IGCSE Business Studies

Definitions and stuff like that

Acid test ratio

Sometimes referred to as the Quick Ratio. It is a ratio of the trade receivables and cash to current liabilities. It compares the size of the assets that can most quickly be turned to cash compared with debts the business may have to pay out in the very short period.

Acid test ratio formula

Trade receivables + Cash : Current liabilities

Adding value

Increasing the value of the product for the final consumer, through manufacturing processes, advertising, distribution, etc.

Annual General Meeting (AGM)

Yearly meeting of shareholders at which the Company Report is presented by Directors.

Appraisal

Formal evaluation of an employee’s performance over a particular period.

Assets

What a business owns, or is owed by others.

Automation

Operations controlled by machinery rather than people.

B2B

Business-to-business dealing through the internet.

B2C

Direct links between businesses and consumers through the internet.

Balance sheet

Statement that shows a firm’s assets, liabilities and sources of capital at a moment in time.

Batch production

Manufacturing items in sets for a particular length of time, before switching the manufacturing line to produce a different type of set.

Behavioural segmentation

Identifying segments of potential customers with similar behaviour patterns (e.g. those who like to be the first to try out new fashion clothes).

Benefits

Advantages, tangible or intangible, gained by customers from the product or service that they buy.

Board of Directors

A body representing shareholders in a company, with the responsibility for looking after their interests.

Brand

A product with a unique, consistent and well-recognised character. The uniqueness can come from a factual product detail or from its image.

Break-even analysis

Comparison of a firm’s revenue with its fixed and variable costs to identify the minimum sales level needed to make a profit. The comparison can be shown on a graph known as a break-even chart.

Budget

A plan, usually set out in table form, indicating how many financial targets will be reached.

Business cycle

Up and down swings in the economy as indicated by movements in Gross Domestic Product (GDP).

CAD (computer-aided design)

Using a computer to design new products and processes.

CAM (computer-aided manufacturing)

Using computers in the control and management of machinery and processes.

Capital

Money or resources invested by the owner/s of an organisation; a source of finance used by the business to acquire assets.

Cash

Money in the tills and bank account of a business.

Cash flow forecast

Prediction of the flow of money into and out of a business.

Charity

Organisation whose purposes are to go good rather than to make a profit.

Closed question

A question with a choice of prepared answers (e.g. in a market research questionnaire).

Communication

The process by which information is exchanged between one group or individual and another.

Company

A business that is registered as being owned by a group of shareholders and managed in their common interest.

Contract of employment

Legal document setting out terms and conditions of employment.

Corporate social responsibility (CSR)

Responsibility of a business to society.

Cost-benefit analysis

To determine the net benefits of an activity, all the benefits are added up and all the costs deducted.

Cost of sales

The cost of making the products and services sold to customers.

Cost-plus pricing

Working out how much each unit of production costs to produce and then adding a fixed percentage for profit.

Costs

The expenses incurred by a firm in producing and selling its products. They include expenditure on wages and raw materials.

Current assets

Short-term items such as inventories, trade receivables, money in the bank, and cash in hand.

Current liabilities

Debts that a business needs to pay in the short term (usually less than 1 year).

Delegation

Passing power and authority down the hierarchy in an organization so that decision making can take place at lower levels.

Demand

Consumers' wishes to purchase products, backed up by their willingness to spend money on them.

Discrimination

Favouring or showing preferential treatment to one group or individual over others.

Diseconomies of scale

The result of a firm becoming too large, when inefficiencies occur, leading to rising costs.

Distribution channels

The route through which a good or service is moved to the market.

Dividends

The share of profits earned by an organisation that is paid to its shareholders.

Economies of scale

The advantages of a larger firm over a smaller one, enabling it to produce larger outputs at lower costs per individual unit.

Economy

The system in a particular country for creating goods and distributing incomes to those involved in production.

Entrepreneur

Risk taker in a business (e.g. the shareholders, a single owner, or a partner).

Ethics

Sets of moral principles that guide behaviour.

Exchange rate

The rate of exchange between one country's currency and that of another (e.g. the South African rand against the Ghanaian cedi).

Export

Sale of goods or service to another country.

Externality

The spillover effect resulting from a particular activity, such as pollution caused by a production process. Externalities can generate benefits and costs for stakeholders outside the business.

Fair dismissal

When a worker is sacked for reasons that are acceptable in law.

