Key terms for business Flashcards
1
Q
Consumer goods:
A
the physical and tangible goods sold to the general public, they include durable consumer goods, such as cars and washing machines, and non-durable consumer goods, such as food, drinks and sweets than can be used only once.
2
Q
Consumer services:
A
the non-tangible products sold to the general public – they include hotel accommodation, insurance services and train journeys.
3
Q
Capital goods:
A
the physical goods used by industry to aid in the production of other goods and services, such as machines and commercial vehicles
4
Q
Creating value:
A
increasing the difference between the cost of purchasing bough-in materials and the price the finished goods are sold for
5
Q
Added value:
A
the difference between the cost of purchasing bought-in materials and the price the finished goods are sold for
6
Q
Opportunity cost:
A
the benefit of the next most desired option which is given up
7
Q
Entrepreneur:
A
someone who takes the financial risk of starting and managing a new venture
8
Q
Social enterprise:
A
a business with mainly social objectives than reinvests most of its profits into benefiting society rather than maximizing returns to owners.
9
Q
Triple bottom line:
A
the three objectives of social enterprises: economic, social, and environmental.
10
Q
Primary sector business activity:
A
firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed by other firms.
11
Q
Secondary sector business activity:
A
firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes-making, and construction.
12
Q
Tertiary sector business activity:
A
firms that provide services to consumers and other businesses, such as retailing, transport, insurance, banking, hotels, tourism, and telecommunications
13
Q
Public sector:
A
comprises organizations accountable to and controlled by central or local government
14
Q
Private sector:
A
comprises businesses owned and controlled by individuals or groups of individuals
15
Q
Mixed economy:
A
economic resources are owned and controlled by both private and public sectors
16
Q
Free-market economy:
A
economic resources are owned largely by the private sector with very little state intervention.
17
Q
Command economy:
A
economic resources are owned, planned, and controlled by the state
18
Q
Sole trader:
A
a business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profits.
19
Q
Partnership:
A
a business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities.
20
Q
Limited liability:
A
the only liability – or potential loss – a shareholder has if the company fails is the amount invested in the company, not the total wealth of the shareholder
21
Q
Private limited company:
A
a small to medium sized business that is owned by shareholders who are often members of the same family; this company cannot sell shares to the general public
22
Q
Share
A
a certificate confirming part ownership of a company and entitling the shareholder owner to dividends and certain shareholder rights
23
Q
Shareholder:
A
a person or institution owning shares in a limited company
24
Q
Public limited company:
A
a limited company, often a large business, with the legal right to sell shares to the general public – share prices are quoted on the national stock exchange
25
Memorandum of association:
this states the name of the company, the address of the head office through which it can be contacted, the maximum share capital for which the company seeks authorization and the declared aims of the business.
26
Articles of Association:
this document covers the internal workings and control of the business – for example, the names of directors and the procedures to be followed at meetings will be detailed.
27
Cooperative:
a jointly owned business that produces or distributes goods or services operated by members for their mutual benefit – as in consumers’ cooperatives or farmers cooperatives.
28
Franchise:
a business that uses the name logo and trading systems of an existing successful business.
29
Joint venture:
two or more businesses agree to work closely together on a particular project and create a separate business division to do so
30
Holding company:
a business organization that owns and controls a number of separate businesses, but does not unite them into one unified company
31
Public corporation:
a business enterprise owned and controlled by the state – also known as nationalized industry
32
Revenue:
total value of sales made by a business in a given time period
33
Capital employed:
the total value of all long-term finance invested in the business
34
Market capitalization:
the total value of a company’s issued shares
35
Market share:
sales of the business as a proportion of total market sales
36
Internal growth:
Internal growth: expansion of a business by means of opening new branches, ships, or factories (also known as organic growth)
37
Market share equation
(Total sales of business/Total sales of industry) x 100
38
Market capitalization equation.
Current share price x total number of shares issued.
