IGCSE FInance Key Terms
Shareholders' equity
Alternative term for owners' equity, but can be used for limited liability companies.
Balance sheet
An accounting statement that records the assets, liabilities and owners' equity of a business at a particular date.
Overdraft
An agreement with the bank which allows a business to spend more money than they have in its account up to an agreed limit. The loan has to be repaid within 12 months.
Cash-flow forecast
An estimate of the future cash inflows and outflows of a business.
Net cash flow
Cash inflow minus cash outflow.
Total cost
Cost of sales plus expenses
Expenses
Day-to-day operating expenses of a business.
Liabilities
Debts of the business that will have to be paid sometime in the future.
Current liabilities
Debts of the business which it expects to pay before the date of the next balance sheet.
Non-current liabilities
Debts of the business which will be payable after more than one year.
Income statements
Financial statement which records the revenue, costs and profits of a business for a given period of time.
Credit sales
Goods sold to customers who will pay for these at an agreed date in the future.
Short-term finance
Loans or debt that a business expects to pay back within one year
Leasing
Obtaining the use of a non-current asset by paying a fixed amount per time period for a fixed period of time. Ownership remains with the leasing company.
Current ratio
Ratio between current assets and current liabilities. This measures the liquidity of a business.
Acid test ratio
Ratio between liquid assets and current liabilities. This ratio measures liquidity without assuming stocks will be sold.
Return on capital employed (ROCE)
Ratio between profit before tax and capital employed
Gross profit margin
Ratio which measures gross profit compared to revenue
Profit margin
Ratio which measures profit compared to revenue
Assets
Resources that are owned by a business.
Current assets
Resources that the business owns and expects to convert into cash before the date of the next balance sheet.
Adding value
Selling a product for more than it cost to produce it
Liquidity
The ability of a business to pay its short-term debts.
Trade payable
The amount a business owes to its suppliers for goods bought on credit.
Revenue
The amount earned from the sale of products.
Owners' equity
The amount owed by the business to its owners; includes capital and retained profits.
Cost of sales
The cost of purchasing the goods used to make the products sold.
Gross profit
The difference between revenue and cost of sales.
Profit
The difference between revenue and total costs.
Trade receivable
amount owed to a business by its customers who bought goods on credit.
debenture
bonds issued by companies to raise long-term finance usually at a fixed rate of interest
Long-term finance
debt or equity used to finance the purchase of non-current assets or finance expansion plans. Long-term debt is borrowing a business does not expect to pay in less than five years
Mortgage
long-term loans used for the purchase of land or buildings
Equity finance
permanent finance provided by the owners of a limited company
Retained profit
profit remaining after all expenses, tax and dividends have been paid. Profit which is ploughed back into the business.
bank loan
provision of finance by a bank which the business will repay with interest over an agreed period of time.
Fixed assets
resources owned by a business which will be used for a period longer than one year, for example, buildings and machinery
Non-current assets
resources owned by a business which will be used for a period longer than one year, for example, buildings and machinery
debt-factoring
selling trade receivables to improve business liquidity.
Micro-finance
small amounts of capital loaned to entrpreneurs in countries where business finance is difficult to obtain. These loans are usually repaid after a relatively short period of time.
Share issue
source of permanent capital available to limited liability companies
Capital expenditure
spending by a business on non-current assets such as machinery or buildings
Start-up capital
the capital needed by an entrepreneur when first starting a business
Working capital
the capital needed to finance the day-to-day running expenses and pay short-term debts of a business
Hire purchase
the purchase of an asset by paying a repayment amount per time period over an agreed period of time. The asset is owned by the purchasing company on completion of the final repayment.