117-122 Finance Key terms

Question 1

Budget

Answer 1

Financial Plan for the future (1) aimed at controlling expenditure and/or revenues

Question 2

Variance Analysis

Answer 2

Checking the actual outcomes against predicted outcomes

Question 3

Adverse Variance

Answer 3

When the actual figure leads to less overall profit than what the business predicted

Question 4

Favourable Variance

Answer 4

When the actual figure leads to more overall profit than what the business predicted

Question 5

Internal Source of finance

Answer 5

Generated from within the business, ie sale of assets, re-invested profit, owners capital

Question 6

External Source of finance

Answer 6

Generated from outside the business, ie bank loan, trade credit, leasing, overdraft

Question 7

Overdraft

Answer 7

When a bank allows a customer to take out more money than what is in their account, to be paid back later perhaps at interest or a fee,
Short term method

Question 8

Loan

Answer 8

When a fixed amount is borrowed from a bank to be paid back over a set period of time, long term

Question 9

Share Capital

Answer 9

The money invested by the shareholders into a business in the long term, in return for investment shareholders gain ownership

Question 10

Venture Capital

Answer 10

Investment in a small-medium business at a high risk for high stake and control in the business,
More appropriate for smaller businesses

Question 11

Leasing

Answer 11

Where a business pays for the use of an asset/equipment but does not fully own the asset outright

Question 12

Debt Factoring

Answer 12

A business can raise cash by selling their money owed by customers to a debt factoring company at a discount.
Short term solution when business has cashflow problems

Question 13

Trade Credit

Answer 13

When a business purchases from another business but agrees to pay at a later date

Question 14

Cash Flow forcast

Answer 14

A projection/prediction of the likely inflows and outflows of cash within a business

Question 15

Income Statement

Answer 15

Shows a business financial performance over a set period of time

Question 16

Gross Profit

Answer 16

Selling price of a product - Cost of producing it (direct costs)

Question 17

Cost of Goods Sold (Cost of Sales)

Answer 17

The direct costs related to the supply of a product or service

Question 18

Net Profit

Answer 18

Measures revenue minus all the expenses

Gross profit - expenses or indirect costs

Question 19

Gross profit margin

Answer 19

Gross profit / Sales revenue x 100

Shows how well a business produces his production costs

Question 20

Net profit margin

Answer 20

Net profit / Sales revenue x 100

Shows how effectively a business controls all its expenses