39
SMART objectives:
Aims that are specific, measurable, achievable, realistic and time specific
40
corporate aim:
These are very long term goals that a business hopes to achieve
41
mission statement
A statement of the business’s core aims, phrased in a way to motivate employees and to stimulate interest by outside groups
42
corporate social responsibility
This concept applies to those businesses that consider the interests of society bu taking responsibility for the impact of their decisions and activities on the customers, employees, communities and the environment
43
Management by objectives:
a method of coordinating and motivating all staff in an organisation by dividing its overall aim into specific targets for each department, manager and employee
44
ethical code (code of conduct)
a document detailing a company’s rules and guidelines on staff behaviour that must be followed by all employees
45
stakeholders
People or groups of people who can be affected by - and therefore have an interest in - any action by an organisation
46
stakeholder concept:
The view that businesses and their managers hav responsibilities to a wide range of groups, not just shareholders
47
corporate social responsibility:
The concept that accepts that businesses should consider the interests of society in their activities and decisions, beyond the legal obligations that they have
48
Manager
responsible for setting objective, organising rescuers and motivating staff so that the organisation’s aims are met
49
leadership
The art of motivating a group of people towards achieving a common objective
50
autocratic leadership
A style of leadership that keeps all decision making at the centre of the organisation
51
democratic leadership
A leadership style that promotes the active participation of workers in taking decisions
52
paternalistic leadership
A leadership style based on the approach that the manager is in a better position than the workers to know what is best for an organisation
53
Laissez-faire leadership:
a leadership style that leaves
much of the business decision-making to the workforce – a
‘hands-of ’ approach and the reverse of the autocratic style.
54
Informal leader:
a person who has no formal authority but
| has the respect of colleagues and some power over them.
55
Emotional intelligence (EI):
the ability of managers to
understand their own emotions, and those of the people
they work with, to achieve better business performance.
56
Motivation:
the internal and external factors that
stimulate people to take actions that lead to achieving
a goal
57
Self-actualisation:
a sense of self-fulfilment reached by
feeling enriched and developed by what one has learned
and achieved.
58
Motivating factors (motivators):
aspects of a worker’s
job that can lead to positive job satisfaction, such as
achievement, recognition, meaningful and interesting work
and advancement at work
59
Hygiene factors:
aspects of a worker’s job that have the
potential to cause dissatisfaction, such as pay, working
conditions, status and over-supervision by managers.
60
Job enrichment:
aims to use the full capabilities of
workers by giving them the opportunity to do more
challenging and fulfilling work.
61
Time based wage rate:
payment to a worker made for
| each period of time worked, e.g. one hour.
62
Piece rate:
a payment to a worker for each unit produced.
63
Commission:
a payment to a sales person for each sale made.
64
Salary:
annual income that is usually paid on a
| monthly basis.
65
Bonus:
a payment made in addition to the contracted
| wage or salary.
66
Profit sharing:
a bonus for staf based on the profits of
| the business – usually paid as a proportion of basic salary
67
Performance-related pay:
a bonus scheme to reward
| staf for above-average work performance.
68
Fringe benefits:
benefits given, separate from pay, by an
| employer to some or all employees.
69
Job rotation:
increasing the flexibility of employees
and the variety of work they do by switching from one
job to another.
70
Job enlargement:
attempting to increase the scope of a
| job by broadening or deepening the tasks undertaken.
71
Job redesign:
involves the restructuring of a job – usually
with employees’ involvement and agreement – to make
work more interesting, satisfying and challenging.
72
Quality circles:
voluntary groups of workers who meet
| regularly to discuss work-related problems and issues.
73
Worker participation:
workers are actively encouraged
to become involved in decision-making within the
organisation.
74
Team-working:
production is organised so that groups of
| workers undertake complete units of work.
75
Human resource management (HRM):
the strategic approach to the effective management of an organisation’s workers so that they help the business gain a competitive advantage.
