Finance

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Sources of Finanace
A method used by a business to raise funds (money).
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Retained Profits
Profits made in earlier years and kept by the business to spend on projects such as growth.
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Bank loan
A sum of money borrowed from the bank, repaid in monthly installments over a agreed time period, interest is charged by the bank for borrowing this money.
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Mortgage
A loan which can only be used to purchase a property and land.
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Selling assets
Where a business sells something it owns to raise money. e.g. a building or some machinery.
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Share issue
When a company sells a share in the ownership of the business. The reward for buying shares and allowing companies to invest your money is called a dividend.
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Dividend
An annual payment made to a shareholder as a reward for investing in the business
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Income statement
AKA "profit and loss account" a record of a business's revenues earned, costs incurred and profits made over one year.
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Revenue
selling price £ X no. of units sold
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Gross profit
Total revenue - total costs
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Costs of Sales
Opening stock + purchases - closing stock
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Overheads
Also know as indirect or fixed costs. These are the costs that do not change with the level of production.
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Net Profit
Gross Profit - overheads
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Balance sheet
A record of assets and liabilities that a business has on a particular day.
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Current Assets
Something that the business owns and will use within a year (cash, bank, debtors, stock)
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Non-current assets
Something that the business owns and will use for longer than 1 year (machinery, land, buildings, brand name)
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Current Liability
Something that the business owes and will repay within 1 year (creditors, overdraft, tax, dividends).
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Non-Current Liabilities
Something that the business owes and will take more than 1 year to repay (mortgage, loans)
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Net Current Assets
Current Assets - Current Liabilities (shows the level of CA lest after all the CL have been paid.)
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Net Assets
Non-current Assets + Net Current Assets - Non-current Liabilities
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Capital Employed
Retained Profit + Share Capital. This is the amount of money invested in the business through retained profit and shareholder investment.
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Ratios
A comparison of one piece of financial information against another. Ratio results must always be compared to another result to give it meaning.
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Gross Profit MArgin
Gross Profit/Sales revenue X 100. Answer is in %. this is a profitability ratio and shows how much of revenue has been converted into gross profit.
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Net Profit Margin
Net Profit/Sales revenue X 100. Answer is in %. his is a profitability ratio and shows how much of revenue has been converted into net profit.
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Current Ratio
Current Assets/Current Liabilites. Answer is always :1. This is a liquidity ratio and tells us how able a business is to pay their short term liabilities. The ideal ratio is 2:1.
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Acid Test
Current Assets - Stock/Current Liabilites. Answer is always :1. This is a liquidity ratio and tells us how able a business is to pay their short term liabilities. The ideal ratio is 1:1.
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Other cards in this set

Card 2

Front

Profits made in earlier years and kept by the business to spend on projects such as growth.

Back

Retained Profits

Card 3

Front

A sum of money borrowed from the bank, repaid in monthly installments over a agreed time period, interest is charged by the bank for borrowing this money.

Back

Preview of the back of card 3

Card 4

Front

A loan which can only be used to purchase a property and land.

Back

Preview of the back of card 4

Card 5

Front

Where a business sells something it owns to raise money. e.g. a building or some machinery.

Back

Preview of the back of card 5
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