Pearson Edexcel A Level Business – Key Terms Version 1.0

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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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136 Terms

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Economic variables

Measures within the economy which have effects on business and consumers e.g. unemployment, inflation and exchange rates

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Internal finance

The raising of capital/cash from within/inside the business e.g. business/owner's capital, personal savings, retained profit

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Personal savings/owners' capital

A source of internal finance provided by the owner of a business/personal money from the owner

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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

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Sale of assets

A type of internal finance, involves selling resources that belong to the business

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Bank loan

An external method of finance/money borrowed from a bank paid back, with interest (over a period of time)

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Business Angels

Individuals who typically may invest between £10,000 and £100,000 in exchange for a stake in the business

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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

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External finance

Money raised from outside the business

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Grant

A sum of money given by a government or other organisation. It does not need to be repaid and no interest is charged

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Leasing

A contract to acquire the use of resources such as property or equipment

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Loan

An external source/method; amount of money borrowed, usually repayable after a fixed term of more than 12 months

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Overdraft

When a business has a negative balance in their bank account because the amount withdrawn is greater than the current balance

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Peer-to-peer funding

When a person lends money to other individuals or businesses via online transactions

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Share capital

The finance raised a business issuing/selling of new shares

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Trade credit

Where a firm receives stock/inventory/raw materials from a supplier, which it does not have to pay for until later

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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

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Liability

Responsibility for the financial debts of the business

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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

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Unlimited liability

A legal status which means that business owners are liable for all business debts

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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

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Cash flow

The movement of cash into and out of a business over a period of time

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Cash Inflow

The flow of money into a business

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Cash Outflow

The flow of money out of a business

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Cash-flow forecasts

The predicted flow of cash into and out of a business over a period of time

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Closing balance

Money left in the account at the end of the month. Net cash flow + opening balance

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Net cashflow

The difference between the cash flowing in and out of a business over a period of time (cash inflows - cash outflows)

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Opening balance

What is in the bank on the first day of the month

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Consumer trends

Habits or behaviour of those involved in the use of goods and services

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Economic uncertainty

Where firms/consumers are unable to predict their future sales/incomes

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Sales forecast

A prediction of the expected level of sales volume/revenue for a business for a future period based on past data

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Average cost

The cost of producing one unit. Total costs/output

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Fixed costs

Costs that do not change when output/sales changes

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Revenue

The amount of income for a business generated from its sales. Selling price x quantity sold

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Sales revenue

Selling price x sales volume

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Total costs

Total fixed costs plus total variable costs

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Variable costs

Costs that do not change when output/sales change

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Break-even

The level of output where the total revenue is equal to the total cost. Fixed costs/Unit contribution

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Unit contribution

Selling price - variable cost per unit

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Margin of safety

The difference between the current or planned level of output/sales and the break-even level of output

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Adverse variance

Negative variance e.g. higher costs than budget

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Budget

A financial plan of income and expenditure prepared/agreed in advance

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Favourable variance

Positive variance e.g. lower costs than budget

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Historical budgeting

A budget based upon previous financial figures

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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

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Zero based budget

A type of budget where no money is allocated for spending unless it has firstly been justified

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Cash

Normally takes time to catch up. Cash inflows and outflows will be recorded after the respective debtor and creditor periods have elapsed

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Cost of sales

Direct costs of a business

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Gross profit

Revenue - cost of sales

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Gross profit margin

Gross profit/Sales revenue x100

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Operating profit

Gross profit - other operating expenses

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Operating profit margin

Operating profit/Sales revenue x100

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Profit

Is recorded straight away after sales. Total revenue - total costs

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Profit for the year margin

Net profit/Sales revenue x100

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Profit for the year/net profit

Operating profit - interest

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Profitability

The ability of a business to generate profit from its activities

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Statement of comprehensive income

A document to show income and expenditure of a business over a financial year

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Tax

A charge made by governments on activities, earnings and income of individuals and businesses

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Acid test ratio

Current assets - Inventory / Current liabilities

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Assets

Resources that belong to a business

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Capital

Money put into the business by the owner

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Current assets

Liquid assets, those assets that will be converted into cash within 12 months e.g. inventories, trade receivables and cash

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Current liabilities

Any money which is owed by a business that must be repaid within one year

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Current ratio

Current assets/Current liabilities

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Liabilities

Money owed by the business to banks and suppliers

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Liquidity

The ability to pay bills in cash when they fall due or The ability to meet current liabilities with current assets

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Net assets

Total assets-Total liabilities

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Non current assets

Long term resources that will be used by the business for more than one year e.g. Property and equipment

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Non current liabilities

Money owed by the business for more than one year e.g. Loans

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Shareholders' equity

The amount of money owed by the business to the shareholders

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Statement of financial position/ Balance sheet

A summary at a particular point in time of the value of a firms assets, liabilities and capital

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Total equity

Share capital + Retained profit

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Working capital

The amount of money needed to pay for the day to day trading of a business or current assets – current liabilities

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External causes for business failure

Factors beyond the control of businesses cause for collapse e.g. competition, legislation, customer tastes and economic conditions

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Financial factors for business failure

Often rising from poor cash flow management or working capital

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Internal causes for business failure

Factors which a business can control

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Non financial factors for business failure

Can come from inside or outside the business e.g. poor management, external shocks

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Overtrading

The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast

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Batch production

A manufacturing process in which components or goods are produced in groups (batches). The manufacturing of a limited number of identical products

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Capital intensive

This is where output of the firm is made primarily using machinery/capital goods relative to the use of labour

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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

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Efficiency

The ability to minimise waste therefore reducing the cost of production. Making the best use of its resources

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Flow production

The manufacture of an item/product in a continuous process

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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

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Labour-intensive production

A production method that requires a higher proportion of labour than capital

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Productivity

Output per person/machine per period of time

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Standardisation

Using uniform resources and activities or producing a uniform product

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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

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Downsizing

Involves reducing capacity, such as making employees redundant. This would reduce costs, such as wages

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Full capacity

The point where a business cannot produce any more output

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Over utilisation

The position where a business is running at full capacity and straining resources

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Under utilisation

The position where a business is producing at less than full capacity

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Buffer stocks

Stock held as protection in case of reduction in supply

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Inventory

The raw materials/work-in-progress held by a business

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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

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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

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Re order level

The level of current stock when new orders are placed

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Re order quantity

The amount of stock ordered when an order is placed

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Stock

Items held by the business for future sale/processing such as raw materials/work in progress (WIP)/finished products

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Stock control

The optimum quantity of goods/components a business holds for the purpose of resale/production