ABME 10 - Module I

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23 Terms

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Financial Management

entrepreneurs have two decisions which are crucial in the business

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Financial decisions

where to source the fund

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Investment decisions

where to invest the funds

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Debt Financing

borrowing of money and paying it back with interest

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Equity Financing

selling a portion of the company in exchange for the capital needed

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Debt

  • Money loaned to a business to be repaid within a period

  • Paid with Interest Rates

  • Lender is independent and have no control in business

  • No profit sharing

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Equity

  • Money invested in return of a share in the profits

  • Paid in DIVIDENDS

  • Investor becomes a part-owner

  • May have sharing of profits

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Personal contributions

pooled from the savings of the entrepreneur himself

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Friends and Relatives

Love Money

Entrepreneurs can borrow or seek equity to secure capital from their PERSONAL networks

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Financial Institutions

organizations which business model is earning by managing people’s money.

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Government and Non-Profit Organization Grants

grants provided by the public sector as loans to support entrepreneurs

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Venture Capitalists

businesses, firms or individuals that manages pooled funds and invest it to start-ups

sees the possibility of growth of the business, and earn with their share of it.

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Angels

individuals, often successful business people who uses their own fund to invest in early-stage companies.

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Crowdfunding

capital is raised from contributions of large number of individuals willing to finance new ideas.

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Capital Expenditures

expenditures to laid out, create benefits in the future. This includes assets or things which have a useful life.
Includes: Machineries, tools, software, gadgets, equipment, land, vehicle, property

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Direct Costs

expenses that are tied directly to the production of goods and delivery of services
Include: Raw Materials, ingredients, packaging supplies, labor

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Indirect Costs

The cost of doing business

expenses related to running the business but not directly to the production of goods and services

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Working Capital

Funds that will cover expenses that will be incurred initially if it can’t be paid for by the revenues which are yet to be earned.

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Initial Investment

encapsulates the amount the entrepreneur will need in setting up the business.

Initial Investment = Capital Expense + Working Capital

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Revenue

amount generated by the sale of goods or services

Revenues = Quantity sold * Price

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Income

the financial gain computed as the difference between the amount generated and the amount spent in buying, operating, or producing something in a specific period

Income = Revenue - Operating Expense

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Return of Investment

This is computed as income for a specific period divided by the Initial Investment

Return of Investment = 100*(Income/Initial Investment)

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