76
Recruitment:
the process of identifying the need for a new
employee, defining the job to be filled and the type of person
needed to fill it and attracting suitable candidates for the job.
77
Selection:
involves the series of steps by which the
candidates are interviewed, tested and screened for
choosing the most suitable person for vacant post.
78
Job description:
a detailed list of the key points about the
| job to be filled – stating all its key tasks and responsibilities
79
Person specification:
a detailed list of the qualities, skills
and qualifications that a successful applicant will need
to have.
80
Labour turnover:
measures the rate at which employees
are leaving an organisation. It is measured by:
number of employees leaving in 1 year / average number of people employed × 100
81
Employment contract:
a legal document that sets out
| the terms and conditions governing a worker’s job.
82
Training:
work-related education to increase workforce
| skills and efficiency.
83
Induction training:
introductory training programme
to familiarise new recruits with the systems used in the
business and the layout of the business site.
84
On-the-job training:
instruction at the place of work on
| how a job should be carried out.
85
Of -the-job training:
all training undertaken away from
| the business, e.g. work-related college courses.
86
Employee appraisal:
the process of assessing the
effectiveness of an employee judged against pre-set
objectives.
87
Dismissal:
being dismissed or sacked from a job due to
| incompetence or breach of discipline.
88
Unfair dismissal:
ending a worker’s employment contract
| for a reason that the law regards as being unfair.
89
Redundancy:
when a job is no longer required, the
employee doing this job becomes unnecessary through
no fault of their own
90
Work–life balance:
a situation in which employees are
able to give the right amount of time and ef ort to work and
to their personal life outside work, for example to family or
other interests.
91
Equality policy:
practices and processes aimed at
achieving a fair organisation where everyone is treated
in the same way and has the opportunity to fulfil their
potential.
92
Diversity policy:
practices and processes aimed at
creating a mixed workforce and placing positive value on
diversity in the workplace.
93
Marketing
The management task that links the business to the customer by identifying and meeting the needs of customers profitably - it does this by getting the right product at the right price to the right place at the right time
94
Marketing objectives:
The goals set for the marketing departments to help the business achieve its overall objectives
95
marketing strategy
Long term plan established for achieving marketing objectives
96
Market orientation:
an outward-looking approach basing
product decisions on consumer demand, as established by
market research.
97
Asset-led marketing:
an approach to marketing that
bases strategy on the firm’s existing strengths and assets
instead of purely on what the customer wants.
98
Product orientation:
an inward-looking approach
that focuses on making products that can be made –
or have been made for a long time – and then trying
to sell them.
99
Societal marketing:
this approach considers not only the
demands of consumers but also the ef ects on all members
of the public (society) involved in some way when firms
meet these demands
100
Demand:
the quantity of a product that consumers are
| willing and able to buy at a given price in a time period.
101
Supply:
the quantity of a product that firms are prepared
| to supply at a given price in a time period.
102
Equilibrium price
the market price that equates supply and demand for a product
103
Market size
The total level of sales of all producers within a market
104
Market growth
the percentage change in the total size of a market (volume or value) over a period of time
105
Market share
the percentage of sales in the total market
sold by one business. This is calculated by the following
formula:
firm’s sales in time period/ total market sales in time period x 100
106
Direct competitor:
businesses that provide the same or
| very similar goods or services.
107
USP
− unique selling point (or proposition): the special
| feature of a product that differentiation it from competitors’ products.
108
Product diferentiation:
making a product distinctive
so that it stands out from competitors’ products in
consumers’ perception.
109
Niche marketing:
identifying and exploiting a small
| segment of a larger market by developing products to suit it.
110
Mass marketing:
selling the same products to the whole
| market with no attempt to target groups within it.
111
Consumer profile:
a quantified picture of consumers
of a firm’s products, showing proportions of age groups,
income levels, location, gender and social class.
112
Market segment:
a sub-group of a whole market in which
| consumers have similar characteristics.
113
Market segmentation:
identifying different segments within a market and targeting different products or services
to them.
