business summary
accounting equation - ANSWER Assets = Liabilities + Owner's Equity
accounts payable/trade credit - ANSWER when suppliers provide supplies they don't always
seek immediate payment
assets - ANSWER resources that the business owns and that can be used towards created
additional productive activity
bank bills - ANSWER a document signed by a bank agreeing to pay the amount that is
named on it
bank overdraft - ANSWER occurs when there isn't enough money in an account to cover a
transaction or withdrawal, but the bank allows the transaction anyways
breakeven - ANSWER exists when business makes neither a profit nor a loss
breakeven analysis - ANSWER how many sales of a product need to be made in order to
cover fixed costs
breakeven formula - ANSWER total cost = total revenue
capital - ANSWER owners contribute financial resources to a business when it is established
and throughout the business's lifetime
credit card - ANSWER a plastic card used to make purchases now and pay for them later.
current assets - ANSWER the resources that are used towards production within the year
(materials, cash etc)
current liabilities - ANSWER liabilities due within a short time, usually within a year
debentures - ANSWER a type of bond or other debt instrument that is unsecured by
collateral
efficiency - ANSWER the ability of a business to minimise its costs and manage its assets so
that maximum profit is achieved with the lowest possible level of assets
examples of internal finance - ANSWER owners equity, retained profit, personal funds,
venture capitalist
examples of long term debt financing - ANSWER mortgage, debentures, leasing
examples of short term debt financing - ANSWER bank overdraft, bank bills, credit card,
accounts payable/trade credit, factoring, trade credit
external finance/debt finance - ANSWER money raised from sources outside the business
(e.g. share issue, leasing, bank loan) - obtaining borrowed funds
factoring - ANSWER type of finance in which a business would sell its accounts receivable
(invoices) to a third party to meet its short-term liquidity needs
fixed cost - ANSWER expenses that remain constant regardless of the volume of the good
or service produced (e.g. rent, insurance etc)
, business summary
gearing - ANSWER ratio which determine the business' solvency (ability to meet long-term
financial commitments)
gearing ratio measures - ANSWER relationship between debt and equity
growth - ANSWER the ability of a business to increase its size in the longer term
growth can be achieved by - ANSWER - increasing physical size of the business by
expanding or moving to a larger office or factory
- increasing the value of assets in the business
- increasing sales and profits
- increasing market share
opening more branches or offices in Australia or overseas
- taking over or purchasing another business in the same industry
- diversifying by buying other businesses
- expanding the business's range of products
how to manage working capital ratio - ANSWER by using strategies to control current assets
and current liabilities -> increasing the value of current assets and decreasing the value of current
liabilities
how to maximise profitability - ANSWER maximising a business's profitability involves
maximising sales and minimising costs or expenses
ideal debt to equity ratio - ANSWER anything less than 60% is regarded as satisfactory
ideal working capital ratio - ANSWER 2:1
internal finance/equity finance - ANSWER obtaining funds for the company in exchange for
ownership
leasing - ANSWER long term source of borrowing - payment for the use of equipment that
is owner by another party
liabilities - ANSWER the debts or obligations of the business
liqudity - ANSWER a measure of how quickly an asset may be converted into cash and
therefore determines the ability of the business to pay short-term debts as they fall due
long term liabilities - ANSWER liabilities owed for more than a year
mortgage - ANSWER a lender will normally require that long-term loans be secured by the
assets to be purchased
non current assets - ANSWER are used repeatedly and also help in the production process
(machines, buildings, desks and chairs)
owner's equity - ANSWER the amount remaining after the value of all liabilities is
subtracted from the value of all assets
accounting equation - ANSWER Assets = Liabilities + Owner's Equity
accounts payable/trade credit - ANSWER when suppliers provide supplies they don't always
seek immediate payment
assets - ANSWER resources that the business owns and that can be used towards created
additional productive activity
bank bills - ANSWER a document signed by a bank agreeing to pay the amount that is
named on it
bank overdraft - ANSWER occurs when there isn't enough money in an account to cover a
transaction or withdrawal, but the bank allows the transaction anyways
breakeven - ANSWER exists when business makes neither a profit nor a loss
breakeven analysis - ANSWER how many sales of a product need to be made in order to
cover fixed costs
breakeven formula - ANSWER total cost = total revenue
capital - ANSWER owners contribute financial resources to a business when it is established
and throughout the business's lifetime
credit card - ANSWER a plastic card used to make purchases now and pay for them later.
current assets - ANSWER the resources that are used towards production within the year
(materials, cash etc)
current liabilities - ANSWER liabilities due within a short time, usually within a year
debentures - ANSWER a type of bond or other debt instrument that is unsecured by
collateral
efficiency - ANSWER the ability of a business to minimise its costs and manage its assets so
that maximum profit is achieved with the lowest possible level of assets
examples of internal finance - ANSWER owners equity, retained profit, personal funds,
venture capitalist
examples of long term debt financing - ANSWER mortgage, debentures, leasing
examples of short term debt financing - ANSWER bank overdraft, bank bills, credit card,
accounts payable/trade credit, factoring, trade credit
external finance/debt finance - ANSWER money raised from sources outside the business
(e.g. share issue, leasing, bank loan) - obtaining borrowed funds
factoring - ANSWER type of finance in which a business would sell its accounts receivable
(invoices) to a third party to meet its short-term liquidity needs
fixed cost - ANSWER expenses that remain constant regardless of the volume of the good
or service produced (e.g. rent, insurance etc)
, business summary
gearing - ANSWER ratio which determine the business' solvency (ability to meet long-term
financial commitments)
gearing ratio measures - ANSWER relationship between debt and equity
growth - ANSWER the ability of a business to increase its size in the longer term
growth can be achieved by - ANSWER - increasing physical size of the business by
expanding or moving to a larger office or factory
- increasing the value of assets in the business
- increasing sales and profits
- increasing market share
opening more branches or offices in Australia or overseas
- taking over or purchasing another business in the same industry
- diversifying by buying other businesses
- expanding the business's range of products
how to manage working capital ratio - ANSWER by using strategies to control current assets
and current liabilities -> increasing the value of current assets and decreasing the value of current
liabilities
how to maximise profitability - ANSWER maximising a business's profitability involves
maximising sales and minimising costs or expenses
ideal debt to equity ratio - ANSWER anything less than 60% is regarded as satisfactory
ideal working capital ratio - ANSWER 2:1
internal finance/equity finance - ANSWER obtaining funds for the company in exchange for
ownership
leasing - ANSWER long term source of borrowing - payment for the use of equipment that
is owner by another party
liabilities - ANSWER the debts or obligations of the business
liqudity - ANSWER a measure of how quickly an asset may be converted into cash and
therefore determines the ability of the business to pay short-term debts as they fall due
long term liabilities - ANSWER liabilities owed for more than a year
mortgage - ANSWER a lender will normally require that long-term loans be secured by the
assets to be purchased
non current assets - ANSWER are used repeatedly and also help in the production process
(machines, buildings, desks and chairs)
owner's equity - ANSWER the amount remaining after the value of all liabilities is
subtracted from the value of all assets
