Ib Business Management HL Key Terms

Entrepreneur

an individual who demonstrates enterprise and initiative in order to make a profit

Intrapreneur

an individual employed by a large organization who demonstrates entreprenurial thinking in the development of new products

Sole trader

a person who owns and runs their own business and who has complete control over decisions

Partnership

a business owned and controlled by two or more people who share responsibility and decision making

Company

a business organization established for a specific purpose and registered according to local or national legislation

Vision statement

a philosophy, vision or set of principles which steers the direction and behaviour of an organization

Stakeholder

an individual or group who has an interest, often financial, in the activities and success of an organization

Shareholder

an individual who owns a share or shares in a company

Competitor

another business or organisation offering very similar goods or services

Fixed Costs

costs which do not change according to the amount of goods or services produced by the business

Variable Costs

costs which increase or decrease according to the amount of goods or services produced

Outsourcing

when a business subcontracts a process, such as manufacturing or packaging, to another business/organization

Offshoring

outsourcing a process or service to another country in order to reduce costs

Intrinsic Motivation

motivation which comes from the satisfaction of carrying out a particular activity

Extrinsic Motivation

motivation derived from external factors, such as money

Personal Funds

a source of finance for sole traders that comes mostly from their own personal savings

Retained Profit

profit that remains after a business has paid corporation tax to the government and dividends to shareholders

Sale of assets

when a business sells off its unwanted or unused assets to raise funds

Share Capital

money raised from the sale of shares of a limited company

Loan Capital

money sourced from financial institutions such as banks, with interest charged on the loan to be repaid

Overdrafts

when a lending institutions allows a firm to withdraw more money that it currently has in its account

Trade credit

an agreement between businesses that allows the buyer of goods and services

Grants

funds, usually provided a government, foundation, trust or other agency, to a business that does not need to be repaid

Subsidies

financial assistance granted by a government, NGO, or an individual to support business enterprises that are in the public interest

Debt factoring

a financial arrangement when the debt factor takes on the responsibility for collecting the debt owed to the busines and provided the business with a percentage of the owed debt in cash

Leasing

a source of finance that allows a firm to use an asset without having to purchase it by cash

Venture Capital

financial capital provided by investors to high-risk, high potential start-up firms or small businesses

Business Angels

highly affluent individuals who provide financial capital to small start-ups or entrepreneurs in return for ownership equity in their businesses

Semi-variable Costs

costs comprising both fixed and variable costs

Direct Costs

costs that can be identified with the production of specific goods or services

Indirect Costs (Overheads)

costs that are not clearly identified with the production of the specific goods or services

Revenue

a measure of the money made from the sale of goods and services

Total Revenue

the total amount of money a firm receives from the sale of goods and services, found by multiplying price per unit by the number of units sold

Contribution per unit

the difference between the selling price per unit and variable cost per unit

Total Contribution

the difference between the total sales revenue and the toal variable costs

Profit

obtained by subtracting total fixed costs from total contribution

Break-even quantity

a measure of output where total revenue = total costs

Margin of Safety

the output amount that exceeds the break-even quantity

Target Profit Output

the level of output that is needed to earn a specified amount of profit

Profit and Loss Account (Income Statement)

shows the recored of income and expenditure flows of a business over a given time period

Cost of goods sold (COGS)

the direct cost of producing or purchasing the goods that were sold during that period

Gross Profit

found by deducting cost of goods sold from sales revenue

Net Profit before Interest and Tax

the difference between gross profit and expenses

Net Profit after Interest and Tax

equal to net profit before tax minus tax

Dividends

a sum of money paid to shareholders decided by the board of directors of a company

Balance Sheet

a financial statement that outlines the assets, liabilities andequity of a firm at a specific point in time

Assets

resources of value that a business owns or that are owed to it

Liabilities

a firm's legal debts or what it owes to other firms, institutions or individuals

Working Capital (Net Current Assets)

helps establish whether a firm can pay its day-o-day running costs

Net Assets

found by subtracting long-term liabilities from total assets less current liabilities

Equity (Shareholders' Equity)

shows how the net assets are financed using shareholders' captial and retained profit

