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FINANCE AND ACCOUNTING - Coggle Diagram
FINANCE AND ACCOUNTING
5.1 NEED FOR BIZ FINANCE
5.1.1 Start up capital, capital for expansion
why biz needs finance to start up and grow
why different needs for finances might mean different sources
5.1.2 Working Capital
meaning
significance as a source of finance
difference between revenue expenditure and capital expenditure
5.2 SOURCES OF FINANCE
5.2.1 Legal structure and sources
relationship between
5.2.2 Short and long term finance
distinction
5.2.3 Internal Sources
retained earnings, sale of unwanted assets, sale and leaseback of non-current assets, working capital
5.2.4 External Sources
share capital, new partners, venture capital, overdrafts, leasing, hire purchase, bank loans, mortgages, debentures, micro-finance, crown funding, government grants
5.2.5 Factors influencing sources of finance
cost, flexibility, need to retain control, existing debt,
5.2.6 Selecting source of finance
appropriateness of each source
5.3 COSTS
5.3.1 Cost information
need for accurate cost data
types of costs: fixed, variable, marginal, direct, indirect
problems of trying to allocate costs in given situations
5.3.2 Uses of cost information
for decision making purposes: average, marginal and total costs
how costs can be used for pricing decisions
used to monitor and improve biz performance, also to calculate profits
5.3.3 Break-even Analysis
minimum level of production needed to break even or the profit made
define, calculate and interpret margin of safety
used and limitations
5.4 ACCOUNTING FUNDAMENTALS
5.4.1 Income statement
contents: revenue, cost of sales, gross profit, operating profit, profit of the year, retained earnings
5.4.2 SoFP
contents: non-current assets, current assets, current liabilities, working capital, net assets, non-current liabilities, reserves, equity
5.4.3 Liquidity ratios
acid test ratio
Current ratio
5.4.4 Profitability ratios
gross profit margin
profit margin
5.4.5 Practical use of ratio analysis
5.4.6 Main users of accounts
comparison of ratio results between businesses
limitations of these ratios
stakeholders seeking specific information
5.4.7 Limitations of published accounts
historical, may bot reflect future, out of date, not reflect qualitative aspects
‘window dressing’
5.5 FORECASTING AND MANAGING CASH FLOWS
5.5.1 PURPOSES OF CASH FLOW FORECASTS
difference between cash and profits
need to hold a suitable level of cash within a business, consequences of not doing so
5.5.2 Cash flow forecasts in practice
uses
construction, recognise the uncertainty
interpretation
5.5.3 Methods of improving cash flow
reducing costs, improve management of trade receivables and trade payables
debt factoring, sale and leaseback, leasing, hire purchase
apply to various situations