1.3 Flashcards
Fixed costs
Costs that don’t vary just because output varies, for example rent.
Interest
The charges made by banks for the cash they have lent to a business.
Profit
The difference between revenue and total costs; if the figure is negative the business is making a loss.
Revenue
The total value of the sales made within a set period of time, such as a month.
Total costs
All the costs for a set period of time, such as a month.
Variable costs
Costs that vary as output varies, such as raw materials.
Break-even
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.
Break-even chart
A graph showing a company’s revenue and total costs at all possible levels of output.
Margin of safety
The amount by which demand can fall before the business starts making losses.
Cash
The money the firm holds in notes and coins, and in its bank accounts.
Cash flow
The movement of money into and out of the firm’s bank account.
Insolvency
When a business lacks the cash to pay its debts.
Overdraft
The amount of the agreed overdraft facility that the business uses.
Overdraft facility
An agreed maximum level of overdraft.
Cash flow forecast
Estimating the likely flows of cash over the coming months and, therefore, the overall state of one’s bank balance.
Opening balance
The amount of cash in the bank at the start of the month.
Closing balance
The amount of cash left in the bank at the end of the month.
Negative cash flow
When cash outflows are greater than cash inflows.
Net cash flow
Cash in minus cash out over the course of a month.
Crowdfunding
Raising capital online from many small investors (but not through the stock market).
Dividends
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.
Retained profit
Profit kept within the business (not paid out in dividends); this is the best source of finance for expansion.
Share capital
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.
Trade credit
When a supplier provides goods but is willing to wait to be paid – for perhaps up to three months. This helps with cash flow.
Venture capital
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.
