Financial objective
Goal or target pursued by the finance department (or function) within an organisation
Profit
Measures the extent to which revenues from selling a product over some time period exceed the costs incurred in producing it
Cash flow
The movement of cash into and out of a business over time
Income statement
Records a business' sales revenue over a trading period and all relevant costs incurred as well as the business' profit or loss
Gross profit
Income received from sales minus the cost of goods and services sold
Direct costs
Expenditure that can clearly be allocated to a particular product or area of the business e.g. raw materials and components
Indirect costs
Expenditure that relates to all aspects of a business' activities, such as maintenance costs for buildings or senior managers' salaries
Operating profit
The financial surplus arising from a business' normal trading activities and before taxation
Profit for the year
A measure of a business' profits that takes into account a wider range of expenditures and incomes including taxation
Revenues
The earnings or income generated by a firm as a result of its trading activities
Objectives
The medium to long term goals established to coordinate the business
Investment
The purchase of assets such as property, vehicles and machinery that will be used for a considerable time by the business
Non-current assets
Items that a business owns and which it expects to retain for one year or longer
Capital expenditure
Spending undertaken by businesses to purchase non-current assets such as vehicles and property (it is another form of investment)
Capital structure
Refers to the way in which a business has raised the capital required to purchase its assets
Budgets
Financial plans that forecast revenue from sales and expected costs over a time period
Variance analysis
The process of investigating any differences between forecast data and actual figures
Cash flow forecasts
State the inflows and outflows of cash that the managers of a business expect over some future period
Trade credit
The period of time given by suppliers before customers have to pay for goods and services
Break even output
That level of output or production at which total costs exactly equal revenue from sales
Contribution
The difference between revenue and variable costs
Margin of safety
Measures the amount by which a business' current level of output exceeds break-even output
Profitability
A measure of financial performance that compares a business' profits to some other factors such as revenue
Profit margin
A ratio that expresses a business' profit as a percentage of its revenues over some trading period
Big data
A term used to describe a massive volume of both organised and non-organised information that is very large
Primary market research
Gathers data for the first time for a specific purpose
Internal source of finance
A source of finance that exists within the business
External source of finance
An injection of funds into the business from individuals, other businesses or financial institutions
Short term finance
Finance needed for a limited period of time, normally less than one year
Long term finance
Sources of finance that are needed over a longer period of time, usually over a year
Bank loan
The amount of money provided by a business for a stated purpose in return for a payment in a the form of interest charges
Overdraft
Exists when a business is allowed to spend more than it holds in its current bank account up to an agreed limit
Venture capital
Funds advanced to businesses thought to be relatively high risk in the form of share and loan capital
Share capital
Finance invested into a company as a result of the sale of shares in the business
Mortgages
Long term loans, repaid over periods of up to 50 years, and used to purchase property
Debentures
Loans with fixed interest rates that are long term and may not even have a repayment date
Crowdfunding
Practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet
Opportunity cost
The next best alternative that is foregone
Trade credit
Offered when purchasers are allowed a period of time (frequently 30,60 or 90 days) to pay for products they have bought