114
Market research:
this is the process of collecting,
recording and analysing data about customers,
competitors and the market.
115
Primary research:
the collection of first-hand data that
| is directly related to a firm’s needs.
116
Secondary research:
collection of data from secondhand sources.
117
Qualitative research:
research into the in-depth
| motivations behind consumer buying behaviour or opinions.
118
Quantitative research:
research that leads to numerical
| results that can be statistically analysed.
119
Focus groups:
a group of people who are asked about
their attitude towards a product, service, advertisement
or new style of packaging.
120
Sample:
the group of people taking part in a market research survey selected to be representative of the overall target market.
121
Random sampling:
every member of the target
| population has an equal chance of being selected.
122
Systematic sampling:
every nth item in the target
| population is selected.
123
Stratified sampling:
this draws a sample from a specified
sub-group or segment of the population and uses random
sampling to select an appropriate number from each
stratum.
124
Quota sampling:
when the population has been stratified
and the interviewer selects an appropriate number of
respondents from each stratum.
125
Cluster sampling:
using one or a number of specific
groups to draw samples from and not selecting from the
whole population, e.g. using one town or region.
126
Open questions:
those that invite a wide-ranging or
| imaginative response – the results will be difficult to collate and present numerically.
127
Closed questions:
questions to which a limited number of
| pre-set answers is offered.
128
Arithmetic mean:
calculated by totalling all the results
| and dividing by the number of results.
129
Median:
the value of the middle item when data have been
| ordered or ranked. It divides the data into two equal parts.
130
Mode:
the value that occurs most frequently in a set
| of data.
131
Range:
the difference between the highest and lowest
| value.
132
Inter-quartile range:
the range of the middle 50% of
| the data.
133
Marketing mix:
the four key decisions that must be taken
| in the ef ective marketing of a product.
134
Customer relationship management (CRM):
using marketing activities to establish successful customer relationships so that existing customer loyalty can be maintained.
135
Brand:
an identifying symbol, name, image or trademark
| that distinguishes a product from its competitors.
136
Intangible attributes of a product:
subjective opinions of customers about a product that cannot be measured or compared easily.
137
Tangible attributes of a product:
measurable features of a product that can be easily compared with other products.
138
Product:
the end result of the production process sold on
| the market to satisfy a customer need.
139
Product positioning:
the consumer perception of a product or service as compared to its competitors.
140
Product portfolio analysis:
analysing the range of existing products of a business to help allocate resources effectively between them.
141
Product life cycle:
the pattern of sales recorded by a product from launch to withdrawal from the market and is one of the main forms of product portfolio analysis.
142
Extension strategies:
these are marketing plans to
extend the maturity stage of the product before a brand
new one is needed.
143
Consumer durable:
manufactured product that can be
reused and is expected to have a reasonably long life, such
as a car or washing machine.
144
Price elasticity of demand:
measures the responsiveness
| of demand following a change in price
145
Mark up pricing:
Adding a fixed mark-up for profit to the unit price of a product
146
Target pricing:
setting a price that will give a required rate
| of return at a certain level of output/sales.
147
Full-cost pricing:
setting a price by calculating a unit cost
for the product (allocated fixed and variable costs) and
then adding a fixed profit margin.
148
Competition-based pricing:
a firm will base its price upon the price set by its competitors.
149
Contribution-cost pricing:
setting prices based on the
variable costs of making a product in order to make a
contribution towards fixed costs and profit.
150
Penetration pricing:
setting a relatively low price of en
supported by strong promotion in order to achieve a high
volume of sales.
151
Dynamic pricing:
offering goods at a price that changes
according to the level of demand and the customer’s ability
to pay.
152
Market skimming:
setting a high price for a new product
when a firm has a unique or highly dif erentiated product
with low price elasticity of demand
153
Promotion:
the use of advertising, sales promotion,
personal selling, direct mail, trade fairs, sponsorship and
public relations to inform consumers and persuade them
to buy.
