Studied by 0 peopleCapital
The money provided by the owners in a business
Capital expenditure
Spending on business resources that can be used repeatedly over a period of time
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
Sale and leaseback
The practice of selling assets, such as property or machinery, and leasing them back from the buyer
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
Debenture
A long-term loan to a business
Equities
Another name for an ordinary share
External finance
Money raised from outside the business
Issued share capital
Amount of current share capital arising from the sale of shares
Lease
A contract to acquire the use of resources such as property or equipment
Peer-to-peer lending (P2PL)
Where individuals lend to other individuals without prior knowledge of them, on the internet
Permanent capital
Share capital that is never repaid by the company
Secured loans
A loan where the lender requires security, such as property, to provide protection in case the borrower defaults
Share capital
Money introduced into the business through the sale of shares
Unsecured loans
Where the lender has no protection if the borrower fails to repay the money owed
Venture capitalism
Providers of funds for small or medium-sized companies that may be considered too risky for other investors
Collateral
An asset that might be sold to pay a lender when a loan cannot be repaid
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
Rights issue
Issuing new shares to existing shareholders at a discount
Short-term borrowing
Money borrowed for 12 months or less
Undercapitalised
A business not raising enough capital when setting up
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
Solvency
The degree to which a business is able to meet its debts when they fall due
Consumer income
The amount of income remaining after taxes and expenses have been deducted from wages
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
Economic variables
Measures within the economy which have effects on business and consumers. Examples include unemployment, inflation and exchange rates
Extrapolation
Forecasting future trends based on past data
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
Time series data
A method that allows a business to predict future levels from past figures
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
Long run
The time period where all the factors of production are variable
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
Semi-variable cost
A cost that consists of both fixed and variable elements
Short run
The time period where at least one factor of production is fixed
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
Production cost budget
A firm's planned production costs for a future period of time
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).
Amortisation
The writing off of an intangible asset
Cost of sales
The direct costs of a business
Exceptional costs
A one off cost, such as a large bad debt
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
Statement of comprehensive income
A financial document showing a company's income and expenditure over a particular time period, usually one year
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.
Intangible assets
Non-physical assets, such as brand names, patents and customer lists
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
Shareholders' equity
The amount of money owed by the business to the shareholders
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
Trade and other payables
Money owed by the business to suppliers and utilities, for example. Sometimes called trade creditors
Trade and other receivables
Money owed to the business by customers and any prepayments made by the business
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
Administration
A failing business appoints a specialist to rescue the business or wind it up
External factors
Factors beyond the control of businesses cause it to collapse
Note
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