Edexcel A Level Business - Theme 2

3 types of internal finance

owners capital

retained profit

sales of assets

what is owners capital

The money provided by the owners in a business

what is retained profit

profit from previous years that is reinvested back into the business.

- have to make a profit to use

- no interest

what is sales of assets

the selling of owned items to raise finance

- loose benefit and flexibility as a result

what is the difference between a source of finance and a method of finance

source - where it comes from

method - how it is used

examples of sources of finance

- family and friends

- banks

- peer to peer funding

- business angels

- crowd funding

- other business

what is a business angel

a business angel is a specialist lender, who will invest in new or young expanding businesses

what is crowd funding

money raised from the donations of the public

methods of finance

loans

share / venture capital

overdrafts

leasing

trade credit

grants

what is share capital

money raised from selling shares

what is venture capital

money provided by large investors to finance new products and new businesses that have a good chance to be very profitable

what is leasing

Renting a property, equipment or vehicle instead of buying it

what is limited liability

the owner is liable for the original investment only, different business identities

what is unlimited liability

the owner is liable for everything

two businesses with unlimited liability

partnership

sole trader

two businesses with limited liability

public limited company

private limited company

what is a business plan

A written description of the business idea and how it will be carried out, including all major business activities.

what is a cash flow forecast

It is an estimate of future inflows & outflows of the business usually on a monthly basis.

revenue formula

price x quantity

what is a fixed cost

cost that does not vary with output

e.g rent, salary

what is a variable cost

costs that do change with the level of output

e.g raw materials, wages

Total variable cost formula

average variable cost x quantity

what is break even

when total revenue and total cost are equal

contribution formula

selling price - variable cost

break even formula

fixed cost / contribution

what is margin of safety

the amount of loss a business can make before a loss

margin of safety formula

actual sales - break even sales

what is a budget

estimate income or expenditure for a et period of time

types of budgets

historical budget - based on past sales data

zero based - budget based on potential performance

what does favourable variance mean

underspending in the department

what does adverse variance mean

overspent in the department

what is gross profit

Revenue - cost of sales

what is operating profit

gross profit - expenses

what is net profit

operating profit - interest

gross profit margin formula

Gross profit / revenue x 100

operating profit margin formula

Operating profit / revenue x 100

net profit margin formula

Net profit / revenue x 100

what is liquidity

the ability to easily convert financial assets into cash

what is a statement of financial position

It is a document showing the assets and liabilities of a business

what is the current ratio formula

current assets / current liabilities

what is a current asset

an asset kept for less than 12 months

what is a current liability

short term things you owe

what is the acid test ratio formula

(Current Assets - Inventory) / Current Liabilities

what is working capital

current assets - current liabilities

the money used to pay day to day operations

what is productivity

the output per input per hour

what is production

the total amount produced within a time frame

what is job production

producing specialist goods one by one

what is batch production

producing a set amount of a product

what is flow production

producing using a continuous assembly line

what is cell production

dividing the production process into sub sets

how to improve productivity

staff training

investments in new machinery

what is capital intensive

machine heavy production

what is labour intensive

people heavy production

what is capacity utilisation

how well a asset is used to produce output

capacity utilisation formula

Current output/maximum output x 100

what is a stock control diagram

what is buffer stock

stock held in excess in case of any unseen changes in demand

what is just in time management ( JIT)

do not hold stock, order stock once a product order has been placed

what is lean production

producing to reduce the amount of waste

what is quality control

checking the quality of a product once its made

what is quality assurance

checking the quality of a product as it is being made

what is total quality management

putting the quality at the heart of a business

what is a quality circle

a group of people who aim to solve quality issues

what is kaizen

continuous growth

what is inflation

the general rise in price of goods

what is the consumer price index

looks at the change in price of commonly Brough goods

what is consumer price inflation

the rate at which the prices of goods and services bought by households rise or fall

what are exchange rates

the change in value of one currency against another

What is appreciation?

the rise in the £ against another currency

Strong

Pound

Imports

Cheaper

Exports

Dearer

what is deprecation

the fall in the £ against other currencies

Weak

Pound

Imports

Dearer

Exports

Cheaper

what are interests rates

the cost of borrowing or the reward for saving

what is taxation

government tax

what is the economic cycle

boom - high consumer spending

recession - falling levels of demand

slump - lowest consumer spending

recovery - demand slowly rising