Unit 3 Key Terms

copyright

A form of intellectual property giving the author or creator the exclusive right to reproduce the work for a period of time

cost of sales

The direct cost of purchasing the goods that were sold during the financial year; also known as cost of goods sold (COGS); calculated by starting inventory + purchases during the period - ending inventory

trade creditors

The suppliers that allow a business to purchase goods and/or services on trade credit; a type of current liability

current assets

cash and other assets that a business plans to convert into cash in less than one year (e.g. cash, debtors, stock/inventory)

payables

Debts owed by a business; liabilities

debtors

Individual or business customers that owe money to the business as they have bought goods or servvices on trade credit (i.e. they need to pay within 30 to 60 days); a type of current asset

depreciation

The cost of a long-term asset over its life; part of the statement of financial position

expenses

A firm's indirect costs of production (e.g. rent, salaries, marketing campaigns, bank interest charges, utilities); part of the statement of profit or loss

final accounts

The published annual financial statments that all limited liability companies are legally obliged to report (i.e. statement of financial position and statement of profit or loss)

fixed assets

Items owned by a business, not intended for sale within the next twelve months, used repeatedly to generate revenue for the organisation (e.g. land, buildings, and machinery)

goodwill

Arises when a business is values at or sold for more than the value of its assets reported on the statement of financial account

intangible assets

Fixed assets that do not exist in a physical form (e.g. goodwill, copyright, brand names, and registered trademarks)

liabilities

Financial obligations of a business that it is required to pay in the future

net assets

The overall value of an organisation's assets after all its liabilities are deducted; calculated by total assets - total liabilities

share capital

The total value of capital raised from shareholders from the issue of shares

capital employed

The value of all long-term sources of finance for a business (i.e. the total capital invested in a business); calculated by non-current liabilities + equity

effeciency ratios

Ratios that indicate how well a firm's resources have been used, such as the amount of profit generated from the available capital used in the business

gross profit margin

A profitability ratio that shows the percentage of sales revenue that turns into gross profit; calculated by gross profit/sales revenue

liquid assets

The possessions of a business that can be turned into cash quickly without losing their value (i.e. cash, stock, and debtors)

liquidity ratios

Ratios that look at the ability of a firm to pay its short-term liabilities, such as by comparing working capital to short-term debts

profit margin

A profitability ratio that shows the percentage of sales revenue that turns into profit (i.e. the proportion of sales revenue left over after all direct and indirect costs have been paid); calculated by profit before interest and tax (PBIT)/sales revenue

profitability ratios

Ratios that examine profit in relation to other figures

ratio analysis

A quantitative management tool that compares different financial figures to examine and judge the financial performance of a business

assets

Items of monetary value that are owned by a business

current liabilities

Debts and other payables that are due within one year

dividends

The portion of the profits paid to shareholders as a return for investing in the company

equity

What a business owes to its owners; calculated by total value of assets - total value of liabilities

gross profit

sales revenue - cost of sales

intellectual property

A widely used term to cover all types of intangible interests in work or inventions to which a company has proprietary right (e.g. patents, copyrights, and trademarks)

liquidity

The ability to convert an asset into cash without loss of value

patent

a form of intellectual property that gives the inventor exclusive rights to benefit from commercialising a technology for a specified time period in exchange for public disclosure of the underlying idea

pressure group

Individuals who come together, or organisations that are set up, for a common concern; aims to influence governments, businesses, and public opinion in order to create the desired social change

profit before interest and tax

The value of a firm's profit or loss before deducting interest payments on loans and taxes on corporate profits

profit for period

The difference between a firm's total revenues and its total costs (including cost of sales, expenses, interest, and taxes) for any period of time

retained profit

The value of a firm's earnings after all costs are paid (including interest and tax) and shareholders have been compensated (dividends); also known as retained earnings

statement of financial position

An accounting statement that records the values of a business's assets, liabilities, and shareholders' equity at one point in time; also known as balance sheet

statement of profit or loss

A financial statement that shows a company's revenues, costs, and profitability over a period of time; also known as income statement

stock

The goods that a business has available for sale per time period; also known as inventories

trademark

A form of intellectual property that refers to a word, symbol, or phrase that identifies a specific product and distinguishes it from other products

window dressing

Presenting the accounts of a business in the best and most flattering way, which could potentially mislead users of accounts

working capital

The money availalble for the day-to-day running of a business; calculated by current assets - current liabilities

acid test ratio

A liquidity ratio that measures a firm's ability to meet its short-term debts and ignores stock because not all inventories can be easily turned into cash; also known as quick ratio; calculated by (working capital - stock)/current liabilities

current ratio

A short-term liquidity ratio that calculates the ability of a business to meet its debts within the next twelve months

return on capital employed

A profitability ratio measuring the profit of a business in relation to its size; calculated by profit before interest and tax/capital employed

capital

The money invested into a business that is used to purchase a range of assets (e.g. machinery, equipment, stocks).

capital expenditure

The expenditure/expenses for assets which have a useful life of more than one year (e.g. property, equipment).

revenue expenditure

The expenditure/expenses used to generature revenue (e.g. raw materials, paying wages, employing sales staff).

statement of profit or loss

A financial statement showing a business’s sales revenue over a trading period and all of the relevant costs needed to generate that revenue.

statement of financial position

A financial statement that records the assets and liabilities of a business on a particular day at the end of an accounting period.

business angels

Wealthy and successful private individuals who risk their own money in a business venture that has high growth potential.

collateral

A form of security required by banks and other financial organisations before agreeing a loan. This security is normally assets which can be sold to recoup the loan if it is not repaid.

crowdfunding

Raising finance for a business