Unit 1 & Unit 3 Business Management SL

Internal finance

Finance from within business (retained profit, sale of assets).

Retained profit

Profit left after dividends; reinvested in business.

Sale of assets

Selling unused assets to generate finance.

Working capital

Money used for day-to-day operations.

External finance

Finance from outside sources.

Loan capital

Borrowed money repaid with interest.

Overdraft

Short-term borrowing allowing withdrawals beyond account balance.

Trade credit

Buy now, pay later from suppliers.

Grants

Non-repayable funds from government or donor agencies.

Subsidies

Financial support to lower operating costs.

Debt factoring

Selling accounts receivable for immediate cash.

Share capital

Finance raised from selling shares.

Venture capital

High-risk investment from specialist firms.

Business angel

Individual investor funding early-stage businesses.

Fixed costs

Costs that do not change with output.

Variable costs

Costs that change with output.

Direct costs

Costs directly linked to specific product.

Indirect costs (overheads)

Costs not linked to one product (rent, utilities).

Revenue

Income from sales (price × quantity).

Revenue streams

Different sources of income (ads, membership fees).

Profit

Total revenue − total costs.

Total costs

Fixed costs + variable costs.

Variable cost formula

Unit VC × quantity.

Contribution per unit

Price − unit variable cost.

Break-even quantity

Fixed costs ÷ contribution per unit.

Total contribution

Contribution per unit × quantity.

COGS

Opening stock + purchases − closing stock.

Gross profit

Revenue − COGS.

Expenses

Overheads such as rent, salaries, utilities.

Operating profit

Gross profit − expenses.

Interest

Cost of borrowed finance.

Profit before tax

Operating profit − interest.

Tax

Charge imposed on profit.

Net profit

Profit before tax − tax.

Dividends

Profit paid to shareholders.

Retained profit

Profit left after dividends.

Gross profit margin

(Gross profit ÷ revenue) × 100.

Net profit margin

(Net profit ÷ revenue) × 100.

Non-current assets

Long-term assets (machinery, equipment).

Current assets

Cash, debtors, inventory.

Current liabilities

Short-term debts (creditors, overdraft).

Non-current liabilities

Long-term loans.

Total assets

Current + non-current assets.

Total liabilities

Current + non-current liabilities.

Net assets

Total assets − total liabilities.

Equity

Share capital + retained profit.

Share capital

Money raised from issuing shares.

Retained earnings

Accumulated profit not paid out.

Working capital

Current assets − current liabilities.

Gross Profit Margin

(Gross profit ÷ revenue) × 100.

Net Profit Margin

(Net profit ÷ revenue) × 100.

ROCE (Return on Capital Employed)

(Net profit ÷ capital employed) × 100.

Current ratio

Current assets ÷ current liabilities.

Acid test ratio

(Current assets − inventory) ÷ current liabilities.

Liquidity

Ability to meet short-term debts.

Profitability

Ability to generate profit.

Window dressing

Manipulating accounts to appear stronger.