the assets, liabilities and owners’ equity of a business at a particular date

Assets

resources that are owned by a business

Liabilities

debts of the business that will have to be paid sometime in the future

Non-current (fixed) assets

resources that a business owns and expect to use for more than one year

Current assets

resources that the business owns and expects to convert into cash before the date of the next statement of financial position

Trade receivables

the amount of money owed to the business by customers who have been sold goods on credit

Current liabilities

debts of the business which it expects to pay before the date of the next statement of financial position

Trade payables

the amount a business owes to its suppliers for goods bought on credit

Non-current liabilities

debts of the business which will be payable after more than one year

Owner’s equity

the amount owed by the business to its owners; includes capital and retained profits

Shareholder’s equity (funds)

alternative term for owner’s equity, but can only be used by limited liability companies