IB Business Management Unit 3 - Finances

studied byStudied by 0 people
0.0(0)
learn
LearnA personalized and smart learning plan
exam
Practice TestTake a test on your terms and definitions
spaced repetition
Spaced RepetitionScientifically backed study method
heart puzzle
Matching GameHow quick can you match all your cards?
flashcards
FlashcardsStudy terms and definitions

1 / 146

encourage image

There's no tags or description

Looks like no one added any tags here yet for you.

147 Terms

1

Business Angles

wealthy entrepreneurs who risk their own money by investing in small to medium-sized businesses that have high growth potential

New cards
2

Capital Expenditure

is investment spending on fixed assets such as the purchase of land and buildings.

New cards
3

Debt Factoring

is a financial service whereby a factor (such as a bank) collects debts on behalf of other businesses, in return for a fee.

New cards
4

External Sources of Finance

getting funds from outside the organization, e.g. through debt (overdrafts, loans and debentures), share capital, or the government.

New cards
5

Grants

are government financial gifts to support business activities. They are not expected to be repaid by the recipient.

New cards
6

Initial Public Offering (IPO)

refers to a business converting its legal status to a public limited company by selling its shares on a stock exchange for the first time

New cards
7

Internal Sources of Finance

means getting funds from within the organisation, e.g. through personal funds, retained profits and the sale of assets.

New cards
8

Leasing

is a form of hiring whereby a contract is agreed between a leasing company (the lessor) and the customer (the lessee). The lessee pays rental income to hire assets from the lessor, who is the legal owner of the assets.

New cards
9

Loan Capital (Debt Capital)

refers to a medium to long term sources of interest-bearing finance obtained from commercial lenders. Examples include mortgages, business development loans and debentures

New cards
10

Long-Term Finance

refers to sources of finance of more than five years, used for the purchase of fixed assets or to finance the expansion of a business

New cards
11

Medium-Term Finance

refers to sources of finance of one to five years in duration, used mainly to pay for fixed assets (capital expenditure)

New cards
12

Overdrafts

allow a business to spend in excess of the amount in its bank account, up to a predetermined limit. They are the most flexible form of borrowing in the short term.

New cards
13

Personal Funds

are a source of internal finance, referring to the use of an entrepreneur's own savings. Personal funds are usually used to finance business start-ups

New cards
14

Retained Profit

is the value of surplus that the business keeps to use within the business after paying corporate taxes on its profits to the government and dividends to its shareholders.

New cards
15

Revenue Expenditure

refers to spending on the day-to-day running of a business, such as rent, wages and utility bills.

New cards
16

Sale-and-leaseback

is a source of external finance involving a business selling a fixed asset (such as its computer systems or a building) but immediately leasing the asset back. In essence, the lessee transfers ownership to the lessor but the asset does not physically leave the business.

New cards
17

Share Capital

is the money raised from selling shares in a limited liability company, from its initial public offering (IPO) and any subsequent share issues.

New cards
18

Share Issue (Share Placement)

exists when an existing public limited company raises further finance by selling more of its shares

New cards
19

Short-Term Finance

refers to sources of finance needed for the day-to-day running of a business (revenue expenditure)

New cards
20

Sources of Finance

is the general term used to refer to where or how businesses obtain their funds, such as from personal funds, retained profits, loans and government grants.

New cards
21

Stock Exchange

a highly regulated marketplace where individuals and businesses can buy and/or sell shares in public limited companies

New cards
22

Subsidies

are funded by the government to lower a firm's production costs as output provides extended benefits to society, farmers are often provided with subsidies to stabilize food prices

New cards
23

Trade Credit

allows a business to "buy now and pay later". The credit provider does not receive cash from a buyer until a later date (30-60 days)

New cards
24

Venture Capital

is high-risk capital invested by venture capital firms, usually at the start of a business idea. The finance is usually in the form of loans and/or shares in the business venture.

