Unit 3 Business Finance

• Short-Term Needs are the finances used by the Business to meet it's day- to -day expenditures. This form of Finaces are paid within one year or less.
• Long Term needs are the finances that are required to finance major investments, such as buying land, buildings, machinery etc.
• Long Term Finances is the money borrowed by the business for more than/over a year.
• Long-Term Finances can be borrowed from money lending institiues such as a bank or can be from thr owners (This is reffered to as Captial).
• Startup- Capital is the amount of money needed to start a business.
• Internal finace is generated by the business from its own means
• Personal Saving of the Owner is a form of an Internal Source of Finance
• Retained profit is profit that is held by the business rather than giving it back to the owners. This is fairly cheaper as it does not include any form of interest,dividends or charges
• Selling of unwanted assest such as machinery that is no more in use can be sold off as cash or loaned out to other Businesses/Companies for Money.
• External Finance is finance that is provided by outside sources, such as banks and other financial institutions.
• A Bank Overdraft is an agreement between a bank and a business to allow the business to withdraw more money than it has in its account
• Trade Payables is when a Company/Business buys something from a supplier and pays for it later usually after 30-90 days.
• Trade Payables is also known as Trade Credit
• The Disadvantages of a Trade Payables are:

  1. Many Suppliers encourage early payments by offering discounts
  2. The cost of the goods might be higher if the firm buys it on credit
  3. Delaying payments may upset Suppliers
• A loan is a fixed agreement between a business and a bank. The Amount borrowed will have to be paid with an interest and will be payed in installements.
• Fixed Costs are costs that do not change with change in output
• Variable Costs are costs that change with the change in the level of output
• Total Costs = Fixed Costs + Variable Costs
• Average costs of production is the costs of producing one single unit
• Average Costs= Total Cost/Quantity Produced
• Total Revenue is the money generated by the sale of output. It is Price Multiplied by output
• Total Revenue = Price x Quantity
• Profit is the difference between Total Revenue and Total Costs
• Profit= Total Revenue - Total Costs
• The Break Even point of a Business is where a Business is neither making Profit or Loss
• Break-Even Point = Fixed Cost/ (Selling Price- Variable cost per unit)
• The Margin of Safety is the difference between the actual sales and the break-even point. So the Business is Making Profit
• The Statement of Comprehensive income is a document showing a firm's income and expenditure in a particular time period.
• Gross Profit is Sales Revenue less of cost of sales
• Gross Profit = Sales Revenue- Cost of Sales
• Operating Profit is Gross Profit Less Expenses
• Operating Profit= Gross Profit-Expenses
• Distributed Profit is the Profit that is returned to the Owners of the Business
• Retained Profit is the Profit that is kept/ held within the Business.
• Net Profit = Distributed Profit + Retained Profit
• Dividendeds are the Share of the profits paid to the shareholders of the Business/ Company
• The Statement of Financial Postion is a summary at a point in time of a business assets,liabilities and capital (Often called a Balance Sheet)
• Non-Current Assets are assetes that last for more than a year
• Current Assests are assets likely to be changed into cash within a year
• Liquidity is the ease or speed at which assets can be converted into cash