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44 Terms
1
Finance
Money put into a business to fund its start-up or expansion or provide working capital.
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Internal source of finance
Finance obtained from within the business itself, e.g. retained profit, sale of assets.
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Capital
1. Money put into a business. OR 2. Machinery and equipment used in business, as a 'factor of production'.
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External source of finance
Finance obtained from outside the business.
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Non-current liabilities
Long-term debts the business owes. They do not need repaying within the next year.
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Income statement
A business account which shows the revenue, costs and profit for a business, usually for a 1 year period.
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Working capital
1. The finance a business needs to meet its day-to-day needs. OR 2. Current assets - current liabilities.
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Micro-finance
Finance provided to small business people who may not be able to obtain loans from traditional banks.
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Cash flow forecast
A prediction of the cash that will come into and go out of the business, usually shown on a month-by-moth basis. It shows the expected level of cash at the end of each month.
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Cash flow
The movement of cash into and out of a business.
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11
Revenue/Turnover/Sales Revenue
The value of goods sold, over a period of time.
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Closing balance
The amount of cash a business has at the end of the month. Opening balance + net cash flow.
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Inventory
Stocks of materials, work-in-progress or finished products that the business holds.
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Gross profit
Revenue minus the cost of sales (direct cost of making the products).
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Current assets
Things the business owns which can easily be turned into cash ('liquidised').
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Profit
Revenue minus costs. The reward for the owners of the business, for taking risks.
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Balance sheet
A business account showing the value of what a business owns (assets) and how it has been financed; by borrowing (liabilities) and owners' money (equity).
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Cash
Spendable money, either actual currency or in a bank account.
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Current liabilities
Short-term debts, which need to be repaid within one year.
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Cost of sales
The direct costs of making the product, in materials, energy, workers' wages, etc.
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Debtors
People who owe money, e.g. to a business.
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Equity
Finance provided by the owners of the business.
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Net cash flow
The difference between cash coming in (receipts) and cash going out (payments).
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Opening balance
The amount of cash the business has at the start of the month: last month's closing balance.
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Return on Capital Employed (ROCE)
Profit as a % of the capital employed (long-term finance) used by the business.
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Net profit
Profit after all costs are taken away. Net profit = gross profit - expenses/fixed costs.
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Invest
Put money into OR For a business, buying machinery/equipment.
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Capital expenditure
Spending money on 'capital' items (machinery and equipment).
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Profit margin/net profit margin
Profit as a % of sales revenue.
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Liability
A debt owed by the business, for a loan it took in the past.
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Liquidity
How easily something can be turned into cash (liquid = easy, illiquid = hard) OR Liquidity position is how safe a business is - can it pay its debts on time?
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Payments/cash outflow
Cash going out.
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Receipts/cash inflows
Cash coming in.
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Ratio analysis
Looking at ratios, to help make judgments about a business' performance or position.
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Contribution
Price minus the unit variable cost of a product.
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Capital employed
1. The value of long-term finance used by a business OR 2. Non-current liabilities + equity
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Accounting ratio
One number from the accounts being shown, relative to another number, as a ratio or percentage.
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Current ratio
A measure of the short-term safety of the business (liquidity position). Current assets divided by current liabilities.
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Retained profit
Profit made by the business which is not given out to owners. It is kept within the business as a source of finance.
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Expenses/overheads/fixed costs
Costs which are not directly related to making the products. See cost of sales.
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Gross profit margin
Gross profit as a % of sales revenue.
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Acid test ratio
A strict measure of the short-term safety of the business (liquidity position). Current assets minus inventories, divided by current liabilities.
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Asset
Something the business owns. Assets can be current (easily turned into cash) or non-current, for example land, machinery and buildings.
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Start-up capital/finance
Money put into the business to buy the things needed to start up the business.
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