154
Promotion mix:
the combination of promotional
| techniques that a firm uses to sell a product.
155
Above-the-line promotion:
a form of promotion that is
undertaken by a business by paying for communication
with consumers.
156
Advertising:
paid-for communication with consumers to
| inform and persuade, e.g. TV and cinema advertising.
157
Below-the-line promotion:
promotion that is not a directly paid-for means of communication, but based on short-term incentives to purchase.
158
Sales promotion:
incentives such as special of ers or special
deals directed at consumers or retailers to achieve short-term
sales increases and repeat purchases by consumers.
159
Personal selling:
a member of the sales staf
communicates with one consumer with the aim of selling
the product and establishing a long-term relationship
between company and consumer.
160
Sponsorship:
payment by a company to the organisers
of an event or team/individuals so that the company name
becomes associated with the event/team/individual.
161
Public relations:
the deliberate use of free publicity
provided by newspapers, TV and other media to
communicate with and achieve understanding by
the public.
162
Branding:
the strategy of differentiating products from
those of competitors by creating an identifiable image and
clear expectations about a product.
163
Marketing or promotion budget:
the financial amount
made available by a business for spending on marketing/
promotion during a certain time period.
164
Production methods
size of the market
The amount of capital avaliable
abailialbity of other ersoucres
Market demand exists for products adapted to specific customer requirements
165
Channel of distribution
this refers to the chain of intermediaries a product passes through from producer to final consumer.
166
Internet (online) marketing:
refers to advertising and marketing activities that use the Internet, email and mobile communications to encourage direct sales via electronic commerce.
167
E-commerce:
the buying and selling of goods and services
| by businesses and consumers through an electronic medium.
168
Viral marketing:
the use of social media sites or text
| messages to increase brand awareness or sell products.
169
Integrated marketing mix:
the key marketing decisions complement each other and work together to give customers a consistent message about the product.
170
Added value:
the difference between the cost of
purchasing raw materials and the price the finished goods
are sold for – this is the same as creating value.
171
Intellectual capital:
intangible capital of a business that
includes human capital (well trained and knowledgeable
employees), structural capital (databases and information
systems) and relational captial (good links with supplier
and customers).
172
Production:
converting inputs into outputs.
173
Level of production:
the number of units produced during a time period.
174
Productivity:
the ratio of outputs to inputs during
| production, e.g. output per worker per time period.
175
Efficiency:
producing output at the highest ratio of output
| to input.
176
Effectiveness:
meeting the objectives of the enterprise by
| using inputs productively to meet customers’ needs.
177
Labour intensive:
involving a high level of labour input
| compared with capital equipment.
178
Capital intensive:
involving a high quantity of capital
| equipment compared with labour input.
179
Operations planning:
preparing input resources to supply
| products to meet expected demand.
180
CAD – computer aided design:
the use of computer programs to create two- or three-dimensional (2D or 3D) graphical representations of physical objects.
181
CAM – computer aided manufacturing:
the use of computer software to control machine tools and related
machinery in the manufacturing of components or
complete products.
182
Operational flexibility:
the ability of a business to vary
both the level of production and the range of products
following changes in customer demand.
183
Process innovation:
the use of a new or much improved
| production method or service delivery method.
184
Job production:
producing a one-of item specially
| designed for the customer.
185
Batch production:
producing a limited number of
identical products – each item in the batch passes through
one stage of production before passing on to the next stage.
186
Flow production:
producing items in a continually
| moving process.
187
Mass customisation:
the use of flexible computer-aided production systems to produce items to meet individual customers’ requirements at mass-production cost levels.
188
Optimal location:
a business location that gives the best
| combination of quantitative and qualitative factors.
189
Quantitative factors:
these are measurable in financial
terms and will have a direct impact on either the costs of
a site or the revenues from it and its profitability.
190
Qualitative factors:
non-measurable factors that may
| influence business decisions.
