Unit 3.1: Introduction to finance

Capital Expenditure

Finance spent on fixed assets or non-current assets 

• items with monetary value

• Have assets that are not sold and are used in productions
  

Items with monetary value

• Value of something measured in currency 

Fixed assets

• Not sold and are used for productions 

  • Determines the scale of an organization's operations 

  • Provide collateral for securing loans 

Reasons to have: Capital Expenditure

1. Add extra production capacity as the business grows

2. Improve efficiency by utilizing more advanced tech (IT and production tech)

3. TO replace old/damaged/obsolete capital equipment  

4. Comply with changing regulations (green tech)

5. To implement change in the organization 

Challenges of capital expenditure

• High costs 

• Limited sourcing for finance to buy them 

  • Use investment appraisal methods to see the return value to see if its worth buying

  • Sole traders: THeir own savings - harder access

    • Large business have more access to

Revenue Expenditure:

Finance spent on the daily operations of a business 

• Daily operation costs: 

  • Wages, salaries, raw materials, rent, utility bills 

• Indirect costs: 

  • Insurance and advertising spendings 

• Sources: Results of producing goods and services 

Reasons to have revenue expenditure

• Current day value to the business (not future)

• Attract competition and motivates workforces

  • Having special remuneration packages