Capital
The money provided by the owners in a business
Internal finance
Money generated by the business or its current owners
Retained profit
Profit after tax that is 'ploughed back' into the business
Revenue expenditure
Spending on business resources that have already been consumed or will be very shortly
Authorised share capital
The maximum amount that can be legally raised
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
Capital gain
The profit made from selling a share for more than it was bought
Crowd funding
Where a large number of individuals invest in a business or project on the internet, avoiding the use of a bank
Equities
Another name for an ordinary share
External finance
Money raised from outside the business
Share capital
Money introduced into the business through the sale of shares
Venture capitalism
Providers of funds for small or medium-sized companies that may be considered too risky for other investors
Incorporated business
A business model in which the business and the owner(s) have separate legal identities
Limited liability
A legal status that means shareholders can only lose the original amount they invested in a business
Long-term finance
Money borrowed for more than one year
Unincorporated businesses
A business model in which there is no legal difference between the owner(s) and the business
Unlimited liability
A legal status which means that business owners are liable for all business debts
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
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
Cash inflows
The flow of money into a business
Cash outflows
The flow of money out of a business
Net cash flow
The difference between the cash flowing in and the cash flowing out of a business in a given time period
Consumer trends
The habits or behaviours of consumers that determine the goods and services they buy
Economic growth
The rise in output of an economy as measured by the growth in GDP usually as a percentage
Forecasting
A business process, assessing the probable outcome using assumptions about the future
Sales forecast
Projection of future sales revenue, often based on previous sales data
Average cost or unit cost
The cost of producing one unit, calculated by dividing the total cost by the output
Fixed cost
A cost that does not change as a result of a change in output in the short run
Profit
The difference between total costs and total revenue. It can be negative.
Sales revenue
The value of output sold in a particular time period. It is calculated by price x quantity of output
Sales volume
The quantity of output sold in a particular time period
Total cost
The entire cost of producing a given level of output
Total revenue
The amount of money the business receives from selling output
Variable cost
A cost that rises as output rises
Break-even
When a business generates just enough revenue to cover its total costs
Break-even chart
A graph containing the total cost and total revenue lines, illustrating the break-even output
Break-even output
The output a business needs to produce so that its total revenue and total costs are the same
Break-even point
The point at which total revenue and total costs are the same
Contribution
The amount of money left over after variable costs have been subtracted from revenue. The money contributes towards fixed costs and profit.
Margin of safety
The range of output between the break-even level and the current level of output, over which a profit is made
Budget
A quantitative economic plan prepared and agreed in advance
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
Historical figures
Quantitative information based on past trading records
Sales budget
A firm's planned sales for a future period of time - can be measured in terms of volume or revenue
Variance
The difference between actual financial outcomes and those budgeted
Variance analysis
The process of calculating variance and attempting to identify their causes
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).
Cost of sales
The direct costs of a business
Gross profit
The difference between revenue/turnover and cost of sales
Gross profit margin
Gross profit expressed as a percentage of revenue/turnover
Operating profit
The difference between gross profit and business overheads, such as selling and administrative expences
Operating profit margin
Operating profit expressed a percentage of revenue/turnover
Profit for the year or net profit
The difference between operating profit and interest and exceptional items
Profit for the year margin or net profit margin
Net profit after tax, expressed as a percentage of revenue/turnover
Revenue or turnover
The total income of a business resulting from sales of goods or services
Acid test ratio
Similar to the current ratio but excludes stocks for current assets. A more severe test of liquidity.
Assets
Resources that belong to a business
Capital
Money put into the business by the owners
Current assets
Liquid assets ie those assets that will be converted into cash within one year
Current liabilities
Money owed by the business that must be repaid within one year
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.
Inventories
Stocks, such as raw materials and finished goods held by a business
Liabilities
Money owed by the business to banks and suppliers, for example
Liquidity
The ease with which assets can be converted into cash
Net assets
Total assets - total liabilities
Non-current assets
Long-term resources that will be used by the business repeatedly over a period of time
Non-current liabilities
Money owed by the business for more than one year, sometimes called long-term liabilities
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
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
External factors
Factors beyond the control of businesses cause it to collapse
Internal factors
Factors that business are able to control cause it to collapse
Overtrading
The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast
Batch production
A method that involves completing one operation at a time on all units before performing the next
Capital intensive
Production methods that make more use of machinery relative to labour
Capital productivity
The amount of output each unit of capital (one machine) produces
Cell production
Involves producing a family of products in a small self-contained unit (a cell) within a factory
Efficiency
Producing a level of output where average cost is minimised
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
Job production
A method of production that involves employing all factors to complete one unit of output at a time
Kaizen
A Japanese term that means continuous improvement
Labour intensive
Production methods that make more use of labour relative to machinery
Labour productivity
The amount of output each unit of labour (one worker) produces
Lean production
An approach to operations that focuses on the reduction of resource use
Outsourcing
Giving work to sub-contractors to reduce costs
Studied by 1 Person