Business T2

1.6, 3.1, 3.2, 3.3, 3.4

multinational company

A business organisation that operates in multiple countries beyond its home country

host country

nation where an MNC establishes operations outside of its home country

foreign direct investment

Investment made by a company or individual from one country into a business or assets in another country

gross domestic product

The total monetary value of all goods and services produced within a country's borders over a specific period

tax revenue

Income collected by a government through various taxes imposed on individuals, businesses,etc

cultural identity

collective values or traditions that influence a specific group of consumer’s behaviour and purchasing decisions

globalisation

The increasing integration and interdependence of economies, societies, and cultures across the world.

protectionism

government imposes restrictions, e.g tariffs to protect its domestic industries from foreign competition

STEEPLE analysis

Social, Technology, Economic, Environmental, Political, Legal, Ethical

STEEPLE

demographics, population growth, age distribution

STEEPLE

technological growth, new innovation, skilled resources

STEEPLE

economic growth, exchange rates, interest rates

STEEPLE

weather, climate change, environmental policy

STEEPLE

government policy, tax, political stability

STEEPLE

the court system, employment law, discrimination law

STEEPLE

bribery, reputation

decision tree

used to make a decision in an organisation, shows different options available, probability, possible outcomes, expect value

decision tree key

square - decision node (choice)

circle - chance node (uncertain outcome)

line - branch (decision or outcome)

crossed line - indicates option is not selected

net expected value =

expected value - cost

purpose of finance

supports business growth and expansion, maintain liquidity, maximize profit

liquidity

how easily a business can raise cash to repay the short term debt (less than a year)

role of finance - capital expenditure

money spent by business on long term assets that will be used for more than a year e.g purchase of machinery

role of finance - revenue expenditure

money spent on day to day operations of a business e.g rent

fixed cost

cost do not change with output e.g rent

variable cost

cost changes directly with output e.g raw materials

direct cost

cost linked to the product of specific product or units of output e.g labour cost

indirect cost

cost that is not directly linked to the production of a specific product e.g insurance

total revenue formula

price per unit x quantity sold

average revenue formula

total revenue / quantity

average fixed cost formula

total fixed cost / quantity

total cost formula

total fixed cost + total variable cost

average total cost formula

total cost / quantity

profit formula

total revenue - total cost

revenue stream

income/revenue earned by businesses apart from regular business activity

primary source of revenue

sales - income from selling goods and services

other sources of revenue

subscription, advertising, sponsorship, royalty - all dividend

final accounts

is the financial statement prepared by the business at the end of an accounting period

type of final accounts

profit and loss account - income statement
balance sheet - statement of financial position

cash flow statement

stakeholder interest in final accounts

government - legal, contribution to economy, tax payments

employees - profit, salary and wages increase

customer - reputation, profit

cost of sales formula

opening stock + purchase - closing stock

component

A finished or semi-finished item that is incorporated into a larger product e.g car engine

inventory

stock of raw materials

external finance

Funds sourced from outside the organisation e.g bank loans

internal finance

Funds generated within the organisation e.g sales of assets

personal funds

Money contributed by the business owner(s) from their personal savings

sales of assets

The process of selling tangible or intangible assets to generate cash e.g buildings, equipment

overdraft

short-term borrowing option provided by banks, allowing businesses to withdraw more than their account balance

share capital

Funds raised by issuing shares to investors in exchange for partial ownership in the business

loan capital

money borrowed from banks for a specific purpose

trade credit

An agreement between businesses and suppliers that allows the business to purchase goods or services and pay for them at a later date, typically within 30-90 days.

crowdfunding

method of raising capital by appealing to a large number of small investors

business angels

individuals who invest in small businesses or startups in exchange for equity ownership

equity capital

Funds provided by the owners or shareholders of a business in exchange for ownership

instalment

periodic payment made to repay a loan or purchase an asset

current assets

Assets that a company expects to convert into cash within one year, such as cash itself

current liabilities

Short-term financial obligations that a company needs to pay off within one year

depreciation

gradual reduction in the value of a tangible fixed asset over time due to wear and tear

intellectual property

Legal rights granted to the creators of original works

patent

form of intellectual property that grants the inventor exclusive rights to make, use, and sell an invention for a specified period, usually 20 years, in exchange for public disclosure of the invention.

trade credit

enables a customer to purchase and obtain goods and services but to pay for these at a later date

dividends

payments made by companies to their shareholders based on the number of shares they own

current asset

assets expected to be turned into cash within 1 year

non current asset

assets used by the business for more than 1 year

current liability

debts to be paid within 1 year

non current liability

debt payable for more than 1 year

share capital

a finance raised through the issuing of shares via a stock exchange

loan capital

money borrowed from the bank

microfinance

offer a financial service to those without a job or on very low incomes

peer to peer lending

online platforms where businesses borrow money directly from investors

debtors

an individual or company that has a financial obligation to another party

creditors

business that is owed money from a debtor

debentures

loan from the public

equity

ownership in an asset or company

copyright

legal protection for creative work

goodwill

value of a business reputation, customer relationship and brand image

parts of non current asset

property, plant and equipment

accumulated depreciation

parts of current assets

stock

cash

debtors

parts of current liabilities

bank overdraft

trade creditors

other short term loans (less than a year)

parts of non current liabilities

mortgage

long term loan over a year

public limited company

registered in stock exchange, shares are sold to general public, the investors gets divided

private limited company

owned by family or friends, owners are called shareholders, can’t sell shares to public, limited liability