FINANCE AND
ACCOUNTS
3.1 SOURCES OF FINANCE
3.2 COSTS AND REVENUES
3.3 BREAK-EVEN ANALYSIS
3.4 FINAL ACCOUNTS
3.5 PROFITABILITY RATIOS
3.6 EFFICIENCY RATIOS
3.7 CASH FLOW
3.8 INVESTMENT APPRAISAL
3.9 BUDGETS
Elsa Sánchez Izquierdo
,3.1
SOURCES OF FINANCE
Capital expenditure: spending on a firm's fixed assets.
Purchases of land, buildings, machines.
Normally funded using long-term sources of finance.
Revenue expenditure: spending on a firm's general operational costs (day-to-day running costs).
Paying wages and salaries, paying suppliers, utility bills.
Funded using short- or medium-term sources of finance.
INTERNAL SOURCES OF FINANCE: money that is raised from the business’s
existing assets.
Personal funds: Retained profit: The sale of assets:
Personal funds: money Retained profits: money a
Asset: something a
invested by the owner(s) of firm has left at the end of
company owns.
a company. the trading year after
paying all costs, expenses,
Easily available Generates immediate cash
dividends and taxes.
No interest No interest
Freeing capital
High risk Flexible
Usually not enough No interest
Can't use the asset
Limited funds available anymore
Risk of over-investing Usually not enough
Startups have none
, EXTERNAL SOURCES OF FINANCE:
They involve an external stakeholder taking a
risk and investing into the company.
1. Equity finance:
In return for offering equity finance, the provider will demand ownership of part of the company.
Equity finance does not have to be repaid, and no interest is charged.
Opportunity cost: loss of control and a loss of future dividends.
Share capital: Business angels: Venture capitalists:
Share capital: money that is
Business angels: successful, Venture capitalists: companies
raised through the issue of
wealthy business people, who that use the money from their
shares.
invest their money into exciting clients to fund investments.
new businesses, with a high
Only available to companies
growth potential. Long-term aim: help the
and corporations.
company grow so they can
Corporations will do this by
In return for their investment later sell their stake for an
issuing shares on the stock
and guidance, business angels increased price.
market.
require part ownership of the
business and a cut of all future
profits.
2. Debt finance:
Money that is borrowed from a bank or other financial institution.
The borrowed money is available quickly so it can fund investments. However, when money is
borrowed, interest must be paid to the lender.
Loan capital: Overdrafts: Credit cards:
Loan capital: money borrowed Overdraft: allows the
Credit cards: businesses will
from a bank or lender, which withdrawal of more money than
use credit cards to finance
must be paid back with what is available in the bank
small purchases needed for
interest. account, up to a pre-agreed
business purposes on short
limit.
notice.
Collateral must be offered in
case of default on the loan. Next time money is paid into
Usually used for expenses on
Small and medium enterprises your bank account; the
business travel, or paying for
struggle to acquire long-term overdraft is automatically
online purchases.
loans, because they don't have repaid.
sufficient collateral. Useful to meet day-to-day
expenses while waiting for
income.
ACCOUNTS
3.1 SOURCES OF FINANCE
3.2 COSTS AND REVENUES
3.3 BREAK-EVEN ANALYSIS
3.4 FINAL ACCOUNTS
3.5 PROFITABILITY RATIOS
3.6 EFFICIENCY RATIOS
3.7 CASH FLOW
3.8 INVESTMENT APPRAISAL
3.9 BUDGETS
Elsa Sánchez Izquierdo
,3.1
SOURCES OF FINANCE
Capital expenditure: spending on a firm's fixed assets.
Purchases of land, buildings, machines.
Normally funded using long-term sources of finance.
Revenue expenditure: spending on a firm's general operational costs (day-to-day running costs).
Paying wages and salaries, paying suppliers, utility bills.
Funded using short- or medium-term sources of finance.
INTERNAL SOURCES OF FINANCE: money that is raised from the business’s
existing assets.
Personal funds: Retained profit: The sale of assets:
Personal funds: money Retained profits: money a
Asset: something a
invested by the owner(s) of firm has left at the end of
company owns.
a company. the trading year after
paying all costs, expenses,
Easily available Generates immediate cash
dividends and taxes.
No interest No interest
Freeing capital
High risk Flexible
Usually not enough No interest
Can't use the asset
Limited funds available anymore
Risk of over-investing Usually not enough
Startups have none
, EXTERNAL SOURCES OF FINANCE:
They involve an external stakeholder taking a
risk and investing into the company.
1. Equity finance:
In return for offering equity finance, the provider will demand ownership of part of the company.
Equity finance does not have to be repaid, and no interest is charged.
Opportunity cost: loss of control and a loss of future dividends.
Share capital: Business angels: Venture capitalists:
Share capital: money that is
Business angels: successful, Venture capitalists: companies
raised through the issue of
wealthy business people, who that use the money from their
shares.
invest their money into exciting clients to fund investments.
new businesses, with a high
Only available to companies
growth potential. Long-term aim: help the
and corporations.
company grow so they can
Corporations will do this by
In return for their investment later sell their stake for an
issuing shares on the stock
and guidance, business angels increased price.
market.
require part ownership of the
business and a cut of all future
profits.
2. Debt finance:
Money that is borrowed from a bank or other financial institution.
The borrowed money is available quickly so it can fund investments. However, when money is
borrowed, interest must be paid to the lender.
Loan capital: Overdrafts: Credit cards:
Loan capital: money borrowed Overdraft: allows the
Credit cards: businesses will
from a bank or lender, which withdrawal of more money than
use credit cards to finance
must be paid back with what is available in the bank
small purchases needed for
interest. account, up to a pre-agreed
business purposes on short
limit.
notice.
Collateral must be offered in
case of default on the loan. Next time money is paid into
Usually used for expenses on
Small and medium enterprises your bank account; the
business travel, or paying for
struggle to acquire long-term overdraft is automatically
online purchases.
loans, because they don't have repaid.
sufficient collateral. Useful to meet day-to-day
expenses while waiting for
income.
