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Description
Flashcards by Reshmanthan p, updated 4 months ago
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Created by Reshmanthan p
4 months ago
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| Question | Answer |
| What is business finance? | Business finance refers to the management of money and other financial assets in a business. It involves planning, procuring, controlling, and administering funds for the business to achieve its objectives. |
| Why is financial planning important for a business? | Financial planning is crucial because it helps businesses forecast their future financial needs, allocate resources efficiently, manage risks, and ensure that the business can meet its financial obligations and goals. |
| What are the main sources of business finance? | Internal sources: Retained earnings, sale of assets, and working capital. External sources: Loans from banks, issuing bonds, equity financing (selling shares), venture capital, and trade credit. |
| What is the difference between equity financing and debt financing? | Equity financing involves raising capital by selling shares of the company. Investors who buy the shares become part-owners of the company. Debt financing involves borrowing money that must be repaid with interest. This can be done through loans or by issuing bonds. |
| What is working capital and why is it important? | Working capital is the difference between a company's current assets and current liabilities. It is important because it measures a company's short-term liquidity and operational efficiency, ensuring that it has enough resources to meet its short-term obligations and continue operations. |
| What is the role of a financial manager in a business? | A financial manager is responsible for managing the financial health of the company. Their duties include financial planning, managing investments, budgeting, financial reporting, and ensuring compliance with financial regulations. |
| What is a balance sheet? | A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and shareholders' equity, showing the balance between what the company owns and owes. |
| What are financial ratios and why are they useful? | Financial ratios are numerical comparisons of various financial metrics used to assess a company's performance and financial health. They are useful for investors, managers, and analysts to make informed decisions. Common financial ratios include profitability ratios, liquidity ratios, and debt ratios. |
| What is the purpose of a cash flow statement? | The cash flow statement shows the inflows and outflows of cash within a business over a specific period. It helps in understanding how well a company generates cash to fund its operating expenses, pay debts, and make investments. |
| What is the difference between gross profit and net profit? | Gross profit is the difference between sales revenue and the cost of goods sold (COGS). It measures the efficiency of production and sales. Net profit is the amount left after all expenses, including operating expenses, interest, taxes, and other costs, have been deducted from total revenue. It represents the actual profitability of the company. |
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