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CFF & Assessmet

Cash flows and Ratios

TermDefinition
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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