Why businesses need finance
Types of capital expenditure
Sources of finance
Internal vs External Finance
An internal form of finance is one which is raised from within the company, whereas an external form of finance is one raised from outside the company.
Examples of internal finance:
Examples of external finance:
You can read more about these in our revision notes (click on the store above)
Factors to consider when choosing finance
There are many things to consider when deciding where to get your company's capital from. These include:
Ultimately companies must choose the option that suits their business best.
Cash Flow
Cash flow is the amount of money entering and leaving a firm in a given time frame. Cash flow forecasts predict how much money will be coming in and going out. Firms need cash to purchase materials in order to create products... which generates cash, as illustrated .
Cash Flow Forecasts explained
Cash Flow Statements are financial documents that show where the cash in a firm is going in and coming out. They can be made over any period of time, and even projected into teh future. The table above shows the different features of a cash flow statement. You may be asked to fill one in (to do example questions like this, please download the word document for free at the top of the sub menu)
Cash Flow Problems
Cash flow problems occur when cash inflows are smaller than cash outflows
Read the following article:
http://www.bbc.co.uk/news/uk-32377013
Remember, for additional notes on this topic, see our revision guide in the store.
Cash Flow Solutions
Ways to increase inflows
Ways to decrease outflows
Final Accounts
Final accounts are documents a firm needs to submit at the end of the year to show their overall value. It includes two documents
These will nowbe considered in turn, below. Be careful with your definitions as the example on the right shows!!
Profit
Why is profit important? Look at the companies listed to the right.
Company | Profit in 2014 (US$) |
Apple | 39.5 bn |
Exon | $32.5 bn |
Wells Fargo | $23.1 bn |
Microsoft | $22.1 bn |
Income Statements
Balance Sheets
Balance Sheets are the second part of Final Accounts. They are used to show the total net assets of a company. This means, its total value, including all of the things it owes, and everything it is owed. Items of worth that a company owns are called assets whilst items that a company owes other people are called liabilities.
There are different types of assets and liabilities, as explained below..
Types of Assets
Types of Liabilities
Balance Sheets
Analysing Accounts
Use the following information to calculate the:
Use the following information to calculate the liquidity ratio for the firm at hand:
For more information on how to do this, purchase our revision notes in the store, above!
$ | $ | |
Total Sales | ||
Less Cost of Sales | ||
Gross Profit | ||
Less Expenses | ||
Pre Tax Profit | ||
Post Tax Profit | ||
Distributed Profit | ||
Retained Profit |
$ | $ | |
Fixed Assets | ||
Current Assets | ||
Total Assets | ||
Current Liabilities | ||
Working Capital | ||
Non-Current Liabilities | ||
Total Liabilities | ||
Total Net Assets | ||
Shareholders funds |