1.3

Question 1

Fixed costs

Answer 1

Costs that don’t vary just because output varies, for example rent.

Question 2

Interest

Answer 2

The charges made by banks for the cash they have lent to a business.

Question 3

Profit

Answer 3

The difference between revenue and total costs; if the figure is negative the business is making a loss.

Question 4

Revenue

Answer 4

The total value of the sales made within a set period of time, such as a month.

Question 5

Total costs

Answer 5

All the costs for a set period of time, such as a month.

Question 6

Variable costs

Answer 6

Costs that vary as output varies, such as raw materials.

Question 7

Break-even

Answer 7

The level of sales at which total costs are equal to total revenue. At this point the business is making neither a profit nor a loss.

Question 8

Break-even chart

Answer 8

A graph showing a company’s revenue and total costs at all possible levels of output.

Question 9

Margin of safety

Answer 9

The amount by which demand can fall before the business starts making losses.

Question 10

Cash

Answer 10

The money the firm holds in notes and coins, and in its bank accounts.

Question 11

Cash flow

Answer 11

The movement of money into and out of the firm’s bank account.

Question 12

Insolvency

Answer 12

When a business lacks the cash to pay its debts.

Question 13

Overdraft

Answer 13

The amount of the agreed overdraft facility that the business uses.

Question 14

Overdraft facility

Answer 14

An agreed maximum level of overdraft.

Question 15

Cash flow forecast

Answer 15

Estimating the likely flows of cash over the coming months and, therefore, the overall state of one’s bank balance.

Question 16

Opening balance

Answer 16

The amount of cash in the bank at the start of the month.

Question 17

Closing balance

Answer 17

The amount of cash left in the bank at the end of the month.

Question 18

Negative cash flow

Answer 18

When cash outflows are greater than cash inflows.

Question 19

Net cash flow

Answer 19

Cash in minus cash out over the course of a month.

Question 20

Crowdfunding

Answer 20

Raising capital online from many small investors (but not through the stock market).

Question 21

Dividends

Answer 21

Payments made to shareholders from the company’s yearly profits. The directors of the company decide how large a dividend payment to make;in a bad year they can decide on zero.

Question 22

Retained profit

Answer 22

Profit kept within the business (not paid out in dividends); this is the best source of finance for expansion.

Question 23

Share capital

Answer 23

Raising finance by selling part-ownership in the business. Shareholders have the right to question the directors and to receive part of the yearly profits.

Question 24

Trade credit

Answer 24

When a supplier provides goods but is willing to wait to be paid – for perhaps up to three months. This helps with cash flow.

Question 25

Venture capital

Answer 25

A combination of share capital and loan capital, provided by an investor willing to take a chance on the success of a small to medium-sized business.