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Vocabulary flashcards covering key terms from the Edexcel A Level Business key terms notes (Pages 1-5).
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Economic variables
Measures within the economy which have effects on business and consumers e.g. unemployment, inflation and exchange rates
Internal finance
The raising of capital/cash from within/inside the business e.g. business/owner's capital, personal savings, retained profit
Personal savings/owners' capital
A source of internal finance provided by the owner of a business/personal money from the owner
Retained profit
Profit is reinvested back into/kept by the business which is not paid as a dividend. It is an internal source of finance
Sale of assets
A type of internal finance, involves selling resources that belong to the business
Bank loan
An external method of finance/money borrowed from a bank paid back, with interest (over a period of time)
Business Angels
Individuals who typically may invest between £10,000 and £100,000 in exchange for a stake in the business
Crowd funding
An external source of finance where large numbers of individuals provides funding for a business or project in return for shares/free products/discounts
External finance
Money raised from outside the business
Grant
A sum of money given by a government or other organisation. It does not need to be repaid and no interest is charged
Leasing
A contract to acquire the use of resources such as property or equipment
Loan
An external source/method; amount of money borrowed, usually repayable after a fixed term of more than 12 months
Overdraft
When a business has a negative balance in their bank account because the amount withdrawn is greater than the current balance
Peer-to-peer funding
When a person lends money to other individuals or businesses via online transactions
Share capital
The finance raised a business issuing/selling of new shares
Trade credit
Where a firm receives stock/inventory/raw materials from a supplier, which it does not have to pay for until later
Venture capital
External source of finance when the business issues shares to a small number of investor(s) in return for a capital injection into the company
Liability
Responsibility for the financial debts of the business
Limited liability
The amount of a company’s losses that a shareholder is liable for is limited to the amount they have invested in the company
Unlimited liability
A legal status which means that business owners are liable for all business debts
Business plan
A document giving details of a variety of aspects about the business in order to provide a strategic look at the business and to attract investors. It contains details such as the product, costs, revenues, cashflow forecasts
Cash flow
The movement of cash into and out of a business over a period of time
Cash Inflow
The flow of money into a business
Cash Outflow
The flow of money out of a business
Cash-flow forecasts
The predicted flow of cash into and out of a business over a period of time
Closing balance
Money left in the account at the end of the month. Net cash flow + opening balance
Net cashflow
The difference between the cash flowing in and out of a business over a period of time (cash inflows - cash outflows)
Opening balance
What is in the bank on the first day of the month
Consumer trends
Habits or behaviour of those involved in the use of goods and services
Economic uncertainty
Where firms/consumers are unable to predict their future sales/incomes
Sales forecast
A prediction of the expected level of sales volume/revenue for a business for a future period based on past data
Average cost
The cost of producing one unit. Total costs/output
Fixed costs
Costs that do not change when output/sales changes
Revenue
The amount of income for a business generated from its sales. Selling price x quantity sold
Sales revenue
Selling price x sales volume
Total costs
Total fixed costs plus total variable costs
Variable costs
Costs that do not change when output/sales change
Break-even
The level of output where the total revenue is equal to the total cost. Fixed costs/Unit contribution
Unit contribution
Selling price - variable cost per unit
Margin of safety
The difference between the current or planned level of output/sales and the break-even level of output
Adverse variance
Negative variance e.g. higher costs than budget
Budget
A financial plan of income and expenditure prepared/agreed in advance
Favourable variance
Positive variance e.g. lower costs than budget
Historical budgeting
A budget based upon previous financial figures
Variance analysis
Shows the difference between budgeted and actual figures and can be calculated at the end of a financial period, once actual figures are known
Zero based budget
A type of budget where no money is allocated for spending unless it has firstly been justified
Cash
Normally takes time to catch up. Cash inflows and outflows will be recorded after the respective debtor and creditor periods have elapsed
Cost of sales
Direct costs of a business
Gross profit
Revenue - cost of sales
Gross profit margin
Gross profit/Sales revenue x100
Operating profit
Gross profit - other operating expenses
Operating profit margin
Operating profit/Sales revenue x100
Profit
Is recorded straight away after sales. Total revenue - total costs
Profit for the year margin
Net profit/Sales revenue x100
Profit for the year/net profit
Operating profit - interest
Profitability
The ability of a business to generate profit from its activities
Statement of comprehensive income
A document to show income and expenditure of a business over a financial year
Tax
A charge made by governments on activities, earnings and income of individuals and businesses
Acid test ratio
Current assets - Inventory / Current liabilities
Assets
Resources that belong to a business
Capital
Money put into the business by the owner
Current assets
Liquid assets, those assets that will be converted into cash within 12 months e.g. inventories, trade receivables and cash
Current liabilities
Any money which is owed by a business that must be repaid within one year
Current ratio
Current assets/Current liabilities
Liabilities
Money owed by the business to banks and suppliers
Liquidity
The ability to pay bills in cash when they fall due or The ability to meet current liabilities with current assets
Net assets
Total assets-Total liabilities
Non current assets
Long term resources that will be used by the business for more than one year e.g. Property and equipment
Non current liabilities
Money owed by the business for more than one year e.g. Loans
Shareholders' equity
The amount of money owed by the business to the shareholders
Statement of financial position/ Balance sheet
A summary at a particular point in time of the value of a firms assets, liabilities and capital
Total equity
Share capital + Retained profit
Working capital
The amount of money needed to pay for the day to day trading of a business or current assets – current liabilities
External causes for business failure
Factors beyond the control of businesses cause for collapse e.g. competition, legislation, customer tastes and economic conditions
Financial factors for business failure
Often rising from poor cash flow management or working capital
Internal causes for business failure
Factors which a business can control
Non financial factors for business failure
Can come from inside or outside the business e.g. poor management, external shocks
Overtrading
The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast
Batch production
A manufacturing process in which components or goods are produced in groups (batches). The manufacturing of a limited number of identical products
Capital intensive
This is where output of the firm is made primarily using machinery/capital goods relative to the use of labour
Cell production
A method of manufacturing where employees are organised into multiskilled teams, with each team responsible for a particular part of the production process
Efficiency
The ability to minimise waste therefore reducing the cost of production. Making the best use of its resources
Flow production
The manufacture of an item/product in a continuous process
Job production
A method of production where the production of a single good/service is carried out one at a time that involves producing this good/service to the specific requirements of the customer
Labour-intensive production
A production method that requires a higher proportion of labour than capital
Productivity
Output per person/machine per period of time
Standardisation
Using uniform resources and activities or producing a uniform product
Capacity utilisation
The current output of a factory measured as a percentage of the total maximum potential output. Current output/maximum possible output x 100
Downsizing
Involves reducing capacity, such as making employees redundant. This would reduce costs, such as wages
Full capacity
The point where a business cannot produce any more output
Over utilisation
The position where a business is running at full capacity and straining resources
Under utilisation
The position where a business is producing at less than full capacity
Buffer stocks
Stock held as protection in case of reduction in supply
Inventory
The raw materials/work-in-progress held by a business
Just in time (JIT)
A stock control system that organises operations so that items of stock arrive immediately before they are needed for production or sale
Lean production
A production method that involves using as few resources as possible in the production of a good or service. It can include concepts such as waste minimisation, Just in Time (JIT) and TQM
Re order level
The level of current stock when new orders are placed
Re order quantity
The amount of stock ordered when an order is placed
Stock
Items held by the business for future sale/processing such as raw materials/work in progress (WIP)/finished products
Stock control
The optimum quantity of goods/components a business holds for the purpose of resale/production