Unit 5: Key Terms Business A-Level

Financial objectives

The goals or targets related to the financial performance of a business

Income statements

A financial statement that shows you the company's income and expenditures

Gross profit

The selling price of your product minus the cost of producing it

Direct costs

A price that can be directly tied to the production of specific goods or services

Indirect costs

The expenses a business incurs that are not directly related to making a product or service

Operating profit

The net income derived from a company's core operations

Profit for the year

Measure net resources (after consideration of capital depreciation) staying in the company

Investment

The act of buying an asset to make a profit from its use

Non-current assets

The assets and property owned by a business that are not easily converted to cash within a year

Capital expenditure

The funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment

Capital structure

The specific mix of debt and equity that a company uses to finance its operations and growth

Budgets

A detailed plan of income and expenses expected over a certain period of time

Variance analysis

A method of assessing the difference between estimated budgets and actual numbers

Cash flow forecasts

This estimates the expected flow of cash coming in and out of your business, across all areas, over a given period of time

Break-even output

The point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss

Contribution

The amount of earnings remaining after all direct costs have been subtracted from revenue

Trade credit

A business-to-business (B2B) agreement in which a customer can purchase goods without paying cash up front, and paying the supplier at a later scheduled date

Margin of safety

The amount sales can fall before the break-even

Profitability

A measure of an organisation's profit relative to its expenses

Profit margin

A common measure of the degree to which a company or a particular business activity makes money

Internal sources of finance

Money that comes from inside the business

External sources of finance

Money that comes from outside a business

Short term finance

Funds that generally have to be paid back within a year

Long term finance

Any financial instrument with maturity exceeding one year

Bank loan

A business borrows money from a bank and then pays interest on the money borrowed

Overdraft

An agreement that allows you to keep making payments such as staff wages or day-to-day expenses even when there is no money in the business bank account

Venture capital

A type of private equity financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential

Share capital

The money invested in a company by the shareholders

Mortgages

A sum of money borrowed from the bank that is secured against a property and paid back in instalments

Debentures

A loan agreement in writing between a borrower and a lender that is registered at Companies House

Crowdfunding

The use of small amounts of capital from a large number of individuals to finance a new business venture

Profit

The difference between the total revenue of a business and its’ total costs

Cash Flow

The difference between Cash Inputs and Cash Outputs

Cash Inputs

Money received from customers for sale of products or rent charges of interest received for a loan

Cash Outputs

Money paid to suppliers, rent paid on property, interest charges for a loan or overdraft

Net Cash Flow

Sum of inputs and outputs shows whether a company’s cash flow is positive or negatives

Return on investment

Measure of the financial reward or return from the use of an asset or group of assets (%)

Debts

Money owed by a business (or individual) to another business for supplies, products, or services such as a Bank loan

Receivables

Money owed by customer of a business for goods or services they have bought but not paid for yet

Depreciation

The fall in value of an asset over a period of time due to wear and tear and possible obsolescence due to replacement by newer, more advanced, equipment

Gearing

Measures the level of debt or borrowing as a proportion of long term funding of a business

Working capital

The balance of short-term capital available to run the business day to day

Liquidity

Quickly turning assets into cash

Overtrading

When businesses expand too quickly without ensuring they have sufficient working capital to support the increased sales