front 1 Capital expenditure | back 1 It refers to investment spending on fixed assets, such as the purchase of machinery, equipment, land and buildings. |
front 2 Collateral | back 2 It refers to the financial guarantee for securing external loan capital to finance investment expenditure for business growth. |
front 3 Fixed assets (or non-current assets) | back 3 They are items of monetary value that have a long-term function for businesses, so can be used repeatedly for the purpose of production. |
front 4 Revenue expenditure | back 4 It refers to spending on the day-to-day running of a business, such as payment of rent, wages, salaries and utility bills. |
front 5 Business angels | back 5 They are extremely wealthy individuals who risk their own money by investing in small to medium sized businesses that have high growth potential. |
front 6 Crowdfunding | back 6 It is the practice of raising finance for a business venture or project by getting small amounts of money from a large number of people, usually through online platforms. |
front 7 External sources of finance | back 7 They are the funds from outside of the organization, such as through debt (overdrafts and loan capital), share capital and business angels. |
front 8 Initial public offering (IPO) | back 8 It refers to a business converting its legal status to a publicly traded company by floating (or selling) its shares on a stock exchange for the first time. |
front 9 Internal sources of finance | back 9 They are funds generated from within the organization, namely through personal funds, retained profits and the sale of assets. |
front 10 Leasing | back 10 It is a form of hiring whereby a lessee pays rental income to hire assets from the lessor, the legal owner of the assets. |
front 11 Loan capital (or debt capital) | back 11 It refers to medium- to long-term sources of interest-bearing finance obtained from commercial lenders. Examples include mortgages, business development loans and debentures. |
front 12 Long-term sources of finance | back 12 They are funds which are available for any period of more than 12 months from the accounting period, used for the purchase of fixed assets or to finance the expansion of a business. |
front 13 Microfinance | back 13 It is a type of financial service aimed at entrepreneurs of small businesses, especially females and those on low incomes. |
front 14 Overdrafts | back 14 It allows a business to spend in excess of the amount in its bank account, up to a pre-determined limit. They are the most flexible form of borrowing for most businesses in the short term. |
front 15 Personal funds | back 15 It is a source of internal finance, referring to the use of an entrepreneur's own savings. Personal funds are usually used to finance business start-ups for sole traders. |
front 16 Retained profit | back 16 It is the value of the surplus that a business keeps to use within the business after paying corporate taxes on its profits to the government and dividend payments to its shareholders. |
front 17 Sale of assets | back 17 It means selling existing items of value that the business owns, such as dormant assets (unused assets) and obsolete assets (outdated assets). |
front 18 Share capital | back 18 It is the money raised from selling shares in a limited liability company. |
front 19 Share issue (or share placement) | back 19 It means an existing publicly held company raises further finance by selling more of its shares. |
front 20 Short-term sources of finance | back 20 They are those funds which are available for a period of less than one year, used to pay for the daily or routine operations of the business, such as overdrafts and trade credit. |
front 21 Sources of finance | back 21 It is the general term used to refer to where or how businesses obtain their funds, such as from personal funds, retained profits, loan capital and share capital. |
front 22 Stock exchange | back 22 It is a highly regulated marketplace where individuals and businesses can buy and/or sell shares in publicly traded companies. |
front 23 Trade credit | back 23 It allows a business to postpone payments or to "buy now and pay later. The credit provider does not receive any cash from the buyer until a later date (usually allow between 30-60 days). |
front 24 Average cost (AC) | back 24 It refers to the cost per unit of output. It is calculated as AC = TC + Q, where TC is total cost and Q is quantity (or output level). |
front 25 Average revenue (AR) | back 25 It refers to the value of sales received from customers per unit of a good or service sold. It is calculated as AR = TR + Q = P, where TR is total revenue. |
front 26 Cost | back 26 It refers to the sum of money incurred by a business in the production process, such as the costs of raw materials, wages and salaries, insurance, advertising and rent. |
front 27 Direct costs | back 27 They are costs specifically attributed to the production or sale of a particular good or service. |
front 28 Fixed costs | back 28 They are the costs that do not vary with the level of output. They exist even if there is no output. |
front 29 Indirect costs (or overheads) | back 29 They are costs that do not directly relate to the production or sale of a specific product. |
front 30 Price | back 30 It refers to the amount of money a product is sold for. It is the sum paid by the customer to purchase a good or service. |
front 31 Profit | back 31 It exists if there is a positive difference between a firm's total revenues and its total costs. |
front 32 Revenue | back 32 It is the money that a business earns from the sale of goods and services. It is calculated by multiplying the unit price of each product by the quantity sold. |
front 33 Revenue stream | back 33 It refers to the money coming into a business from its various business activities, such as sponsorship deals, merchandise and receipt of royalty payments. |
