Edexcel A-Level Business Theme 2 Practice Flashcards

Comprehensive vocabulary flashcards covering raising finance, financial planning, managing finance, resource management, and external influences for Edexcel A-Level Business Theme 2.

Finance

The money available to spend on business needs, required for starting up, day-to-day running, and expansion.

Internal Finance

Finance that is sourced from within the business itself, such as owner's capital, retained profit, or the sale of assets.

Owner’s Capital

The owner of the business investing their own money into the venture, sourced from personal savings, redundancy payments, inheritance, or personal credit cards.

Retained Profit

Profit that is kept by the business rather than being distributed to owners or shareholders to be used as a flexible form of finance.

Sale of Assets

A source of internal finance where a business generates cash by selling property, machinery, or factories that are no longer needed.

Peer-to-Peer Funding (P2P)

Raising loan finance from a group of individuals or institutions using a specialised online platform, usually ranging from $£5000$ to $£50,000$.

Business Angels

Wealthy, entrepreneurial individuals who provide capital, typically between $£10,000$ and $£250,000$, in return for a proportion of company equity.

Crowd Funding

Attracting a 'crowd' of investors through online platforms who take a small stake in the business or receive rewards for their investment.

Debt Factoring

A method where a business raises cash by selling its outstanding sales invoices to a specialist business at a discount.

Bank Loan

An amount of money borrowed for a set period within an agreed repayment schedule, usually preferred by banks for businesses with established profitability.

Share Capital

Long-term finance raised by selling shares to external investors, which avoids debt but results in the dilution of control.

Venture Capital

A form of risk capital invested in high-risk projects as equity, requiring a high rate of return to compensate for the risk.

Bank Overdraft

A flexible short-term agreement with a bank allowing a business to withdraw funds exceeding its available balance up to a maximum limit.

Leasing

An agreement allowing a business to use expensive assets over a fixed period in return for regular rental payments, usually including technical support.

Trade Credit

A method of managing cash flow where a business purchases goods and is allowed a period of time, normally $28$ to $60$ days, to pay.

Grant

A sum of money provided by the government or local authorities that does not need to be repaid.

Limited Liability

A legal status where shareholders can only lose the value of their investment because the company has a separate legal identity.

Unlimited Liability

A situation where the owner is personally liable for all business debts and may be forced to sell personal assets, such as their house, to pay them.

Business Plan

A written document describing the business idea, product, market analysis, and financial forecasts, used primarily to obtain finance.

Net Cash Flow

The difference between total cash inflows and total cash outflows during a specific period, calculated as $\text{Total cash inflows} - \text{Total cash outflows}$.

Closing Balance

The cash position at the end of a month, calculated as $\text{Net cash flow} + \text{Opening balance}$.

Sales Forecasting

The process of predicting future sales using consumer trends, economic variables, and competitor actions to basis other business plans.

Sales Volume

The number of units or items sold by a business, calculated as $\frac{\text{Sales revenue}}{\text{Selling price}}$.

Fixed Cost

A cost that does not change in relation to output or sales, such as rent, salaries, or insurance.

Variable Cost

A cost that changes in relation to output or sales, such as raw materials, packaging, or commission payments.

Contribution per Unit

The difference between the selling price per unit and the variable cost per unit: $\text{Selling price per unit} - \text{Variable cost per unit}$.

Break-even Point

The volume of sales where total revenue equals total costs ($\text{Total revenue} = \text{Total costs}$), resulting in neither profit nor loss.

Margin of Safety

The difference between the actual level of output and the break-even output: $\text{Actual output} - \text{Break-even output}$.

Budget

A future financial plan concerning the revenues and costs of a business for purposes of planning, control, and motivation.

Zero Based Budgeting

An approach where all budget headings are set to zero and every element of expenditure must be justified for the new period.

Variance Analysis

The process of calculating and investigating the differences between actual financial results and the budgeted figures.

Favourable Variance

A difference that is better than expected for the business, such as costs being lower or revenue being higher than the budget.

Gross Profit

The difference between sales revenue and the cost of sales: $\text{Revenue} - \text{Cost of sales}$.

