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CFF & Assessmet
Cash flows and Ratios
| Term | Definition |
|---|---|
| Cash flow forecast | A forecast of when cash will be received & paid out |
| Fixed Expenditure | fixed amount on a fixed date e.g. loan repayment/mortgage |
| Irregular Expenditure | amount or payment date varies e.g. electricity bill |
| Discretionary Expenditure | Non-essential spending e.g. a holiday |
| Shortage | when cash expenditure is greater than cash receipts |
| Sources of finance | short term (<1yr), medium term (1-5 yrs), long term (5+ yrs) |
| Short term Sources of finance | overdraft, creditors, accrued expenses, credit card, taxation |
| Overdraft | taking out more money than is in your current account, arranged in advance, interest calculated on daily basis, used for shortages at certain times of year by households, buying stock for business |
| Creditors/ Trade Credit | buy now and pay within a short period of time, households - milk/coal, no interest charged. |
| Credit Card | buy goods/services up to certain limit, high interest if can't pay full amount outstanding |
| Taxation | Businesses collect tax and use money as short term source of finance |
| Medium Term sources of finance | hire purchase, leasing, term loan |
| Hire Purchase | hire purchase, leasing, term loan deposit, get immediate use, pay off in instalments, final payment and good is yours, used more by households |
| Leasing | renting an asset, finance company buys asset then leases it, cheaper than HP, helps financial planning - know amount in advance, no security needed fixed instalment, may require security, personal guarantees fro |
| Medium-Term Loan/Personal Loan | fixed instalment, may require security, personal guarantees from |
| Long Term sources of Finance | long term loan, savings, share capital (equity) |
| Long term loan/mortgages | include mortgages, commercial mortgages and debenture loans |
| Mortgage | LT loans for household used to buy property, secured on the property, mortgage amount depends on salary and value of property |
| Commercial mortgages | used by sole traders/partnerships, asset is security |
| Debenture Loans | fixed interest loans secured against company assets, specific repayment date, interest is tax deductible |
| Savings | saved in deposit a/c |
| Share Capital | selling shares, permanent capital only repaid when winding up company, shareholders receive dividend, ordinary shares bring voting rights at AGM |
| Dividend | share of company profits distributed to shareholders |
| Retained Earnings | After tax profit which is company does not distribute |
| Final Accounts | Trading, Profit & Loss & Appropriation Account and Balance Sheet |
| Cost of Sales | Opening stock + purchases - closing stock, cost of the items sold |
| Gross profit | sales - cost of sales |
| Net profit | Gross profit + income from other sources - expenses |
| Balance Sheet | statement of assets, liabilities and capital of a company on a particular day, firm's financial position at a point in time |
| Fixed Assets | items business owns that are not to be resold e.g. premises, vehicles |
| Current Assets | assets that constantly change & easily turned into cash e.g. closing stock, debtors |
| Current Liabilities | debts which must be repaid within a year e.g. creditors, overdraft, expenses due |
| Long-term Liabilities | debts which must be repaid in the long term e.g. mortgage |
| Share Capital | money invested by shareholders |
| Authorised Share Capital | maximum amount of share capital which can be sold |
| Issued Share Capital | amount of authorised share capital which company has sold so far |
| Reserves | retained earnings used in business |
| Working Capital | money for day-to-day running of business, current assets - current liabilities, shows ability to pay immediate debts |
| Overtrading | firm rapidly expands without sufficient working capital |
| Ratio Analysis | exams profitability, liquidity, activity, gearing |
| Profitability | efficiency of firm in generating profit |
| Profitability Percentages | ROI/ROCE, Gross Margin, Net Margin |
| Liquidity | ability to pay short-term debts |
| Liquidity Ratios | Current/ Working Capital ratio, Ideal 2:1, Acid test/ Quick Ratio, Ideal 1:1 |
| Activity Measures | Period of credit given/received, stock turnover |
| Debt-Equity | shows financial structure of business |
| Debt Capital | long term debt - provided by institutions outside business |
| Equity Capital | ordinary share capital + reserves |
Created by:
MsBradyBusiness
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