front 34 Running costs | back 34 are the ongoing costs of operating the business. |
front 35 Set-up costs | back 35 They are the items of expenditure needed to start a business. |
front 36 Total costs | back 36 They are the sum of all variable costs and all fixed costs of production. |
front 37 Total revenue | back 37 It refers to the money coming into a business, usually from the sale of goods and/or services. It is calculated by multiplying the price of a product with the quantity sold. |
front 38 Variable costs | back 38 They are costs of production that change in proportion to the level of output, such as raw materials and hourly wages of production workers. |
front 39 Balance sheet (Statement of Financial Position) | back 39 It contains financial information about an organisation's assets, liabilities and the capital invested by the owners, showing a snapshot of the firm's financial situation. |
front 40 Book value (Net Book Value) | back 40 It is the value of an asset as shown on a balance sheet (Statement of Financial Position). The market value of assets can be higher than its book value because of intangible assets such as the brand value or goodwill. |
front 41 Cost of goods sold / Cost of Sales | back 41 It refers to the direct costs of producing or purchasing stock that has been sold to customers. |
front 42 Creditors | back 42 They are suppliers who allow a business to purchase goods and/or services on trade credit. |
front 43 Current asset | back 43 It refers to cash or any other liquid asset that is likely to be turned into cash within 12 months of the balance sheet date. Examples include cash, debtors and stocks. |
front 44 Current liabilities | back 44 They are debts that must be settled within one year of the balance sheet date. Examples include bank overdrafts, trade creditors and other short-term loans. |
front 45 Depreciation | back 45 It is the fall in the value of noncurrent assets over time, caused by wear and tear (due to the asset being used) or obsolescence (out-dated). |
front 46 Expenses | back 46 They are the indirect or fixed costs of production, such as administration charges, management salaries, insurance premiums and rent. |
front 47 Final accounts (Financial Statements) | back 47 These are published annually by all limited liability companies and are legally obliged to report, namely the balance sheet (Statement of Financial Position) and the P&L account (Income Statement). |
front 48 Goodwill | back 48 It is an intangible asset which exists when the value of a firm exceeds its book value (the value of the firm's net assets). |
front 49 Gross profit | back 49 It is the difference between the sales revenue of a business and its direct costs incurred in making or purchasing the products that have been sold to its customers. |
front 50 Historic cost | back 50 It refers to the purchase cost of a particular fixed asset. It is used in the calculation of depreciation. |
front 51 Intangible assets | back 51 They are noncurrent assets that do not exist in a physical form but are of monetary value, such as goodwill, copyrights, brand names and registered trademarks. |
front 52 Net assets | back 52 It shows the value of a business to its owners by calculating the value of all its assets minus its liabilities. This figure must match the equity of the business in the balance sheet. |
front 53 Noncurrent assets | back 53 They are items owned by a business, not intended for sale within the next twelve months, but used repeatedly to generate revenue for the organisation, such as property, plant and equipment. |
front 54 Noncurrent liabilities | back 54 They are the debts owed by a business, which are expected to take longer than a year from the balance sheet date to repay. |
front 55 Profit | back 55 It is the surplus (if any) that a business earns after all expenses have been paid for from the firm's gross profit. |
front 56 Profit and Loss account (Income Statement) | back 56 It is a financial record of a firm's trading activities over the past 12 months, showing all revenues as well as costs and revenues during this time. |
front 57 Residual value (or scrap value) | back 57 It is an estimate of the value of the noncurrent asset at the end of its useful life. |
front 58 Retained profit | back 58 It is the amount of profit after interest, tax and dividends have been paid. It is then reinvested in the business for its own use. |
front 59 Share capital | back 59 It refers to the amount of money raised through the sale of shares. It shows the value raised when the shares were first sold, rather than their current market value. |
front 60 Straight line method | back 60 It is a means of calculating depreciation that reduces the value of a fixed asset by the same value each year throughout its useful life. |
front 61 Units of production method of calculating depreciation | back 61 It allocates an equal amount of depreciation to each unit of output rendered by a noncurrent asset. |
front 62 Window dressing | back 62 It refers to the legal act of creative accounting by manipulating financial data to make the results appear more appealing |
front 63 Acid test ratio (or quick ratio) | back 63 It is a liquidity ratio that measures a firm's ability to meet its short-term debts. It ignores stock because not all inventories can be easily turned into cash in a short time frame. |
front 64 Capital employed | back 64 It is the value of all long-term sources of finance for a business, namely noncurrent liabilities plus equity. |
front 65 Current ratio | back 65 It is a short-term liquidity ratio that calculates the ability of a business to meet its debts within the next twelve months. |
front 66 Gross Profit Margin (GPM) | back 66 It is a profitability ratio that shows the value of a firm's gross profit expressed as a percentage of its sales revenue. |