New cards
25

Average Cost (AC)

refers to the cost per unit of output. It's calculated by using the formula: AC = TC/Q, where TC is the total cost and Q is quantity

New cards
26

Average Revenue (AR)

refers to the value of sales received from customers per unit of a good or service sold. It is calculated by using the formula: AR = TR/Q = P, where TR is total revenue. It is essentially the same thing as average price

New cards
27

Cost

refers to the sum of money incurred by a business in the production process such as the cost of raw materials, wages and salaries, insurance, advertising, and rent.

New cards
28

Direct Costs

are costs specifically attributed to the production or sale of a particular good or service. Direct costs can be traced back to the product and/or to a cost centre.

New cards
29

Dividends

are a share of the net profit distributed to shareholders at the end of the tax year

New cards
30

Fixed Costs

are the costs that do not vary with the level of output. They exist even if there is not output (the cost of rent, management salaries, interest repayments on bank loans)

New cards
31

Indirect Costs (Overheads)

are costs which do not directly link to the production or sale of a specific product (rent, wages of cleaning staff, lighting)

New cards
32

Price

refers to the amount of money a product is sold for, the sum payed by the customer

New cards
33

Revenue

is the money that a business collects from the sale of its goods and services. It is calculated by multiplying the unit price of each product by the quantity sold.

New cards
34

Revenue Streams

refers to the money coming into a business from its various business activities (sponsorships, merchandise, membership fees and royalties)

New cards
35

Running Costs

are the ongoing costs of operating the business (wages, insurance premiums, the cost of purchasing stock)

New cards
36

Semi-Variable Costs

are those that have an element of both fixed costs and variable costs, e.g. power and electricity or salaried staff who also earn commission.

New cards
37

Set-Up Costs

are the items of expenditure needed to start a business (obtaining premises, purchase of machinery, deposits to utility companies)

New cards
38

Total Costs

are the sum of all variable costs and all fixed costs of production.

New cards
39

Total Revenue

is the sum of all revenue streams for a business. It is calculated by multiplying the price of a product with teh quantity sold

New cards
40

Variable Costs

are costs of production that change in proportion to the level of output (raw materials and piece-rate earnings of production workers)

New cards
41

Break-Even Analysis

A management tool used to calculate the level of sales needed to cover all costs of production. Thereafter, further sales generate a positive safety margin, and hence profit for the business.

New cards
42

Break-Even Chart

is the name given to the graph that shows a firm's costs, revenues and profits (or loss) at various levels of output.

New cards
43

Break-Even Point

refers to the position on the break-even chart where the total costs line intersects the total revenue line OR where TC = TR

New cards
44

Break-Even Quantity (BEQ)

refers to the level of output that generates neither profit nor loss

New cards
45

Contribution per Unit (Unit Contribution)

is the difference between selling price of a product and its variable costs of production, i.e. P - AVC. The surplus goes towards paying fixed costs.

New cards
46

Margin of Safety (MOS)

is the difference between a firm's level of demand and its break-even quantity. A positive MOS means the firm can decrease output by that amount without making a loss. A negative MOS means the firm is making a loss

New cards
47

Profit

is the positive difference between a firm's revenue and its costs. On a break-even chart, profit is shown at all levels of output beyond the break-even quantity.

New cards
48

Special Order Decision

occurs when a customer places an order at a price that differs from the normal price charged by the business

New cards
49

Target Price

is the price set by the firm in order to reach break-even or a certain target profit

New cards
50

Target Profit

is the amount of surplus a firm intends to achieve, based on price and cost data. It can be calculated by taking estimated total costs from expected sales revenue.

New cards
51

Total Contribution

is the unit contribution (P - AVC) multiplied by the quantity of sales (Q), i.e. total contribution = (P - AVC) x Q. It is, essentially, a firm's gross profit.

New cards
52

Appropriation Account

refers to the final section of a P&L account and shows how the net profit is distributed (dividends to shareholders and/or retained profit kept by the business)

New cards
53

Balance Sheet

contains financial information on an organizations' assets, liabilities, and the capital invested by the owners on one specific day, thus showing a snap shot of the firm's financial situation

New cards
54

Book Value

is the value of an asset as shown on a balance sheet. The market value of assets can be higher than its book value because of intangible assets such as the brand value or the goodwill of the business

New cards
55

Cost of Goods Sold (COGS)

also known as cost of sales (COS), is shown in the trading account and represents the direct costs of producing or purchasing stock that has been sold.