Fixed costs

Any tests that do not vary with the level of output (e.g. rent and rates).

Flow production

Continuous production of goods which 'flow' down a production line.

Forecast

An estimate of what is likely to happen in the future.

Franchise

Permission to use a business's name and to sell using that name in a particular locality.

Gearing ratio

Ratio of capital used to finance a business that is raised from shareholders, compared with funds that are borrowed from outside the business.

Global warming

Rise in air and sea temperatures which may be caused by increasing industrial activity.

Globalisation

The ability to produce anywhere, sell anywhere, and place profits anywhere in the world.

Gross profit

The profit that a firm earns from trading or selling goods before the overheads and expenses have been deducted.

Gross profit formula

Gross profit = Revenue - Costs of sales

Hierarchy

Layers of decision making within an organisation. A hierarchical organisation has several layers and decision making is made in a downwards direction.

Import

To bring in foreign goods to a country or use foreign services.

Income

Money received in return for providing a product or service, including labour time.

Income statement

An accounting statement showing a firm's revenue over a trading period and all the relevant costs generated to earn that revenue.

Incorporation

Establishing a business as a separate legal entity from its owners, and therefore allowing it to have limited liability.

Interest rate

The price charged for borrowing money.

Internal communications

Communications that take place within an organisation.

International trade

The process of buying and selling goods on international markets.

Internet

A means of connecting to other computers anywhere in the world so that information of all kinds can be sent and received.

Intranet

Electronic communications system set up for and accessed by members of an organisation. The system is not accessible for those outside the organisation.

Job description

A written document relating to a particular role, indicating, for example, job title, hours of work.

Job production

A single piece of work produced for a particular customer.

Job specification

The mental and physical requirements needed to carry out a role effectively.

Joint venture

An organisation jointly set up by two organisations; frequently set up when one international company wants to enter a new market.

Just in time (JIT)

Production and distribution system, which involves providing raw materials, components, and supplies at the time when they are required by a customer rather than being produced early and stocked.

Kaizen

System of making regular small-step improvements to production processes. Kaizen is Japanese for 'continuous improvement'.

Leadership

The action of leading a group or organisation, involving setting a vision and guiding others to achieve objectives.

Leadership style

The predominant manner in which a manager acts. For example, a laissez-faire manager tends to stand back and let others make decisions themselves; an autocratic manager is much more controlling.

Lean production

Eliminating all forms of waste.

Liabilities

What an organisation owes at a particular moment in time.

Lifestyle

Pattern of behaviour associated with particular groups of people.

Limited company

One whose shareholders have a liability only to the extent of their investment.

Limited liability

The greatest amount that a company's owners might have to pay out to meet debts, the top being the sum that they invested in the business.

Line production

Producing goods in a set of sequenced steps along a production line.

Liquidity

The ease with which an asset can be converted into cash.

Location of business

Where a firm is set up, and exists.

Manager

Someone with responsibility for resources and people within an organisation.

Market

Any situation where buyers and sellers come into contact.

Market economy

Economy in which decisions about what is produced and what is bought for consumption is strongly influenced by market prices rather than decided by the government.

Market research

Systematically gathering, recording, and analysing data on the possibility of sales of a good or service.

Market segmentation

Grouping consumers into sections with similar characteristics, such as age, preferences, tastes, etc.

Marketing

Identifying and anticipating what the customer requires and then providing what they want.

Marketing mix

A particular blend of price, product, promotion, and place, designed to attract customers.

Maslow’s hierarchy of needs

A graded list of human needs. At the bottom are basic needs such as food and shelter. At the top are self-actualization needs of individuals to be totally fulfilled in their lives. Most jobs meet lower-level needs; only a few jobs enable people to have their higher needs fulfilled.

Mass marketing

Activity is designed to appeal to the whole of a particular market rather than a smaller segment.

Mass production

Producing a standard product in very large quantities.

Mixed economy

Economies in which decisions are made through a combination of buyers and sellers deciding what to buy, produce, and sell, coupled with some government interference such as taxing or subsidising the production of some goods.

Monopoly

A single seller in the market.

Mortgage

A loan that is made and secured on property.

Motivation

The desire to achieve a particular goal, backed up by the drive to perform.

Multinational

A company with its head office in one country, but operating in at least two countries.

Nationalisation

The taking over of a business by the government.