Business AS Level definitions

entrepreneur

an individual who has the idea for a new business, starts it up and carries most of the risks but benefits from the rewards.

customer

individual consumer or organisation that purchases goods or services from a business.

consumer

individual consumer or organisation that purchases goods or services from a business.

consumer goods

physical and tangible goods sold to consumers that are not intended for resale.
These include durable consumer goods, such as cars and washing machines, and non-durable consumer goods, such as food, drinks and sweets, that can be used only once.

consumer services

non-tangible products sold to consumers that are not intended for resale. These include hotel accommodation, insurance services and train journeys.

factors of production

the resources needed by business to produce goods and services

capital goods

The physical goods used by industry to aid in the production of other goods and services, such as machines and commercial vehicles

enterprise

the action of showing initiative to take the risk to set up a business

adding value

increasing the difference between the cost of bought-in inputs (materials) and the selling price of the finished goods.

added value

the difference between the cost of purchasing bought-in inputs (materials) and the selling price of the finished goods.

branding

process of differentiating a product by developing a symbol, name, image or trademark for it.

opportunity cost

the next most desired option that is given up

multinational business

business organisation that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries.

intrapreneur

business employee who takes direct responsibility for turning an idea into a profitable new product or business venture.

business plan

written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts.

private limited company (ltd)

business that is owned by shareholders; this company cannot sell shares to the general public and the owners are legally responsible for its debts only to the extent of the capital they invested
or
A business that is owned by its shareholders, run by directors and where the liability of shareholders for the debts of the company is limited.

public limited company (plc)

company whose shares are traded on a stock exchange and can be bought and sold by the public.

Primary Sector Business Activity

Firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed by other firms

Secondary Sector Business Activity

firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes making and construction

Tertiary Sector Business Activity

firms providing services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels and tourism

Quartenary Sector Business Activities

businesses providing information services, such as computing, web design, ICT (information and communication technologies), management consultancy and R&D (research and development, particularly in scientific fields).

public sector

Organisations that are owned and controlled by local or central government.

private sector

Businesses owned and controlled by individuals or groups of individuals

sole trader

A business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profits

unlimited liability

business owners have full legal responsibility for the debts of the business

partnership

a business farmed by two or more people to carry on a business together, with shared capital investment and usually shared responsibilities

limited liabilty

the only liability - or potential loss - a shareholder has, if the company fails, is the amount invested in the company, not the total wealth of the shareholder.

share

certificate confirming part-ownership of a company and entitling the shareholder owner to dividends and certain shareholder rights.

shareholder

person or institution owning shares in a limited company.

franchise

legal right to use the name, logo and trading systems of an existing successful business.

franchiser

person or business that sells the right to open stores and sell products or services, using the brand name and brand identity.

franchisee

person or business that buys the right from the franchiser to operate the franchise.

cooperative

jointly owned business operated by members for their mutual benefit, to produce or distribute goods or services - as in consumers' cooperatives or farmers' cooperatives.

joint venture

two or more businesses agree to work closely together on a particular project and create a separate business division to do so.

social enterprise

business with mainly social objectives that re-invests most of its profits into benefiting society rather than maximising returns to owners.

renvenue

the total value of sales made during the trading period = selling price × quantity sold.

capital employed

total value of all long-term finance invested in the business.

Market Capitalization

the total value of a company's issued shares.

market share

sales of the business as a proportion of total market sales
Formula:
Marketshare(%)=total sales of business/total sales of industry x 100

Corporate Social Responsibility (CSR)

when businesses consider the interests of society by taking responsibility for the impact of their decisions and activities on customers, employees, communities and the environment.

pressure group

organisations created by people with a common interest or aim, who put pressure on businesses and governments to change policies so that an objective is reached.

business objective

a specific and measurable target that a business plans to achieve

triple bottom line

The three objectives of social enterprises: economic, social and environmental (3 Ps: people, profit, planet)

SMART Objectives

Aims that are specific, measurable, achievable, realistic and time-specific

business aim

a long-term goal that a business hopes to achieve

mission statement

a brief statement of the business's core aims, phrased in a way to motivate employees and to stimulate interest from outside groups

business strategy

the long-term plan of action adopted by a business to achieve its goals and objectives

tactic

a short-term action as part of an overall strategy (used every day)

target

a short-term goal that must be reached before an overall objective can be achieved

Ethical code (code of conduct)

A document detailing a company's rules and guidelines on staff behaviour that must be followed by all employees

budget

a detailed financial plan for the future

stakeholders

the individuals or groups that have an interest, stake, or claim in the actions and overall performance of a company, they can be external or internal

trade union

organisation of working people with the objective of improving the pay and working conditions of its members and providing them with support and legal services.

