3.1 Sources of finance

Flashcards covering key vocabulary related to finance and accounts, providing definitions to aid understanding and memorization for exam preparation.

Sources of Finance

The means by which a business obtains the capital it needs, classified as internal or external.

Capital Expenditure

Funds spent by a business on acquiring or upgrading physical assets like property, industrial buildings, or equipment.

Revenue Expenditure

Expenses incurred in the normal course of business operation; typically short-term in nature.

Break-even Analysis

A calculation to determine the sales volume at which total revenues equal total costs, indicating no net loss or gain.

Profitability Ratio

A financial metric used to assess a business's ability to generate profit relative to its revenue, operating costs, assets, or equity.

Liquidity Ratio

Measures of the ability of a company to cover its short-term obligations with its most liquid assets.

Cash Flow

The total amount of money being transferred into and out of a business, affecting its liquidity.

Investment Appraisal

The evaluation of the suitability of an investment opportunity, focusing on potential profitability and risk.

Budget

A financial plan that outlines expected revenues and expenditures for a specific period, often used to control resources.

Internal Sources of Finance

Funds obtained from within the business, such as retained earnings or asset sales.

External Sources of Finance

Funds sourced from outside the business, including loans, share capital, or government grants.

Debenture

A long-term security yielding a fixed rate of interest, issued by a company and secured against assets.

Share Capital

Funds raised by a company through the sale of shares to investors.

Crowdfunding

A method of raising capital through the collective effort of friends, family, customers, and individual investors.

Leasing

A financing arrangement where a company pays to use an asset for a specified period without purchasing it.

Trade Credit

A short-term source of finance where a supplier allows a business to buy now and pay later.