Business studies finance

1. Start up capital : the finance needed by a new business to pay for essential non current ( fixed ) and current assets before it can begin trading

2. Assets : 2 types, noncurrent and current. Assets are things that you own.

3. Non-current assets: something that you owe for a long period of time ( within a year )

4. Current assets: something that you owe for a short period of time ( within a year )

5. Liabilities : 2 types, non current and current. Liabilities are something that you owe to others.

6. Current liabilities: something that you owe to others for a short period of time

7. Non current liabilities: something that you owe to others for a long period of time

8. Working capital : the finance needed by a business to pay its day to day costs

9. Capital expenditure : money spend on non current ( fixed ) assets which will last for more than a year

10. Revenue expenditure : the money spent on day to day expenses which do not involve the purchase of a long term asset , for example wages or rent.

11. Internal finance : money obtained from within the business itself

12. External finance : money obtained from sources outside of and separate from the business

13. Bank loans : is a sum of money obtained from a bank which must be repaid snd on which interest is payable

14. Debters: long term loan certificates issued by limited companies

15. Micro finance : providing financial services , including small loans, to poor people not served by traditional banks

16. Crowd funding : funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the internet.

17. Choosing sources of finance : purpose and period of time required, amount required, risk and gearing, status and size of business, control over the business

18. Cash flow: the cash flow of a business is the cash inflows and outflows over the period of time and to tell how much money comes in and out of the business in a month.

19. Cash inflow : the sums of money received by a business during a period of time

20. Cash outflow : The sums of money paid out by a business during a period of time,

21. Cash flow cycle : shows the stages between paying out for cash labour, materials and so on , and receiving cash from the sale of goods.

22. Profit : the surplus after total costs have been subtracted from revenue

23. Revenue : money regularly received by a government, company, etc

24. Cash flow forecast : an estimate of future cash inflows and outflows of a business, usually on month by month basis, this then shows the expected cash balance at the end of each month

25. Net cash flow: is the difference between inflows and outflows

26. closing balance is the amount of cash held by the business at the end of each month. This becomes the next months opening cash balance.

27. Opening cash ( or bank ) is the amount of cash held by the business at the start of the month.

28. Working capital is the capital available to a business in the short term to pay for day to day expenses.

29. Working capital = current assets - current liabilities. Defined as money kept aside for daily activities in a business.

30. Accounts are the financial records of a firms transactions

31. Accountants are the professionally qualified people who have responsibility for keeping accurate accounts and for producing the final accounts.

32. Final accounts are produced at the end of the financial year and the worth of the business

33. Income statements is a financial statements that records the income of a business and all costs incurred to earn that income over a period of time ( for example one year ) and it is also known as a profit and loss account

34. Revenue is the income to a business during a period of time from the sale of goods or services.

35. The cost of sales is the cost of producing or buying in the goods actually sold by a business during a time period,

36. Gross profit is made when revenue is greater than the cost of sales.

37. Trading account : shows how the gross profit of a business is calculated

38. Net profit : the profit made by a business after al costs that has been deducted from revenue. It is calculated by substracting overhead costs from gross profits.

39. Depreciation is the fall in the value of a fixed asset over time.

40. Retained profit the net profit reinvested back into a company after deducting tax and payments to owners such as dividends.

41. Dividends : distribution of profit amongst shareholders

42. Shareholders : share a part of the profits of the company .

43. Liquidity is the ability of a business to pay back its short-term debts.

44. Profitability is the measurement of the profit made relative to either the value of sales achieved or the capital invested in the business .

45. Illiquid means that when assets are not easily converted into cash.

Formulas

Profitability and liquidity

Profitability

1. gross profit margin = gross profit / revenue x 100

2. net profit margin = net profit / revenue x 100

3. return on capital employed = profit / capital employed x 100

Liquidity

1. Current Ratio (Current Assets / Current Liabilities)., ratio should be 2:1

2. the acid test Ratio ((Current Assets - Inventory) / Current Liabilities). Ratio should be 1:1