AQA A level Business unit 5

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38 Terms

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Cash flow
The flow of cash into and out of the business
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External constraints
Something outside the firms control that can prevent it achieving its objectives
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Full capacity
When th business is fully utilising all it's assets
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Stakeholders
Groups with an interest you know we in the success or failure of a firms decision and actions
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Dynamic pricing
Using software that allows changing demand and supply levels to set changing prices
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Piece rate labour
Paying workers per unit they make
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Profit margin
Profit as a percentage of sales revenue
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fixed cost
cost that don’t change in accordance to output
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Total cost
All the costs of producing a specific output level
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Total variable cost
All the variables costs of productising a specific output level.
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Variable cost
The costs of producing one unit
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Break even
Fixed cost/contribution per unit
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Contribution per unit
Selling price - variable costs per unit
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Margin of safety
Sales volume - break even
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Cash flow forecast
Estimating future monthly cash inflows and outflows
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Debt factoring
Obtaining part payment of the amount owed From a factoring company
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Overdraft
Short term borrowing from a bank. The business only borrows as much as it needs to cover
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Gross profit margin
(Gross profit/sales revenue) *100
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Operating profit margin
(Operating profit/sales)*100
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Net profit margin
(Net profit(before tax)/sales)*100
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How to calculate Return on capital employed (ROCE)
(Operating profit/capital employed)*100
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How to calculate return on investment
((Net return - investment cost)/original investment)*100
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How to improve profit
Increase selling price

Increase output

reduce fixed and variable cost (e.g cheaper packaging)
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How to improve cash flow
Cut down on cost

delay payments

cut back on expansion plans
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How to improve break even
Reduce fixed cos

reduce variable cost

increase price on product
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External sources of finance
Leasing \\n Hire purchases \\n Government finance \\n Trade credit

Bank loan - Short-term

Overdraft - Short-term \n Debt factoring - Short-term \n Crowdfunding - Short term \n Venture capital - Long-term \n Share capital/equity - Long-term \n Mortgages - Long-term \n Debentures - Long-term
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Internal sources of finance
Personal sources \n Retained profits \n Share capital
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Cash flow
The cash being transferred into and out of the business
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Define budgeting
An estimate of income and expenditure for a set period of time
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Define variance
The difference between an actual amount and a pre-determined standard amount or the amount budgeted.
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What is a budget?
a spending plan based on income and expenses
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3 types of budgets
profit, income, expenditure
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Expenditure budget
predict how much business will spend over a period of time
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Income budgets
predicts how much money will come in from sales
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Profit budget
Income budget - expenditure budget
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What is a contingency cost?
An amount included in a budget to cover any unexpected issues
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Benefit of budgets
makes sure businesses doesn’t spend money they don’t have
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Drawbacks of budgets
hard for a new business as they have no past data