Forumla Profit margin

Profit margin= profit/revenue x 100

market

the demand for a product/service from different types/groups/segments of consumers who are willing and able to pay for it in the area or region considered.

profit margin

the proportion of sales revenue that is left once all costs have been paid

fixed costs

Costs that do not vary with the quantity of output produced

Acid test ratio formula

(Current Assets - Inventory) / Current Liabilities

Working Capital

the capital needed to finance the day-to-day running expenses and pay short-term debts of a business

start-up capital

Capital needed by an entrepreneur to set up a business

Short term finance

Finance needed for a limited period of time, normally less than one year

Long term finance

Sources of finance that are needed over a longer period of time, usually over a year

profit

value of goods sold (revenue) minus the costs

liquidity

the ability of a business to pay its short-term debts

administration

when administrators manage a business that is unable to pay its debts with the intention of selling it as a going concern

Bankruptcy

the legal proceeding by which a bankrupt person's assets are distributed among those to whom he or she owes debts. It is the legal procedure of liquidating a business which cannot fully pay its debts out of its current assets.

liquidation

when a business ceases trading and its assets are sold for cash to pay suppliers and other creditors

current assets

assets that either are cash or likely to be turned into cash within 12 months (inventory, trade receivables or debtors)

current liabilities

debts that usually have to be paid within one year

capital expenditures

the purchase of non-current assets that are expected to last fore more than one year, such as buildings and machinery

revenue expenditure

spending on all costs and assets other than non-current assets and includes wages and salaries and materials bought for stock

retained earnings (retained profit)

profit after tax retained in a company rather than paid out to shareholders as dividends

Non-current assets

assets to be kept and used by the business for more than one year.

overdraft

a credit that a bank agrees can be borrowed by a business up to an agreed limit as and when required (creating a temporary negative balance in the bank account)

debt factoring

selling of claims over debtors to a debt factor in exchange for immediate liquidity - only a proportion of the value of the debts will be received as cash (immediate liquidity)

hire purchase

a company purchases an asset and agrees to pay fixed repayments over an agreed time period. The asset belongs to the purchasing company once the final payment has been made

Leasing

Renting a product while ownership title remains with the lease cpmpany. Avoiding the need to raise long-term capital to buy the asset.

Debenture

A long-term bond that is not secured by a mortgage on specific property. It is issued by companies to raise debt finance, often with a fixed rate of interest.

venture capital

risk capital invested in business start-ups or expanding small businesses that have good profit potential but do not find it easy to gain finance from other sources

collateral security

an asset which a business pledges to a lender and which must be sold off to pay a debt if the loan is not repaid

rights issue

existing shareholders are given the right to buy additional shares at a discounted price

cash flow

the sum of cash payments to a business less the sum of cash payments from the buisness

insolvent

when a business cannot meet its short-term debts

Cash flow forecast

An estimate of future cash inflows and outflows of a business, usually on a month-by-month basis. This then shows the expected cash balance at the end of each month.

bad debt

Unpaid customers' bills that are now very unlikely to ever be paid

overtrading

expanding a business rapidly without obtaining all of the necessary finance so that a cash-flow shortage develops

break-even point

the level of output at which total costs equal total revenue, when neither profit or loss is made

cost centre

a section of a business, such as a department, to which costs can be allocated or charged

Direct Costs

These costs can be clearly identified with each unit of production and can be allocated to a cost centre

indirect costs

Costs that cannot be easily and conveniently traced to a unit of product or other cost object, it can also not be allocated accurately to a cost centre

variable costs

costs that vary with output

profit center

a section of a business to which both costs and revenues can be allocated, so profit can be calculated

average cost (formula)

total cost of producing this item / number of units produced

marginal cost

the additional costs of producing one more unit of output

break-even analysis

uses cost and revenue data to determine the break-even point of production

Margin of Safety

the amount by which the output level exceeds the break-even level of output

trade receivables

Money owed to the business from sales made but not yet paid for

Trade payables

Money the business owes from supplies purchased but not yet paid for

budgeting

planning future activities by establishing performance targets, especially financial ones

Budget holder

individual responsible for the initial setting and achievement of a budget