Financing
A bill that sets out the amount to be paid, what is being paid for, and the terms of payment.
Invoice
The valuable green paper
Cash
An important asset to the school store
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Capital that a company owns that involves borrowing money that must be paid back with interest.
Debt capital
It is calculated by dividing net profit by total assets:
= Net Profit/Total Assets
Return on investment or ROI
An index of all the financial accounts in your company.
Chart of accounts
Organizes the assets, liabilities, and owners’ equity of a business
Balance Sheet
Includes investments that can't be converted to cash in less than one year
Fixed assets
If you can't pay back the loan you must forfeit this to the lender.
Collateral
It is calculated by net profit divided by owner’s equity.
Return on equity
It shows all money coming into the business and expenses that need to be paid. The result of this statement shows the profit or loss at the end of the period.
Cash flow analysis statement
The total amount of income you expect to receive from outside parties
Accounts receivable
Assets which are easily changed into cash that can be used in a year or less.
Liquid assets
Capital that a company owns that is not tied to debt. (Happens by selling shares of your business to investors).
Equity Capital
Like the balance sheet, this displays a lot of information. It shows all revenues, expenses, and taxes for a specific period of time in order to calculate profit.
Income Statement
A tool that evaluate a company’s financial performance. It can tell us about the profitability, liquidity, and debt.
Financial ratio
When your business sells accounts receivable to another company at a discount to raise cash
Factoring
Assets that cannot be easily converted into cash without a substantial loss of value.
Illiquid assets
A preset borrowing limit that can be used at any time. (Works like a credit card).
Line of credit
What is the profit margin ratio formula?
Net Profit/Sales
The process of determining the point where your costs and revenue in a business are equal.
Breakeven analysis
What are the three components of a balance sheet?
Assets, liabilities, and equity
How do you calculate the current ratio?
Current Assets/Current Liabilities
What does a lower profit margin ratio indicate?
Possible answers: issues with costs or expenses or prices are too low.
Imagine you want to start a vintage watch business. You estimate you need $20,000 to get started.
If you took a loan, how much interest would you pay after one year with a 5% interest rate per year.
$1000