New cards
56

Creditors

are suppliers who allow a business to purchase goods and/or services on trade credit

New cards
57

Current Assets

are the short-term assets that belong to a firm, which are expected to remain in the business for up to 12 months (cash, debtors, and stock)

New cards
58

Depreciation

is the fall in the value of fixed assets over time, from wear and tear or obsolescence

New cards
59

Final Accounts

are the published annual financial statements that all limited liability companies are legally obliged to report, i.e. the balance sheet and the P&L accounts.

New cards
60

Fixed Assets

are items owned by a business, not intended for sale within a year, but used repeatedly to generate revenue for the organization (land and machinery)

New cards
61

Goodwill

is the intangible asset which exists when the value of a firm exceeds its book value

New cards
62

Gross Profit

is the difference between the sales revenue of a business and its direct costs incurred in making or purchasing the products that have been sold to customers

New cards
63

Historic Cost

refers to the purchase cost of a particular fixed asset.

New cards
64

Intangible Assets

are fixed assets that do not exist in a physical form (goodwill, copyrights, brand name, and registered trademarks)

New cards
65

Long-Term Liabilities

are the debts owed by a business, which are expected to take longer than a year from the balance sheet to repay

New cards
66

Net Assets

show the value of a business by calculating the value of all its assets minus its liabilities. This figure must match the equity of the business in its balance sheet.

New cards
67

Net Profit

is the surplus (if any) that a business makes after all expenses have been paid out of gross profit

New cards
68

Profit and Loss Account (Income Statement)

is a financial record of a firm's trading activity over the past 12 months. It is split into three parts: the trading account, P&L account and the appropriation account.

New cards
69

Reducing Balance Method

is a method of depreciation that reduces the value of a fixed asset by the same percentage each year throughout its useful life. This is the more realistic method to use.

New cards
70

Residual Value

is an estimate of the scrap or disposable value of the asset at the end of its useful life

New cards
71

Retained Profit

is the amount of net profit after interest, tax and dividends have been paid. It is then reinvested in the business for its own use.

New cards
72

Share Capital

refers to the amount of money raised through the sale of shares. It shows the value raised when the shares were first sold, rather than their current market value.

New cards
73

Shareholders' Funds

show the equity of the owners, i.e. the share capital invested by the owners and the retained profit and reserves that have been accumulated.

New cards
74

Straight Line Method

is a method of depreciation that reduces the value of a fixed asset by the same value each year throughout its useful life. This is the relatively easier method to calculate.

New cards
75

Trading Account

is the first section of the P&L account, showing the difference between a firm's sales revenue and its direct costs of trading, i.e. it shows the gross profit of a business.

New cards
76

Window Dressing

refers to the legal act of manipulating financial data to make the results look more flattering

New cards
77

Acid Test Ratio

is a liquidity ratio that measures a firm's ability to meet its short-term debts. It ignores stock because not all inventories can be easily turned into cash in a short time frame.

New cards
78

Capital Employed

is the value of all long-term sources of finance for a business, e.g. bank loans, share capital and reserves.

New cards
79

Current Ratio

is a short-term liquidity ratio that calculates the ability of a business to meet its debts within the next year

New cards
80

Efficiency Ratios

indicate how well a firm's resources have been used, such as the amount of profit generated from the available capital used in the business.

New cards
81

Gross Profit Margin (GPM)

is a profitability ratio that shows the percentage of sales revenue that turns into gross profit.

New cards
82

Liquid Assets

are the possessions of a business that can be turned into cash quickly without losing their value, i.e. cash, stock and debtors.

New cards
83

Liquidity Crisis

refers to a situation where a firm is unable to pay its short-term debts, i.e. current liabilities exceed current assets.

