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Financial Mgt Part 1

Study stack cards on Financial Management Part 1

TermDefinition
Financial Management The planning and monitoring of a business's financial resources to achieve financial goals.
Internal Sources of Finance Money that comes from within a business. Examples include capital from personal savings, retained profits, and selling assets.
External Sources of Finance Money that comes from outside a business. Examples include bank loans, overdrafts, venture capital, new partners, trade credit, leasing, and government grants.
Capital Money invested by the owner, which may include personal savings.
Retained Profits Reinvesting the profits made from the business back into the business.
Selling Assets Selling products owned by the business, such as machinery, equipment, or excess stock.
Bank Loan Money borrowed that is paid off with interest over a period of time.
Overdraft A facility allowing a business to use more money than they have in their bank account.
Venture Capital Investment by individuals or groups in exchange for a share of the profits and a return on their investment.
New Partner A new person who buys into the business.
Trade Credit An arrangement to pay suppliers at a later date, usually after the stock has been sold.
Leasing Renting an asset instead of buying it.
Government Grants Fixed amounts of money awarded by the government that usually do not have to be paid back.
Debt Finance Borrowed money that is paid back with interest within an agreed time frame, including bank loans, overdrafts, mortgages, credit cards, and equipment leasing/hire purchase.
Equity Finance Raising capital through the sale of shares, including self-funding, investments from family or friends, private investors, stock market, and government.
Gearing The ratio of a company's debt-to-equity. High gearing means more debt than equity, while low gearing means more equity than debt.
High Gearing Indicates that a business has a higher proportion of debt relative to equity, which can be considered higher risk.
Low Gearing Indicates that a business has a lower proportion of debt relative to equity, considered more financially stable but not all debt is bad debt.
Advantages of Equity Finance No repayment period, safer, better in weak external conditions
Disadvantages of Equity Finance Dilution of control, time spent providing information to investors, takes longer to organise
Advantages of Debt Finance Loans can be organised quite quickly, allows the spending of funds that has not been earned just yet
Disadvantages of Debt Finance Being put into debt with interest rates, can lead to financial instability if the repayments are not made
Created by: Jonathan Odorcic
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