Capital expenditure

It refers to investment spending on fixed assets, such as the purchase of machinery, equipment, land and buildings.

Collateral

It refers to the financial guarantee for securing external loan capital to finance investment expenditure for business growth.

Fixed assets (or non-current assets)

They are items of monetary value that have a long-term function for businesses, so can be used repeatedly for the purpose of production.

Revenue expenditure

It refers to spending on the day-to-day running of a business, such as payment of rent, wages, salaries and utility bills.

Business angels

They are extremely wealthy individuals who risk their own money by investing in small to medium sized businesses that have high growth potential.

Crowdfunding

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.

External sources of finance

They are the funds from outside of the organization, such as through debt (overdrafts and loan capital), share capital and business angels.

Initial public offering (IPO)

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.

Internal sources of finance

They are funds generated from within the organization, namely through personal funds, retained profits and the sale of assets.

Leasing

It is a form of hiring whereby a lessee pays rental income to hire assets from the lessor, the legal owner of the assets.

Loan capital (or debt capital)

It refers to medium- to long-term sources of interest-bearing finance obtained from commercial lenders. Examples include mortgages, business development loans and debentures.

Long-term sources of finance

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.

Microfinance

It is a type of financial service aimed at entrepreneurs of small businesses, especially females and those on low incomes.

Overdrafts

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.

Personal funds

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.

Retained profit

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.

Sale of assets

It means selling existing items of value that the business owns, such as dormant assets (unused assets) and obsolete assets (outdated assets).

Share capital

It is the money raised from selling shares in a limited liability company.

Share issue (or share placement)

It means an existing publicly held company raises further finance by selling more of its shares.

Short-term sources of finance

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.

Sources of finance

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.

Stock exchange

It is a highly regulated marketplace where individuals and businesses can buy and/or sell shares in publicly traded companies.

Trade credit

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).

Average cost (AC)

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).

Average revenue (AR)

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.

Cost

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.

Direct costs

They are costs specifically attributed to the production or sale of a particular good or service.

Fixed costs

They are the costs that do not vary with the level of output. They exist even if there is no output.

Indirect costs (or overheads)

They are costs that do not directly relate to the production or sale of a specific product.

Price

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.

Profit

It exists if there is a positive difference between a firm's total revenues and its total costs.

Revenue

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.

Revenue stream

It refers to the money coming into a business from its various business activities, such as sponsorship deals, merchandise and receipt of royalty payments.

Running costs

are the ongoing costs of operating the business.

Set-up costs

They are the items of expenditure needed to start a business.

Total costs

They are the sum of all variable costs and all fixed costs of production.

Total revenue

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.

Variable costs

They are costs of production that change in proportion to the level of output, such as raw materials and hourly wages of production workers.

Balance sheet (Statement of Financial Position)

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.

Book value (Net Book Value)

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.

Cost of goods sold / Cost of Sales

It refers to the direct costs of producing or purchasing stock that has been sold to customers.

Creditors

They are suppliers who allow a business to purchase goods and/or services on trade credit.

Current asset

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.

Current liabilities

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.

Depreciation

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).

Expenses

They are the indirect or fixed costs of production, such as administration charges, management salaries, insurance premiums and rent.

Final accounts (Financial Statements)

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).

Goodwill

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).

Gross profit

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.

Historic cost

It refers to the purchase cost of a particular fixed asset. It is used in the calculation of depreciation.

Intangible assets

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.

Net assets

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.

Noncurrent assets

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.

Noncurrent liabilities

They are the debts owed by a business, which are expected to take longer than a year from the balance sheet date to repay.

Profit

It is the surplus (if any) that a business earns after all expenses have been paid for from the firm's gross profit.

Profit and Loss account (Income Statement)

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.

Residual value (or scrap value)

It is an estimate of the value of the noncurrent asset at the end of its useful life.

Retained profit

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.

Share capital

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.

Straight line method

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.

Units of production method of calculating depreciation

It allocates an equal amount of depreciation to each unit of output rendered by a noncurrent asset.

Window dressing

It refers to the legal act of creative accounting by manipulating financial data to make the results appear more appealing

Acid test ratio (or quick ratio)

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.

Capital employed

It is the value of all long-term sources of finance for a business, namely noncurrent liabilities plus equity.

Current ratio

It is a short-term liquidity ratio that calculates the ability of a business to meet its debts within the next twelve months.

Gross Profit Margin (GPM)

It is a profitability ratio that shows the value of a firm's gross profit expressed as a percentage of its sales revenue.

Liquid assets

They are the possessions of a business that can be turned into cash quickly without losing their value, ie, cash, stocks and debtors.

Liquidity crisis

It refers to a situation where a firm is unable to pay its short-term debts, i.e. current liabilities exceed current assets.

Liquidity ratios

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

Profit margin

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.

Profitability ratios

They examine profit in relation to other figures, including the gross profit margin (GPM), profit margin and return on capital employed (ROCE) ratios.

Ratio analysis

It is a quantitative management tool that compares different financial figures to examine and judge the financial performance of a business.

Return on capital employed (ROCE)

It is a profitability ratio that measures the financial performance of a firm based on the amount of capital invested.

Bad debts (Irrecoverable Debts)

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).

Cash

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).

Cash flow

It refers to the transfer or movement of money into and out of an organisation.

Cash flow forecast

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.

Cash flow statement

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.

Cash inflows

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.

Cash outflows

It refers to cash that leaves a business during a given time period, such as when invoices or bills have to be paid.

Closing balance of Cash

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.

Credit control

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.

Net cash flow

It refers to the difference between a firm's cash inflows and cash outflows for a given time period, usually per month.

Opening balance of Cash

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.

Overtrading

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.

Profit

It is the positive difference between a firm's total sales revenue and its total costs of production for a given time period.

Working capital cycle

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.

Average rate of return (ARR)

It calculates the average annual profit of an investment project, expressed as a percentage of the initial amount of money invested.

Cumulative net cash flow

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.

Discount factor

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.

Discounted cash flow

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.

Investment

It refers to capital expenditure or the purchase of assets with the potential to yield future financial benefits.

Investment appraisal

It is a financial decision-making tool that helps managers to determine whether certain investment projects should be undertaken based mainly on quantitative techniques.

Net present value (NPV)

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.

Payback Period (PBP)

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.

Principal Amount (or capital outlay)

It is the original amount spent on an investment project.

Qualitative investment appraisal

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.

Quantitative investment appraisal

It refers to judging whether an investment project is worthwhile based on numerical (financial) interpretations, namely the PBP, ARR and NPV methods.