front 67 Liquid assets | back 67 They are the possessions of a business that can be turned into cash quickly without losing their value, ie, cash, stocks and debtors. |
front 68 Liquidity crisis | back 68 It refers to a situation where a firm is unable to pay its short-term debts, i.e. current liabilities exceed current assets. |
front 69 Liquidity ratios | back 69 They look at the ability of a firm to pay its short- term (current) liabilities, comprised of the current ratio and the acid test (quick) ratio |
front 70 Profit margin | back 70 It is a ratio that shows the percentage of sales revenue that turns into profit, i.e. the proportion of sales revenue left over after all direct and indirect costs have been paid. |
front 71 Profitability ratios | back 71 They examine profit in relation to other figures, including the gross profit margin (GPM), profit margin and return on capital employed (ROCE) ratios. |
front 72 Ratio analysis | back 72 It is a quantitative management tool that compares different financial figures to examine and judge the financial performance of a business. |
front 73 Return on capital employed (ROCE) | back 73 It is a profitability ratio that measures the financial performance of a firm based on the amount of capital invested. |
front 74 Bad debts (Irrecoverable Debts) | back 74 They exist when debtors are unable to pay their outstanding invoices (bills), which reduces the cash inflows of the vendor (the firm that has sold the products on credit). |
front 75 Cash | back 75 It is a current asset and represents the actual money a business has. It can exist in the form of cash in hand (cash held in the business) or cash at bank (cash held in a bank account). |
front 76 Cash flow | back 76 It refers to the transfer or movement of money into and out of an organisation. |
front 77 Cash flow forecast | back 77 It is a financial tool used to show the expected movement of cash into and out of a business, for a given period of time. |
front 78 Cash flow statement | back 78 It is the financial document that records the actual cash inflows and cash outflows of a business during a specified trading period, usually 12 months. |
front 79 Cash inflows | back 79 It refers to the cash that comes into a business during a given time period, usually from sales revenue when customers pay for the products that they have purchased. |
front 80 Cash outflows | back 80 It refers to cash that leaves a business during a given time period, such as when invoices or bills have to be paid. |
front 81 Closing balance of Cash | back 81 It refers to the amount of cash left in a business at the end of each trading period, as shown in its cash flow forecast or statement. It is calculated using the formula: Closing balance = Opening balance + Net cash flow. |
front 82 Credit control | back 82 It is the process of monitoring and managing debtors, such as ensuring only suitable customers are permitted trade credit and that customers do not exceed the agreed credit period. |
front 83 Net cash flow | back 83 It refers to the difference between a firm's cash inflows and cash outflows for a given time period, usually per month. |
front 84 Opening balance of Cash | back 84 It refers to the value of cash in a business at the beginning of a trading period, as shown in its cash flow forecast or cash flow statement. It is equal to the closing balance in the previous month. |
front 85 Overtrading | back 85 It occurs when a business attempts to expand too quickly without the sufficient resources to do so, usually by accepting too many orders, thus harming its cash flow. |
front 86 Profit | back 86 It is the positive difference between a firm's total sales revenue and its total costs of production for a given time period. |
front 87 Working capital cycle | back 87 It refers to the time between cash outflows for production costs and cash inflows from customers who pay upon receipt of their finished goods and services. |
front 88 Average rate of return (ARR) | back 88 It calculates the average annual profit of an investment project, expressed as a percentage of the initial amount of money invested. |
front 89 Cumulative net cash flow | back 89 It is the sum of an investment project's net cash flows for a particular year plus the net cash flows of all previous years. |
front 90 Discount factor | back 90 It is the number used to reduce the value of a sum of money received in the future in order to determine its present (current) value. |
front 91 Discounted cash flow | back 91 It uses a discount factor (the inverse of compound interest) to reduce the value of money received in future years because money loses its value over time. |
front 92 Investment | back 92 It refers to capital expenditure or the purchase of assets with the potential to yield future financial benefits. |
front 93 Investment appraisal | back 93 It is a financial decision-making tool that helps managers to determine whether certain investment projects should be undertaken based mainly on quantitative techniques. |
front 94 Net present value (NPV) | back 94 It calculates the total discounted net cash flows minus the initial cost of an investment project. If the NPV is positive, then the project is viable on financial grounds. |
front 95 Payback Period (PBP) | back 95 It is an investment appraisal technique that calculates the length of time it takes to recoup (earn back) the initial expenditure on an investment project. |
front 96 Principal Amount (or capital outlay) | back 96 It is the original amount spent on an investment project. |
front 97 Qualitative investment appraisal | back 97 It refers to judging whether an investment project is worthwhile through non-numerical techniques, such as determining whether the investment is consistent with the corporate culture. |
front 98 Quantitative investment appraisal | back 98 It refers to judging whether an investment project is worthwhile based on numerical (financial) interpretations, namely the PBP, ARR and NPV methods. |