business theme 2

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Capital

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118 Terms
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Capital

The money provided by the owners in a business

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Internal finance

Money generated by the business or its current owners

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Retained profit

Profit after tax that is 'ploughed back' into the business

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Revenue expenditure

Spending on business resources that have already been consumed or will be very shortly

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Authorised share capital

The maximum amount that can be legally raised

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Bank overdraft

An agreement between a business and a bank that means a business can spend more money that it has in its account (going 'overdrawn'). The overdraft limit is agreed and interest is only charged when the business goes overdrawn

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Capital gain

The profit made from selling a share for more than it was bought

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Crowd funding

Where a large number of individuals invest in a business or project on the internet, avoiding the use of a bank

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Equities

Another name for an ordinary share

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External finance

Money raised from outside the business

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Share capital

Money introduced into the business through the sale of shares

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Venture capitalism

Providers of funds for small or medium-sized companies that may be considered too risky for other investors

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Incorporated business

A business model in which the business and the owner(s) have separate legal identities

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Limited liability

A legal status that means shareholders can only lose the original amount they invested in a business

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Long-term finance

Money borrowed for more than one year

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Unincorporated businesses

A business model in which there is no legal difference between the owner(s) and the business

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Unlimited liability

A legal status which means that business owners are liable for all business debts

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Business plan

A plan for the development of a business, giving details such as the products to be made, resources needed, and forecasts such as costs, revenues and cash flow

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Cash-flow forecast

The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month

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Cash inflows

The flow of money into a business

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Cash outflows

The flow of money out of a business

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Net cash flow

The difference between the cash flowing in and the cash flowing out of a business in a given time period

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Consumer trends

The habits or behaviours of consumers that determine the goods and services they buy

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Economic growth

The rise in output of an economy as measured by the growth in GDP usually as a percentage

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Forecasting

A business process, assessing the probable outcome using assumptions about the future

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Sales forecast

Projection of future sales revenue, often based on previous sales data

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Average cost or unit cost

The cost of producing one unit, calculated by dividing the total cost by the output

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Fixed cost

A cost that does not change as a result of a change in output in the short run

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Profit

The difference between total costs and total revenue. It can be negative.

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Sales revenue

The value of output sold in a particular time period. It is calculated by price x quantity of output

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Sales volume

The quantity of output sold in a particular time period

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Total cost

The entire cost of producing a given level of output

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Total revenue

The amount of money the business receives from selling output

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Variable cost

A cost that rises as output rises

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Break-even

When a business generates just enough revenue to cover its total costs

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Break-even chart

A graph containing the total cost and total revenue lines, illustrating the break-even output

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Break-even output

The output a business needs to produce so that its total revenue and total costs are the same

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Break-even point

The point at which total revenue and total costs are the same

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Contribution

The amount of money left over after variable costs have been subtracted from revenue. The money contributes towards fixed costs and profit.

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Margin of safety

The range of output between the break-even level and the current level of output, over which a profit is made

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Budget

A quantitative economic plan prepared and agreed in advance

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Budgetary control

A business system that involves making future plans, comparing the actual results with the planned results and then investigating the causes of any differences

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Historical figures

Quantitative information based on past trading records

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Sales budget

A firm's planned sales for a future period of time - can be measured in terms of volume or revenue

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Variance

The difference between actual financial outcomes and those budgeted

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Variance analysis

The process of calculating variance and attempting to identify their causes

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Zero-based budgeting or zero budgeting

A system of budgeting where no money is allocated for costs or spending unless they can be justified by the fund holder (they are given a zero value).

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Cost of sales

The direct costs of a business

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Gross profit

The difference between revenue/turnover and cost of sales

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Gross profit margin

Gross profit expressed as a percentage of revenue/turnover

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Operating profit

The difference between gross profit and business overheads, such as selling and administrative expences

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Operating profit margin

Operating profit expressed a percentage of revenue/turnover

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Profit for the year or net profit

The difference between operating profit and interest and exceptional items

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Profit for the year margin or net profit margin

Net profit after tax, expressed as a percentage of revenue/turnover

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Revenue or turnover

The total income of a business resulting from sales of goods or services

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Acid test ratio

Similar to the current ratio but excludes stocks for current assets. A more severe test of liquidity.

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Assets

Resources that belong to a business

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Capital

Money put into the business by the owners

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Current assets

Liquid assets ie those assets that will be converted into cash within one year

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Current liabilities

Money owed by the business that must be repaid within one year

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Current ratio

Assesses whether or not a business has enough resources to meet any debts that arise in the next 12 months. It is found by dividing current liabilities into current assets.

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Inventories

Stocks, such as raw materials and finished goods held by a business

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Liabilities

Money owed by the business to banks and suppliers, for example

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Liquidity

The ease with which assets can be converted into cash

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Net assets

Total assets - total liabilities

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Non-current assets

Long-term resources that will be used by the business repeatedly over a period of time

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Non-current liabilities

Money owed by the business for more than one year, sometimes called long-term liabilities

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Statement of financial position (balance sheet)

A summary at a particular point in time of the value of a firm's assets, liabilities and capital

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Working capital

The funds left over to meet day-to-day expenses after current debts have been paid. It is calculated by subtracting current liabilities from current assets

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External factors

Factors beyond the control of businesses cause it to collapse

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Internal factors

Factors that business are able to control cause it to collapse

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Overtrading

The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast

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Batch production

A method that involves completing one operation at a time on all units before performing the next

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Capital intensive

Production methods that make more use of machinery relative to labour

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Capital productivity

The amount of output each unit of capital (one machine) produces

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Cell production

Involves producing a family of products in a small self-contained unit (a cell) within a factory

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Efficiency

Producing a level of output where average cost is minimised

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Flow production

Large-scale production of a standard product, where each operation on a unit is performed continuously one after the other, usually on a production line

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Job production

A method of production that involves employing all factors to complete one unit of output at a time

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Kaizen

A Japanese term that means continuous improvement

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Labour intensive

Production methods that make more use of labour relative to machinery

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Labour productivity

The amount of output each unit of labour (one worker) produces

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Lean production

An approach to operations that focuses on the reduction of resource use

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Outsourcing

Giving work to sub-contractors to reduce costs

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