Unit 3: Finance

Finance

The process of acquiring and managing money for a business.

Accounting

The process of recording money flows and assets for a business.

Procurement

Purchasing goods and services for a business.

Capital Expenditure

Spending on a company’s fixed assets (long-term investment).

Revenue Expenditure

Spending on a company’s general operational costs.

Fixed Asset

An item of property owned by a business that is intended for long-term use.

Insolvency

A situation in which a business is unable to pay its debts.

Short-term Finance

Sources of finance that are repaid within 12 months.

Medium-term Finance

Sources of finance that last longer than one year but less than five years.

Long-term Finance

Financial products that will be used for longer than five years.

Internal Sources of Finance

Money raised from the business’s or owner’s existing assets.

Retained Profits

Money a company has left at the end of the trading year after paying all costs and dividends.

Business Angel

A wealthy individual who invests in new businesses and provides mentorship.

Venture Capital

Financing that pools resources from a group of investors to fund new businesses.

Debt Finance

Money borrowed from banks or other financial institutions.

Loan Capital

A medium or long-term source of finance, often used to buy fixed assets.

Overdraft

A short-term loan attached to a bank account allowing withdrawal beyond the account balance.

Microfinance

Financial services provided to individuals with limited income and assets.

Trade Credit

A business receiving goods and services from a supplier immediately but paying later.

Leasing

Renting or hiring a fixed asset over a period of time rather than buying it.

Crowdfunding

A form of finance where many people invest small amounts to fund a business or project.

Profit

Total revenue minus total costs.

Cash Flow

Refers to cash inflows and outflows in a business.

Net Cash Flow

Cash inflows minus cash outflows.

Current Ratio

Current assets divided by current liabilities.

Acid Test Ratio

(Current assets - stock) divided by current liabilities.

Payback Period

The time it takes for an investment to pay for itself.

Average Rate of Return (ARR)

The annual forecast returns expressed as a percentage of the initial capital cost.

Profitability Ratios

Ratios that show a company’s profit in relation to other financial figures.