Source of Finance and Working Capital
What is working capital?
This is the money a business needs to cover day-to-day costs such as wages, bills, and raw materials.
What is gross profit?
This is the type of profit found by subtracting cost of sales from sales revenue.
What is the Statement of Financial Position (Balance Sheet)?
This financial statement shows a company’s assets, liabilities, and equity at a specific point in time.
This ratio shows the percentage of profit a business earns compared to its sales revenue.
profit margin (gross or net profit margin)
What is cash flow?
This is the movement of money into and out of a business over a period of time.
What are retained profits?
This internal source of finance comes from profits kept in the business instead of being paid out to owners.
What is retained profit?
This part of profit is kept in the business after paying tax and dividends.
What are the examples of non-current (fixed) assets?
Buildings, equipment, and vehicles are examples of this type of asset.
What is Return on Capital Employed (ROCE)?
This profitability ratio measures how efficiently a business uses capital employed to generate profit.
What is cash outflow?
Money paid out of a business, such as wages, rent, or buying raw materials, is called this.
What is an overdraft?
This short-term finance lets a business spend more money than it has in its bank account, but interest is charged only on the amount used.
What is an income statement (profit and loss account)?
This financial statement shows a business’s sales, costs, and profits for a given year.
What is the formula to find working capital?
This is calculated by subtracting current liabilities from current assets.
This liquidity ratio excludes inventory from current assets because it is not easily converted into cash.
the acid test (liquid) ratio
What is the formula to find Net Cash Flow?
Net Cash Flow = Cash Inflows – Cash Outflows
What is issuing shares?
This external source of long-term finance involves selling ownership to raise money, but can reduce control of the business.
What is a loss?
This happens when sales revenue is less than total costs.
What is shareholders’ equity?
Shareholders’ equity = the value of the business that actually belongs to the owners/shareholders after all debts are paid.
Formula:
Shareholders’ Equity = Total Assets – Total Liabilities
What is a cash flow forecast?
This document estimates future cash inflows and outflows and shows the expected cash balance each month.
What is crowdfunding?
This modern external source of finance collects small amounts of money from many people online to fund a business project.
What is Cost of Sales
The total cost of producing the goods a business sells.
Formula:
Cost of Sales = Opening Inventory + Purchases (or Variable Costs) – Closing Inventory
In the part of Balance Sheet, in which part the bank overdraft should we put?
In the part of short term liability
What is insolvency?
Insolvency means a business cannot pay its debts when they are due because it doesn’t have enough cash.