191
Multi-site location:
a business that operates from more
| than one location.
192
Offshoring:
the relocation of a business process done in
one country to the same or another company in another
country.
193
Multinational:
a business with operations or production bases in more than one country
194
Trade barriers:
taxes (tariffs) or other limitations on the
| free international movement of goods and services.
195
Scale of operation:
the maximum output that can be
achieved using the available inputs (resources) – this scale
can only be increased in the long term by employing more
of all inputs.
196
Economies of scale:
reductions in a firm’s unit (average)
costs of production that result from an increase in the scale
of operations.
197
Diseconomies of scale:
factors that cause average
costs of production to rise when the scale of operation is
increased.
198
Enterprise resource planning:
the use of a single computer
application to plan the purchase and use of resources in an
organisation to improve the efficiency of operations.
199
Supply chain:
all of the stages in the production process
from obtaining raw materials to selling to the consumer –
from point of origin to point of consumption.
200
Sustainability:
production systems that prevent
waste by using the minimum of non-renewable
resources so that levels of production can be sustained
in the future.
201
Inventory (stock):
materials and goods required to allow
| for the production and supply of products to the customer.
202
Economic order quantity:
the optimum or least-cost
quantity of stock to re-order taking into account delivery
costs and stock-holding costs.
203
Re-order quantity:
the number of units ordered each
| time.
204
Lead time:
the normal time taken between ordering new
| stocks and their delivery.
205
Buffer inventories:
the minimum inventory level that
should be held to ensure that production could still take
place should a delay in delivery occur or should production
rates increase.
206
Just-in-time:
this inventory-control method aims to avoid
holding inventories by requiring supplies to arrive just as
they are needed in production and completed products
are produced to order.
207
Start-up capital:
the capital needed by an entrepreneur
| to set up a business.
208
Working capital:
the capital needed to pay for raw
materials, day-to-day running costs and credit of ered to
customers. In accounting terms working capital = current
assets – current liabilities.
209
Liquidity:
the ability of a firm to be able to pay its shortterm debts.
210
Liquidation:
when a firm ceases trading and its assets are
| sold for cash to pay suppliers and other creditors.
211
Capital expenditure:
the purchase of assets that are
expected to last for more than one year, such as building
and machinery.
212
Revenue expenditure:
spending on all costs and assets
other than fixed assets and includes wages and salaries
and materials bought for stock.
213
Overdraft:
bank agrees to a business borrowing up to an
| agreed limit as and when required.
214
Factoring:
selling of claims over trade receivables to a
debt factor in exchange for immediate liquidity – only a
proportion of the value of the debts will be received as cash.
215
Hire purchase:
an asset is sold to a company that agrees
to pay fixed repayments over an agreed time period – the
asset belongs to the company.
216
Leasing:
obtaining the use of equipment or vehicles and
paying a rental or leasing charge over a fixed period, this
avoids the need for the business to raise long-term capital
to buy the asset; ownership remains with the leasing
company
217
Equity finance:
permanent finance raised by companies
through the sale of shares.
Long-term loans: loans that do not have to be repaid for
at least one year.
218
Long-term bonds or debentures:
bonds issued by
companies to raise debt finance, of en with a fixed rate of
interest.
219
Rights issue:
existing shareholders are given the right to
| buy additional shares at a discounted price.
220
Venture capital:
risk capital invested in business start-ups
or expanding small businesses that have good profit potential
but do not find it easy to gain finance from other sources.
221
Crowd funding:
The use of small amounts of capital from a
| large number of individuals to finance a new business venture
222
Microfinance:
providing financial services for poor and
low-income customers who do not have access to banking
services, such as loans and overdrafts offered by traditional
commercial banks.
223
Business plan:
a detailed document giving evidence
about a new or existing business, and that aims to convince
external lenders and investors to extend finance to the
business.
224
Fixed costs:
costs that do not vary with output in the
| short run.
225
Variable costs:
costs that vary with output.
