Intro FINANCE.pptVIP

FINANCE Introduction Why does business require finance? Start-up (set up) Working capital Expansion Special needs Research and Development Key Terms to know… Capital expenditure (on fixed assets) Revenue expenditure (on other costs) Working capital Working capital cycle Debtors Creditors Stock Cash Liquidity Working Capital Finance for the everyday expenses Sufficient W.C. makes a business Liquid Formula = current assets – current liabilities Is needed to buy additional stocks Is needed to extend further credit Represents an opportunity cost (could be used elsewhere) Is cyclical Managing working capital Debtors Credit Stock Cash Debtors Owe the firm money for goods bought on credit Debt can be reduced by extending less credit Debts can be sold off to debt factors Prompt payment can be incentivized with discounts Creditworthiness of new customers should be checked Credit Is extended to customers Is obtained from suppliers Is easier to obtain for large businesses Is part of customer relationship management Stock Comprises of finished goods, work in progress and raw materials Business aims to minimize stockholding Efficient stock control leads to cost reductions Not as liquid as cash Shows up as a current asset on the current ratio