Business Unit 3 Terms

Capital expenditure

Money spent to acquire items in a business that last for more than 12 months.

Eg. Buildings, factories, machines, etc.

Revenue expenditure

Money spent on running day to day expenses and need to be covered immediately.

Eg. Wages, rent, raw materials, insurance, etc.

Personal funds

When owners provide capital from personal assets

Eg. Savings, personal property, retirement funds, etc.

Retained profits

Money left over in a business after all expenses have been paid

Eg. Taxes and dividends

Sale of assets

Sale of unwanted assets to fund other projects

Eg. Machinery, old stock, land, buildings

Share capital (Equity capital)

Money from the sale of shares

Loan capital

Money raised from a financial institution.

Interest on loan must be paid back, can be fixed or variable.

Overdraft

When a bank allows a firm to withdraw more money than is currently in their account.

Trade credit

An agreement between businesses that allow the buyer of goods to make payment at a later date.

Crowdfunding

Collecting small to medium amounts of money from large numbers of people to fund a business/project

Leasing

A contract made with a leasing company to use certain assets

Eg. Machinery, equipment, property, etc.

Microfinance

Banking service provided to unemployed/low-income individuals.

Fixed costs

Costs that remain the same no matter the level of output.

Eg. Rent, insurance, salaries, and interest payments, utility bills, etc.

Variable costs

Costs that vary depending on number of goods/services produced.

Eg. Raw materials, wages, packaging, energy costs, etc.

Direct costs

Money that is used to produce a good/service.

Eg. Raw materials costs, sales commissions, packaging, and energy usage costs.

Indirect costs (Overhead)

Costs that are not tied to the production of goods/services.

Eg. Rent, electricity bills, marketing, etc.

Revenue

Income or earnings over a period of time.

Total revenue = Price per unit x quantity

Revenue streams

Various sources from which a business earns money.

Profitability ratio

Assesses the business’s ability to generate a profit based on revenue.

Liquidity ratio

Assesses the business’s ability to pay back short-term debts.

Efficiency ratio

Assesses the business’s ability to use it’s assets to generate an income.