Finance
A tangible product (i.e. car, phone)
- Created by: Giovanna Pedrinola
- Created on: 29-11-14 08:32
Goods
A tangible product (i.e. car, phone)
Services
An intangible experience (i.e. holidays, haircut, retailing)
Business sections
Human Resources - employees, conistions/contracts, health and safety, training
Finance - management of accounting, budgeting, costing, producing financial accounts
Operations - (production) in charge of stock control, quality, resources, capacity
Administration - filing records, communication
Marketing - anticipating/research, satisfying consumer needs (4 P's: place, product, promotion, price)
5 basic needs
Food
Shelter
Clothes
Water
Warmth
Inelastic and Elastic demand
Inelastic demand: people buy goods no matter what the price is (i.e. gas, people always complain but nned it so they buy it) Necessity
Elastic Demand: demand varies with price, if price is LOW there is a HIGH demand, if the price is HIGH there is a LOW demand (i.e. candy) Luxury
Shareholder
An individual or group who owns part of or a limited company.
stakeholder
An individual or group that has an interest in a business:
Internal
shareholders, directors/managers, employees
External
Government, payables(creditors)/suppliers, competitors, recievables(debtors/customers), local community
What is a business?
An individual or group who provide goods or services.
Short-term - Sources of finance
(under 2 years)
Overdraft: allows you to go over bank account limit
GOOD-easy to arrange BAD-expenisve over time
Trade credit: allows more time to pay or to be paid
GOOD-improves cash flow BAD-no discount, ate payment=bad feeling
Debt factoring: getting a third party to pay your debt
GOOD-improves cash flow BAD-can be expensive up to more than 5% of debt charged
Medium-term - Sources of Finance
(2-5 years)
Bank loan: bank lends money
GOOD-easier financial planning BAD-Interest rate vary with risk
Leasing: contract that allows person to use equipment (can't afford) and they can change/maintain equipment
GOOD-firm can use equipment they wouldn't afford BAD-equipment not owned
Hire purchase: Buyer pays for item in seperate amonts through time, and after totally paid they own item
GOOD-Cost of purchase spread BAD-more expensive than loan, repossesion if payments missed
Long-term - Sources of finance
(over 5 years)
Mortgage loan: a secured loan on a house or loan
GOOD-good rate of interest BAD-only for large sums
Venture Capital: they supply cpital in return for stake
GOOD-VC's firm takes risk and help manage/finance BAD-only for large sums, admin costs high
Debenture loan: corporated bond where borower pays money or something else on agreed date
GOOD-repayed in agreed date, prioriry over shareholders BAD-security offered on the loan
Reinvested profits: earning that are invested in operations (put back into business)
GOOD-cheap and easy BAD-expansion can be slow, lack of profit
Asset
Something that a company owns
Fixed assets: an asset that has a life of over a year (i.e. machinery, Building, Furniture, vehicles)
Current assets: an asset that has a life of less than a year (i.e. cash, stock, debtors)
Liabilities
Something that a company owes
Working Capital
Cash available to a business that allows it to operate on day-to-day basis
(efficiency and short-term financial health )
Working capital = current assests - current liabilities
Liquid asset
Type of asset that can be easily converted into cash
How money works in business
Start Cash - raw material - labour - finished product - sales End
Loan finance
long-term debt, with certain amount of interest and has date of repayment
Liquidity
A firm's ability to be able to pay its short-term debts
Budget
A future financial plan to move towards the achievement of set objectives
(not a forcast but a plan)
Sales budget: forecast how much will be sold
Capital expenditure budget: outlines new assets that may be needed
Purchase Budget: outlines labour requirements of production budget
Master Budget: summary of all budgets to forecast profit and loss
profit
profit = sales revenue - firm's expenses
Cash flow
The money that flows in and out of the business from operations and investments.
Cash inflow categories:
owner's capital injection, cash sales, payment by debtors, loan, reciepts from trade
Cash outflow categories:
marketing, materials, staff wages, electricity/gas/water, rent
insolvent
When a business is unable to pay its short-term debts
window dressing
Term used to make company's amount look more favourable than they actually are. If rim doesn't depreciate its fixed assets fully, this gives inflated profit figure and greater net worsen on balance sheet.
Dereciation
The fall in value of a fixed asset.
Fixed don't last forever, they loose value becasue:
- they wear out
- become obsolete (no longer functional)
- are not maintained
Why don't we depreciate current assets?
Because they don't last over 1 year anyways
Straight-line method
This reduces an asset by same amount each year
depreciation=original cost-expected value ate end of life/ex[ected yearsof ownership
equity
Fairness and impartiality towards all concerned, giving advantage and consideration to one party as much as to another.
stock
The security that means ownership in a company and represents claim on part of its assets.
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