Intro & Sources
Spending on fixed assets like machinery or buildings, which a business will use for more than a year, is called this type of expenditure.
What is capital expenditure?
This financial statement shows a business’s revenue, costs, and profit over a period of time, usually one year.
What is the profit and loss account?
These ratios measure a business’s ability to pay its short-term debts as they fall due.
What are liquidity ratios?
Current assets minus current liabilities gives this figure, which shows the money available for day-to-day running costs.
What is working capital?
Costs that stay the same no matter how much a business produces, such as rent, are called this.
What are fixed costs?
Money a business reinvests from its own earnings, rather than borrowing from outside, is this internal source of finance.
What is retained profit?
Sales revenue minus the cost of sales gives this measure of profit.
What is gross profit?
Gross profit divided by sales revenue, multiplied by 100, gives this profitability ratio.
What is the gross profit margin?
In a cash flow forecast, money coming into a business, such as sales revenue or a bank loan, is recorded under this heading.
What are cash inflows?
Costs that change directly with the level of output, such as raw materials, are called this.
What are variable costs?
This short-term external source of finance lets a business spend more than its bank balance, up to an agreed limit.
What is a bank overdraft?
Clue: Goodwill, patents, and trademarks are examples of these assets, which have value but no physical form.
What are intangible assets?
Dividing current assets by current liabilities gives this liquidity ratio.
What is the current ratio?
This document predicts the cash a business expects to receive and pay out over future months.
What is a cash flow forecast?
Total revenue is found by multiplying the selling price by this.
What is the quantity sold?
Unlike loan capital, this external source of finance never has to be repaid, but it gives investors part ownership of the business.
What is share capital?
This investment appraisal method measures how long it takes for a project to earn back its initial cost.
What is the payback period?
This liquidity ratio leaves inventory out of current assets, because stock can be slow to turn into cash.
What is the acid test ratio?
In a cash flow forecast, one month’s closing balance becomes the next month’s this figure.
What is the opening balance?
Costs not directly linked to making a particular product, such as rent and administrative salaries, are known as these, also called overheads.
What are indirect costs?
This type of wealthy private investor puts their own money into a start-up in exchange for an equity stake, and often offers mentoring and contacts as well.
What is a business angel?
When a business is bought for more than the value of its net assets, this intangible asset records the extra amount paid for its reputation and loyal customer base.
What is goodwill?
This profitability ratio shows the return a business earns on the money invested in it, by comparing profit before interest and tax with capital employed.
What is return on capital employed (ROCE)?
A business uses cash it was holding to buy new machinery. This investment lowers its cash flow now, but it is expected to raise this measure later by increasing output and sales.
What is profit?
A cinema earns money from ticket sales, snacks, and advertising on screen. Each separate source of income is called one of these.
What are revenue streams?