What is Capital expenditure?
Spending on non-current assets or capital equipment with the purpose of long-term gains.
For example spending on:
Buildings
Tools and equipment
Computers
Printers
Photocopiers
Machinery
Vehicles
Research and development
Revenue expenditure?
Spending on everyday things like wages, raw materials, utility bills
Internal sources of finance
Gained from internal sources such as the sale of assets, retained profit or personal funding from owners in a partnership or sole trading situation
Sources of external finance
- Share capital
- Loan capital
- Overdrafts
- Trade credit
- Crowdfunding
- Leasing
- Microfinance providers
- Business angels
SPACED acronym use and words
Size
Purpose of finance
Amount required
Cost of loan
External environment
Duration
To decide what kind of loan is needed if a business wants to borrow money
Loan capital also Debt capital
Borrowed funds from financial lenders, such as commercial banks.
Four types of costs
fixed
variable
direct
indirect (overhead)
What makes a cost fixed
It doesn’t change dependent on output
What is a direct cost related to
Directly related to the output of the product (you couldn’t sell it without kinda)
What is average revenue
The amount of revenue received per unit or price
GPM or gross profit margin
The gross profit margin (GPM) is a profitability ratio that measures an organization’s gross profit expressed as a percentage of its sales revenue.
Profit margin ratio
Ratio of profit as a percentage of its sales revenue. (Profit is after costs of production have been deducted)
Indicates how well a business can manage its indirect costs (overhead expenses).
Current ratio use
Short term liquidity ratio used for calculating organizations ability to repay short term debts
Uses liquid assets relative to its short-term liabilities.
Acid test (quick ratio)
Organizations ability to repay current short term debts without selling stock. Literally current ratio but minus stock from current assets
Pay back period
Payback period (PBP) - the time it takes for the initial amount of money invested to be repaid using the gains from the original investment.
What is Investment appraisal
Process of quantifying financial risks of an investment decision. It helps to determine if the investment worthwhile, by examining costs investment and expected return.
