Business Finance Basics
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Questions and Answers

What is one primary reason businesses need finance?

  • To hire interns
  • To pay taxes
  • To cover start-up costs (correct)
  • To create advertisements

    • Businesses do not need finance for daily operational expenses.

    False

    Name one source of short-term finance.

    Trade credit

    A tech company may secure finance to increase its __________ presence.

    <p>market</p> Signup and view all the answers

    Match the following business activities to their type of finance need:

    <p>Buying kitchen equipment = Long-term finance Paying wages = Short-term finance Purchasing inventory = Short-term finance Opening a new office = Long-term finance</p> Signup and view all the answers

    Which of the following is NOT a purpose of short-term finance?

    <p>Buying equipment for production</p> Signup and view all the answers

    What is the duration for which short-term finance is typically required?

    <p>Up to one year</p> Signup and view all the answers

    Long-term finance is typically used for immediate operational expenses.

    <p>False</p> Signup and view all the answers

    What is one purpose of long-term finance?

    <p>Business expansion</p> Signup and view all the answers

    Working capital is the funds available to run day-to-day operations of a business.

    <p>True</p> Signup and view all the answers

    What does working capital formula represent?

    <p>Working Capital = Current Assets - Current Liabilities</p> Signup and view all the answers

    Start-up capital is used to cover the costs of __________ the business.

    <p>establishing</p> Signup and view all the answers

    Which of the following is a source of long-term finance?

    <p>Equity capital</p> Signup and view all the answers

    Match the following capital types with their descriptions:

    <p>Start-up Capital = Initial funds needed to establish a business Working Capital = Funds for daily operations and expenses Long-term Finance = Money for purchasing fixed assets and expansions Debt Restructuring = Rearranging existing debt obligations</p> Signup and view all the answers

    A mortgage to buy a house is an example of long-term finance.

    <p>True</p> Signup and view all the answers

    Name one example of working capital usage.

    <p>A manufacturer purchasing raw materials</p> Signup and view all the answers

    What is one of the primary roles of start-up capital in a new business?

    <p>Fund marketing and branding efforts</p> Signup and view all the answers

    Working capital primarily serves to cover long-term investments.

    <p>False</p> Signup and view all the answers

    What is one benefit of maintaining adequate working capital in a business?

    <p>Avoiding cash shortages</p> Signup and view all the answers

    Working capital helps businesses manage their ______ obligations effectively.

    <p>short-term financial</p> Signup and view all the answers

    Which of the following is NOT a benefit of having sufficient working capital?

    <p>Increased reliance on external funding</p> Signup and view all the answers

    What is an example of capital expenditure?

    <p>Purchasing a new computer</p> Signup and view all the answers

    Match the following roles of working capital with their description:

    <p>Ensuring Liquidity = Covers day-to-day operational expenses Maintaining Inventory = Prevents stockouts and production delays Managing Debts = Helps repay short-term loans Supports Growth = Enables investment in future opportunities</p> Signup and view all the answers

    Having healthy working capital can instill confidence in stakeholders.

    <p>True</p> Signup and view all the answers

    Revenue expenditure includes spending on long-term assets.

    <p>False</p> Signup and view all the answers

    Without sufficient working capital, a company may struggle to meet its financial ______.

    <p>payments</p> Signup and view all the answers

    What is the primary purpose of capital expenditure?

    <p>To acquire or upgrade long-term assets that benefit the business over many years.</p> Signup and view all the answers

    A company spends $5,000 annually on maintenance; this is an example of ______ expenditure.

    <p>revenue</p> Signup and view all the answers

    Match the following terms with their correct descriptions:

    <p>Capital Expenditure = Long-term asset acquisition or upgrade Revenue Expenditure = Short-term operational costs Example of CapEx = Purchasing a new machine Example of RevEx = Paying utility bills</p> Signup and view all the answers

    Which of the following strategies can improve cash flow related to trade receivables?

    <p>Establishing clear credit terms</p> Signup and view all the answers

    Managing trade payables involves maintaining poor relationships with suppliers.

    <p>False</p> Signup and view all the answers

    What is the primary benefit of managing trade receivables efficiently?

    <p>Improved cash flow</p> Signup and view all the answers

    To reduce storage costs and improve cash flow, businesses may use a ______ inventory approach.

    <p>Just-in-Time</p> Signup and view all the answers

    Which tactic can a business employ to manage trade payables more effectively?

    <p>Negotiate longer payment terms</p> Signup and view all the answers

    Customer credit checks are unnecessary when companies offer credit.

    <p>False</p> Signup and view all the answers

    Name one benefit of negotiating early payment discounts with suppliers.

    <p>Cost savings</p> Signup and view all the answers

    Match the following management strategies with their corresponding financial component:

    <p>Establish clear credit terms = Trade Receivables Negotiate longer payment terms = Trade Payables Just-in-Time inventory = Managing Inventory Customer credit checks = Trade Receivables</p> Signup and view all the answers

    Study Notes

    Business Finance

    • Businesses need finance to operate smoothly, expand, and grow.
    • Start-up costs include equipment, space, and marketing.
    • Operational expenses cover day-to-day costs like wages, utilities, and materials.
    • Growth and expansion require funds for new markets, increased production, or new offices.

    Short-Term and Long-Term Finance

    • Short-term finance (less than a year) covers immediate operational expenses.

      • Examples include working capital, covering temporary cash shortfalls, paying wages, or buying raw materials.

    • Long-term finance (more than a year) supports capital expenditures that benefit the business long-term.

      • Examples include purchasing fixed assets (land, buildings, machinery), business expansion, acquisitions, and mergers.

    • Sources of short-term finance include trade credit, bank overdrafts, and debt factoring.

    • Sources of long-term finance include equity capital, long-term loans, and venture capital.

    Start-Up Capital and Working Capital

    • Start-up capital covers initial business costs (operations, equipment, legal fees).
    • Working capital supports day-to-day operations (difference between current assets and liabilities).

    Capital Expenditure and Revenue Expenditure

    • Capital expenditure (CapEx) covers long-term assets (machinery, buildings).
    • Revenue expenditure covers day-to-day expenses (salaries, raw materials).

    Managing Working Capital

    • Managing trade receivables involves collecting payments from customers.
    • Managing trade payables means managing payments to suppliers.
    • Managing inventory involves keeping sufficient stock to meet demand without overstocking..

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    Description

    This quiz covers essential concepts of business finance, including the distinction between short-term and long-term financing. Explore the needs for start-up capital, operational expenses, and sources of finance for growth and expansion. Test your knowledge on how businesses manage their funds to ensure smooth operations.

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