business theme 2

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Capital

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Business

12th

key terms

118 Terms

1

Capital

The money provided by the owners in a business

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2

Internal finance

Money generated by the business or its current owners

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3

Retained profit

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

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4

Revenue expenditure

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

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5

Authorised share capital

The maximum amount that can be legally raised

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6

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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7

Capital gain

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

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8

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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9

Equities

Another name for an ordinary share

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10

External finance

Money raised from outside the business

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11

Share capital

Money introduced into the business through the sale of shares

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12

Venture capitalism

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

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13

Incorporated business

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

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14

Limited liability

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

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15

Long-term finance

Money borrowed for more than one year

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16

Unincorporated businesses

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

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17

Unlimited liability

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

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18

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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19

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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20

Cash inflows

The flow of money into a business

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21

Cash outflows

The flow of money out of a business

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22

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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23

Consumer trends

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

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24

Economic growth

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

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25

Forecasting

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

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26

Sales forecast

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

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27

Average cost or unit cost

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

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28

Fixed cost

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

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29

Profit

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

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30

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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31

Sales volume

The quantity of output sold in a particular time period

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32

Total cost

The entire cost of producing a given level of output

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33

Total revenue

The amount of money the business receives from selling output

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34

Variable cost

A cost that rises as output rises

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35

Break-even

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

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36

Break-even chart

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

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37

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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38

Break-even point

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

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39

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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40

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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41

Budget

A quantitative economic plan prepared and agreed in advance

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42

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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43

Historical figures

Quantitative information based on past trading records

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44

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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45

Variance

The difference between actual financial outcomes and those budgeted

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46

Variance analysis

The process of calculating variance and attempting to identify their causes

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47

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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48

Cost of sales

The direct costs of a business

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49

Gross profit

The difference between revenue/turnover and cost of sales

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50

Gross profit margin

Gross profit expressed as a percentage of revenue/turnover

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51

Operating profit

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

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52

Operating profit margin

Operating profit expressed a percentage of revenue/turnover

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53

Profit for the year or net profit

The difference between operating profit and interest and exceptional items

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54

Profit for the year margin or net profit margin

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

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55

Revenue or turnover

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

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56

Acid test ratio

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

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57

Assets

Resources that belong to a business

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58

Capital

Money put into the business by the owners

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59

Current assets

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

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60

Current liabilities

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

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61

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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62

Inventories

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

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63

Liabilities

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

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64

Liquidity

The ease with which assets can be converted into cash

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65

Net assets

Total assets - total liabilities

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66

Non-current assets

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

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67

Non-current liabilities

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

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68

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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69

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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70

External factors

Factors beyond the control of businesses cause it to collapse

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71

Internal factors

Factors that business are able to control cause it to collapse

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72

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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73

Batch production

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

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74

Capital intensive

Production methods that make more use of machinery relative to labour

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75

Capital productivity

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

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76

Cell production

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

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77

Efficiency

Producing a level of output where average cost is minimised

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78

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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79

Job production

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

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80

Kaizen

A Japanese term that means continuous improvement

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81

Labour intensive

Production methods that make more use of labour relative to machinery

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82

Labour productivity

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

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83

Lean production

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

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84

Outsourcing

Giving work to sub-contractors to reduce costs

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85

Production

The transformation of resources into goods or services

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86

Productivity

The output per unit of input per time period

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87

Specialisation

In business, the production of a limited range of goods

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88

Capacity utilisation

The use that a business makes of its resources

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89

Over-utilisation

The position where a business is running at full capacity and 'straining' resources

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90

Under-utilisation

The position where a business is producing at less than full capacity

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91

Buffer stocks

Stocks held as a precaution to cope with unforeseen demand

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92

Lead time

The time between placing the order and the delivery of goods

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93

Re-order level

The level of current stock when new orders are placed

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94

Re-order quantity

The amount of stock ordered when an order is placed

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95

Stock rotation

The flow of stock into and out of storage

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96

Quality

Features of a product that allow it to satisfy customers' needs. It may refer to some standard of excellence.

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97

Quality assurance

A method of working for businesses that takes into account customers' wants when standardising quality. It often involves guaranteeing that quality standards are met.

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98

Quality chains

When employees form a series of links between customers and suppliers in business, both internally and externally

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99

Quality control

Making sure that the quality of a product meets specified quality performance criteria

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100

Statistical process control

The collection of data about the performance of a particular process in a business

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