New cards
84

Liquidity Ratio

looks at the ability of a firm to pay its short-term liabilities, such as by comparing working capital to short-term debts

New cards
85

Net Profit Margin (NPM)

shows the percentage of sales revenue that turns into net profit, i.e. the proportion of sales revenue left over after all direct and indirect costs have been paid.

New cards
86

Profibility Ratios

examine profit in relation to other figures, the GMP and NPM ratios. These ratios tend to be relevant to profit-seeking business rather than for not-for-profit organizations

New cards
87

Ratio Analysis

is a quantitative management tool that compares different financial figures to examine and judge the financial performance of a business. It requires the application of figures found in the final accounts

New cards
88

Return on Capital Employed (ROCE)

is an efficiency ratio (although it also reveals the firm's profitability) measuring the profit of a business in relation to its size (as measured by capital employed). Often referred to as the KEY RATIO

New cards
89

Credit Control

refers to the ability of a business to collect its debts within a suitable timeframe.

New cards
90

Creditor Days Ratio

an efficiency ratio that measures the average number of days it takes for a business to pay its creditors

New cards
91

Debtor Days Ratio

is an efficiency ratio that measures the average number of days it takes for a business to collect the money owed from debtors.

New cards
92

Efficiency Ratios

show how well a firm's resources have been used, such as the amount of time taken by the firm to sell its stock (inventory) or the average number of days taken to collect money from its debtors.

New cards
93

Gearing Ratio

measures the percentage of an organization's capital employed that comes from external sources such as debentures and mortgages. Businesses that have at least 50% gearing ratio are considered to be highly geared

New cards
94

Profit Quality

refers to the ability of a business to earn profit in the foreseeable future. A business with good profit quality is able to earn profit in the long run

New cards
95

Stock Turnover Ratio

measures the number of times a business sells its stocks within a year. It can also be expressed as the average number of days it takes for a firm to sell all of its normal inventory.

New cards
96

Assets

are items of monetary value that belong to a business. The can be fixed (machinery, tools, buildings) or current assets (cash, stock, debtors)

New cards
97

Bad Debts

exist when debtors are unable to pay their bills. This reduces cash inflows of the vendor

New cards
98

Cash

is a current asset and represents the actual money a business has. IT can exists in the form of cash in hand (held at a business) or cash at bank (cash held in a bank account)

New cards
99

Cash Flow

refers to the transfer or movement of money into and out of an organization. Cash inflows mainly come from sales revenue whereas cash outflows are for items of expenditure

New cards
100

Cash Flow Forecast

is a financial document that shows the predicted future cash inflows and cash outflows for a business during a trading period.

New cards

Explore top notes

note Note
studied byStudied by 64 people
213 days ago
4.7(3)
note Note
studied byStudied by 26 people
891 days ago
5.0(1)
note Note
studied byStudied by 25 people
514 days ago
5.0(1)
note Note
studied byStudied by 4 people
688 days ago
5.0(1)
note Note
studied byStudied by 16 people
903 days ago
5.0(1)
note Note
studied byStudied by 10 people
760 days ago
5.0(1)
note Note
studied byStudied by 67 people
701 days ago
5.0(4)
note Note
studied byStudied by 44 people
758 days ago
5.0(3)

Explore top flashcards

flashcards Flashcard (92)
studied byStudied by 11 people
841 days ago
4.0(1)
flashcards Flashcard (116)
studied byStudied by 10 people
800 days ago
5.0(1)
flashcards Flashcard (43)
studied byStudied by 15 people
3 days ago
5.0(1)
flashcards Flashcard (57)
studied byStudied by 17 people
750 days ago
5.0(2)
flashcards Flashcard (40)
studied byStudied by 2 people
177 days ago
5.0(1)
flashcards Flashcard (71)
studied byStudied by 42 people
385 days ago
5.0(4)
flashcards Flashcard (82)
studied byStudied by 41 people
88 days ago
5.0(1)
flashcards Flashcard (222)
studied byStudied by 29 people
646 days ago
5.0(1)
robot