Theme 2

• what is sale of assets

  when a business sells of its unused or unwanted assets to raise funds
• what is leasing

  this is when you rent a piece of equipment.
• what is owners capital

  this is capital invested into the business by the owner
• what is retained profit

  This is money generated by the business in previous years that is just reinvested back into the business
• what is trade credit

  This is when you negotiate longer payment terms with suppliers
• what is share capital

  money raised by selling shares or equity of the business
• what is a grant

  this is a sum of money given to the business
• what is a bank loan

  This is money loaned to the business by a bank which has to be payed off with interest over a fixed payment scheduale
• What is venture capital

  Money provided by large investors to finance new products and new businesses 
• What is family and friends

  businesses can obtain a loan or be given money from family or friends that may not need to be paid back or are paid back with little or no interest charges.
• what is overdraft


  An overdraft is when it is in excess of what is in a current account
• what is business angels


  A private individual, often with high net worth, and usually with business experience who directly invests parts of their assets in a new growing private business
• What is crowdfunding 


  Crowdfunding is a way of raising money to finance projects or businesses. it is money raised, usually online, from a large number of people who can each invest.
• what is peer to peer lending

  lending money to individuals or businesses. the lender recieves interests on payments
• Advantages of cash flow forecasts

  • Advanced warning of cash shortages
  • Make sure business can afford for day to day running (pay workers/suppliers)
  • Spot problems with customer payments
  • Important part of financial control
  • Provide reassurance to investors that business is being run properly
• Disadvantages of cash flow forecasts

  • Sales can prove lower than expected
  • Customers do not pay on time
• Why do you sales forecast

  • Vital planning activity
  • Forms basis for many other parts of planning
  • Useful part of competitor analysis
  • Helps focus market research
• Key factors affecting sales forecast

  • Competitors actions
  • Change in trends
  • Economic variables
• Breakeven 


  fc / sp-vcpu
• what is a historical budget 


  This is a budget based on previous figures
• what is a zero based budget 


  This is a budget based on proposals from staff
• What is variance 


  difference between actual and budgeted figures
• What is a favourable variance 


  This is when actual is higher than budgeted
• What is an adverse variance 


  This is when actual is worse than budgeted
• What is profit in absolute terms 


  The value of profits earned
• What is profit in relative terms

  The profit earned as a proportion of sales achieved or investment made
• What is gross profit

  Revenue - cost of sales
• What is operating profit

  Gross profit - expenses and overheads
• What is net profit

  operating profit - finance costs
• what is gross profit margin

  gp/r X 100
• what is operating profit margin 


  op/r X100
• what is net profit margin

  np/r x100
• what is liquidity 


  This is the ability to pay for the day to day running of the business
• What is liquidation 


  This is when you aren't liquid enough to be able to pay for the day to day running of the business.
• What is a balance sheet 


  This is a snapshot of the businesses assets and liabilities on a particular day.
• What is working capital 


  current assets - current liabilities
• What is net assets

  (fixed assets + current assets) - (current liabilities + non current liabilities)
• What is current ratio

  current assets / current liabilities
• what is the acid ratio test

  current asset - stock / current liabilities
• ways to improve liquidation

  • selling unused fixed assets
  • raising more capital
  • Increasing long term borrowing
  • postponing planned investment