Professional Documents
Culture Documents
AS Business Studies
Content
Capital and revenue expenditure Cash flow forecasting Improving cash flow Control of working capital Cash flow vs. profit Sources of finance:
Internal External
Total expenditures
Materials Energy costs Wages Transport
Working Capital
Working capital measures the amount of money the business has to pay day-to-day expenses Working capital = current assets current liabilities Businesses need to be aware of their working capital and ensure that they have enough cash to survive
Sources of Finance
These are how businesses get money to finance growth, to overcome working capital / cash flow problems etc Internal sources from inside the business External sources from outside the business Internal sources:
No external body to pay Generally no time limit
Loan capital
Providers of loans = creditors Four main types of loan capital:
Debentures long term loan to the business at an agreed fixed % of interest repayable on a stated date. Up to 25 years. Mortgages used to purchase property. Up to 25 years Long term loans provided by specialist organisations Government assistance selective and takes form of grants generally
Balance Sheets
Balance sheets are financial statements that record the assets and liabilities of a business at a specific point in time Assets items owned by a business Fixed assets items owned by a business expected to be retained for at least one year e.g. buildings Current assets items that are expected to be turned into cash in the next year e.g. cash, stock Liabilities monies owed by a business Current liabilities debts owed by the business payable within a year e.g. creditors Long term liabilities debts owed by the business which wont be repaid within the next year e.g. bank loan
Depreciation
The decrease in value of assets over time This is shown as an expense on the profit and loss account Fixed assets will be depreciated in value on the balance sheet Two methods:
Straight line Reducing
Window dressing
These improve the appearance of a companies balance sheet Can borrow money for a short period of time to improve cash position just before date of balance sheet Use sale and leaseback Include intangible assets e.g. goodwill / brands on balance sheet Capitalise expenditure including things as assets that could be classified as expenses
Summary
Capital and revenue expenditure capital spend on fixed assets, revenue on day to day expenses Cash flow forecasting a prediction of cash inflows cash outflows Improving cash flow cash flow can be improved by better planning, sources of finance, revision of credit terms and better market research Working capital current assets current liabilities, need to ensure have sufficient cash to operate Cash flow vs. profit Cash flow - short term and profit long term Sources of finance these are ways businesses can get money
Internal from inside the business e.g. retained profits, sale of assets External from outside the business e.g. loans, mortgages
Profit and loss shows revenues, expenses and profit / loss over a period of time Balance Sheets record assets and liabilities on a specific day Depreciation the reduction in value of fixed assets over time Window dressing techniques used to improve appearance of accounts