3.1 Introduction to finance

Business finance provides and manages money for operating, investing and growing. It supports decisions about resources, risk, timing and control.

Finance asks not only whether a project could create value, but whether the business can fund it, survive its cash timing and accept the risk. Capital expenditure builds long-term capacity; revenue expenditure keeps current operations running.

A bakery may want a larger oven to raise output, but the finance decision includes purchase cost, maintenance, expected demand and the cash needed for wages before extra revenue arrives.

Profitability and cash availability are different constraints. A project can look profitable while creating a short-term cash crisis.

Capital expenditure buys or improves a long-term asset; revenue expenditure is the recurring spending needed to operate the business. Sales revenue is income from selling goods or services, possibly through more than one stream.

The classification helps managers forecast capacity, cost and cash timing. A one-off asset purchase may support future output, while rent, energy and wages recur. Revenue can be predictable or volatile depending on customers, prices and the mix of streams.

A gym may earn membership fees and personal-training revenue. A new treadmill is capital expenditure; cleaning and staff wages are revenue expenditure. Mixing them obscures both the investment decision and operating margin.

Capital does not mean “expensive” and revenue does not mean “profit”. Classify by economic purpose, then analyse the timing and effect.