Operating Profit

The profit made after considering both direct costs and operating expenses: $\text{Gross profit} - \text{Other operating expenses}$.

Profit for the Year (Net Profit)

The 'bottom line' profit left for owners after all costs, including interest, have been deducted: $\text{Operating profit} - \text{Interest}$.

Gross Profit Margin

A ratio measuring how much gross profit is made for every $£1$ of sales: $\frac{\text{Gross profit}}{\text{Revenue}} \times 100$.

Liquidity

A measure of whether a business has sufficient cash or equivalent current assets to pay its debts as they fall due.

Statement of Financial Position

A snapshot of the financial position of a business on a particular day, showing assets, liabilities, and total equity.

Non-current Assets

Assets that a business expects to keep and use for more than one year, such as buildings, land, and machinery.

Current Assets

Assets owned by a business that are expected to be turned into cash within the next year, such as inventory, receivables, and cash.

Net Assets

The total value of a business's assets minus its liabilities: $(\text{Non-current assets} + \text{Current assets}) - (\text{Current liabilities} + \text{Non-current liabilities})$.

Total Equity

Also known as shareholders' funds, calculated as $\text{Share capital} + \text{Retained profit}$.

Current Ratio

A liquidity ratio that compares current assets to current liabilities: $\frac{\text{Current assets}}{\text{Current liabilities}}$.

Acid Test Ratio

A stringent liquidity ratio that discounts inventory from current assets: $\frac{\text{Current assets} - \text{Inventory}}{\text{Current liabilities}}$.

Working Capital

The amount of money a business needs for day-to-day trading, calculated as $\text{Current assets} - \text{Current liabilities}$.

Job Production

A production method where one-off, unique, and bespoke items are produced to meet specific customer requirements.

Batch Production

A method where identical items are produced in groups, moving through each stage of the production process together.

Flow Production

A continuous movement of items through a production line, suitable for high volumes of standardised goods.

Cell Production

Splitting production into several self-contained units where multi-skilled teams are responsible for a significant part of the finished product.

Productivity

The relationship between inputs and outputs, often measured as output per employee or machine per time period.

Efficiency

When a business makes the best possible use of its resources, maximising output from inputs at the lowest possible unit cost.

Capacity Utilisation

The extent to which a business uses its maximum possible output, calculated as $\frac{\text{Current output}}{\text{Maximum possible output}} \times 100$.

Lead Time

The time taken between placing a new order for stock and that stock being received by the business.

Buffer Stocks

The minimum level of stock held as a contingency for unexpected orders or supplier delays.

Just in Time (JIT)

A lean production method where stock is delivered exactly when it is needed for production, aiming for zero buffer stock.

Kaizen

A Japanese concept meaning continuous improvement, focusing on many small changes from the talent of the existing workforce.

Quality Control

The traditional process of inspecting completed products to ensure they meet required standards and preventing faulty goods from reaching customers.

Quality Assurance

An approach that aims to achieve quality by organising processes to get products 'right first time' through self-checking.

Total Quality Management (TQM)

A philosophy treating quality as an organisational concern, putting it at the heart of every culture and function.

Inflation

A sustained increase in the average price level of an economy, commonly measured by the Consumer Price Index (CPI) in the UK.

Appreciation

An increase in the value of a currency, meaning one pound will buy more of another currency, making imports cheaper and exports dearer.

Depreciation

A fall in the value of a currency, meaning one pound is worth less of another currency, making imports more expensive and exports cheaper.

Interest Rate

The reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed.

Monetary Policy

The use of interest rates by the Bank of England to regulate the economy and meet economic policy objectives.

Fiscal Policy

The use of taxation and government spending to influence the level of economic activity.

Gross Domestic Product (GDP)

A measure of the total value of economic activity and the size of an economy over a specific period.

Recession

A stage in the business cycle defined as two consecutive quarters of negative economic growth, usually resulting in falling profits and rising unemployment.

Competitiveness

The ability of a business to deliver better value, quality, or service to customers than its rivals in the market.