Business Topic 1.3 Flashcards
Key terms
Aims
a general statement of where you’re heading, for example ‘to get to university’.
Market share
he percentage of a market held by one company or brand.
Objectives
a clear, measurable goal, so success or failure is clear to see.
SMART objectives
targets that are specific,
measurable, achievable, realistic and time-bound.
Survival
keeping the business going, which ultimately depends on determination and cash.
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, for example six per cent per year.
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.
Sales revenue formula
price × quantity sold
Total costs formula
variable costs + fixed costs
Profit formula
total revenue – total costs
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.
Break-even output formula
fixed costs/(price – variable costs)
Margin of safety
sales – break-even output
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.
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.
Opening balance
the amount of cash in the bank at the start of the month.
Crowdfunding
raising capital online from
many small investors (but not through the stock
market).
Dividens
payments made to shareholders
from the company’s yearly profi ts. 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 profi ts.
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 fl ow.
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.