Intangible assts

fixed assets that lack physical substance or are non-physical in nature

Patents

provide inventors with the exclusive rights to manufacture, use, sell or control their invention of a product

Goodwill

the value of positive or favourable attributes that relate to a business

Copyright Laws

laws that provide creators with the exclusive rights to protect the production and sale of their artistic or literary work

Trademark

a recognisable symbol, word, phrase or design that is officially registered and that identifies a product of business

Depreciation

the decrease in the value of a fixed asset over time

Straight-line depreciation

a method that spreads out the cost of an asset equally over its lifetime by deducting a given constant amount of depreciation of the assest's value per annum

Residual value

an estimation of an asset's worth or value over its useful life, also known as scrap or salvage

Net Book Value

an asset's net value at the beginning of an accounting period, calculated by deducting the accumulated (total) depreciation from the cost of the fixed asset

Reducing-balance depreciation

a method where a predetermined percentage depreciation rate is used and subtracted from the net book value of the previous year

Gross Profit Margin (GPM)

calculated by dividing the gross profit by the sales revenue, expressed as a percentage

Net Profit Margin (NPM)

calculated by dividing the net profit before interest and tax by the sales revenue, exprssed as a percentage

Return On Capital Employed (ROCE)

assesses the returns a firm is making from its capital employed

Current Ratio

a ratio that compares a firm's current assets to its current liabilities

Acid Test Ratio

a stringent ratio that subtracts stock from the current assets and compares this to the firm's current liabilities

Stock Turnover Ratio

measures how quickly a firm's stock is sold and replaced over a given period

Debtor Days Ratio

measures on average, the number of days it takes for a firm to collect its debts

Creditor Days Ratio

measures the average number of days it takes a firm to pay its creditors

Gearing Ratio

measures the extent to which the capital employed by a firm is financed from loan capital

Cash Flow

money that flows in and out of a business over a given period of time

Profit

the positive difference between sales revenue and total costs

Insolvency

a situation where a business runs out of cash but may still be profitable

Working Capital

the difference between current assets and current liabilities

Liquidation

a situation where all a firm's assets are sold off to pay any funds owing

Working Capital Cycle

the period of time between payment for goods supplied to a business and the business receiving cash from their sale

Cash Flow Forecast

the future prediction of a firm's cash inflows and outflows over a given period of time

Investment

the act of spending money on purchasing an asset with the expectation of future earnings

Investment Appraisal

the quantitative techniques used in evaluating the viability or attractiveness of an investment proposal

Payback Period

the length of time required for an investment project to pay back its initial cost outlay

Average Rate of Return (ARR)

measures the annual net return on an investment as a percentage of its captial cost

Discounted Cash Flow

uses a discount factor that converts future cash flows to their present value

Net Present Value (NPV)

the difference in the summation of present values of future returns and the original cost of investment

Budget

a quantitative financial plan that estimates the revenue and expenditure over a specified future time period

Budget Holder

a person involved in the formulation and achievement of a budget

Cost Centre

a section of a business where costs are incurred and recorded

Profit Centre

a section of a business where both costs and revenues are identified and recorded

Variance

the difference between the budgeted figure and the actual figure

Favourable Variance

when the difference between the budgeted and actual figure is beneficial to the firm

Adverse Variance

when the difference between the budgeted and actual amuonts is financially costly to the firm

Strategic Planning

an organisation's systematic process of defining its future direction and deciding on how to allocate its resources accordingly to fulfil this vision

Marketing

the management process of getting the right product to the right customer at the right price at the right place and time

Marketing of Goods

the use of the 4 Ps of product, price, place and promotion in the marketing mix

Marketing of Services

the use of the 7Ps of product, price, place, promotion, process, people and physical in the marketing mix

Product Orientation

a business approach that focuses on making the product first before attempting to sell it

Market Orientation

a business approach of first establishing consumer demand through market research before producing and selling a product

Commercial Marketing

marketing activities that determine consumer needs and wants before using appropriate strategies to market the product

Social Marketing

a marketing approach aimed at influencing a positive change in individual behaviors and improvements in societal well-being

Social Media Marketing

the use of the Internet through social media websites to market a firm's product or servcice

Market Size

the total sales of all firms in a market