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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Production
The transformation of resources into goods or services
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Productivity
The output per unit of input per time period
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Specialisation
In business, the production of a limited range of goods
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Capacity utilisation
The use that a business makes of its resources
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Over-utilisation
The position where a business is running at full capacity and 'straining' resources
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Under-utilisation
The position where a business is producing at less than full capacity
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Buffer stocks
Stocks held as a precaution to cope with unforeseen demand
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Lead time
The time between placing the order and the delivery of goods
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Re-order level
The level of current stock when new orders are placed
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Re-order quantity
The amount of stock ordered when an order is placed
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Stock rotation
The flow of stock into and out of storage
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Quality
Features of a product that allow it to satisfy customers' needs. It may refer to some standard of excellence.
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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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Quality chains
When employees form a series of links between customers and suppliers in business, both internally and externally
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Quality control
Making sure that the quality of a product meets specified quality performance criteria
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Statistical process control
The collection of data about the performance of a particular process in a business