226
Marginal costs:
the extra cost of producing one more
| unit of output.
227
Direct costs:
these costs can be clearly identified with each
| unit of production and can be allocated to a cost centre.
228
Indirect costs:
costs that cannot be identified with a unit
| of production or allocated accurately to a cost centre.
229
Break-even point of production:
the level of output at
which total costs equal total revenue, neither a profit nor a
loss is made.
230
Margin of safety:
the amount by which the sales level
| exceeds the break-even level of output.
231
Contribution per unit:
selling price less variable cost
| per unit.
232
Income statement:
records the revenue, costs and profit
| (or loss) of a business over a given period of time.
233
Gross profit:
equal to sales revenue less cost of sales.
234
Revenue (formerly called sales turnover):
the total value
| of sales made during the trading period = selling price × quantity sold.
235
Cost of sales (or cost of goods sold):
this is the direct cost
| of the goods that were sold during the financial year.
236
Operating profit (formerly referred to as net profit):
gross profit minus overhead expenses.
237
Profit for the year (profit after tax):
operating profit minus
| interest costs and corporation tax
238
Dividends:
the share of the profits paid to shareholders as
| a return for investing in the company.
239
Retained earnings (profit):
the profit left after all deductions, including dividends, have been made, this is ‘ploughed back’ into the company as a source of finance.
240
Low-quality profit:
one-of profit that cannot easily be
| repeated or sustained.
241
High-quality profit:
profit that can be repeated and
| sustained.
242
Non-current assets:
assets to be kept and used by the
business for more than one year. Used to be referred to as
‘fixed assets’.
243
Intangible assets:
items of value that do not have a
physical presence, such as patents, trademarks and
current assets.
244
Current assets:
assets that are likely to be turned into
| cash before the next balance-sheet date.
245
Inventories:
stocks held by the business in the form of
| materials, work in progress and finished goods.
246
Trade receivables (debtors):
the value of payments to be
| received from customers who have bought goods on credit.
247
Current liabilities:
debts of the business that will usually
| have to be paid within one year.
248
Accounts payable (creditors):
value of debts for goods
bought on credit payable to suppliers; also known as ‘trade
payables’.
249
Non-current liabilities:
value of debts of the business
| that will be payable after more than one year.
250
Statement of financial position (balance sheet):
an accounting statement that records the values of a
business’s assets, liabilities and shareholders’ equity at one
point in time.
251
Shareholders’ equity:
total value of assets – total value
| of liabilities.
252
Asset:
an item of monetary value that is owned by
| a business.
253
Liability:
a financial obligation of a business that it is
| required to pay in the future.
254
Share capital:
the total value of capital raised from
| shareholders by the issue of shares.
255
Intellectual capital or property:
the amount by which the market value of a firm exceeds its tangible assets less liabilities – an intangible asset.
256
Goodwill:
arises when a business is valued at or sold for
| more than the balance-sheet value of its assets.
257
Cash-flow statement:
record of the cash received by a
business over a period of time and the cash outflows from
the business.
258
Gross profit margin:
This ratio compares gross profit (profit before deduction of overheads) with revenue.
gross profit margin % = gross profit/revenue × 100
259
Operating profit margin:
This ratio compares operating
profit (formerly this ratio was referred to as the net profit
margin) revenue.
operating profit margin % = operating profit/revenue × 100
260
Liquidity:
the ability of a firm to pay its short-term debts
261
Current ratio =
current assets/current liabilities
262
Acid-test ratio:
liquid asset/current liabilities
263
Liquid assets:
current assets – inventories (stocks) = liquid assets.
264
Window-dressing:
presenting the company accounts in a
| favourable light – to flatter the business performance
265
Cash flow:
the sum of cash payments to a business
| inflows) less the sum of cash payments (outflows
266
Liquidation:
when a firm ceases trading and its assets are
| sold for cash to pay suppliers and other creditors.
267
Insolvent:
when a business cannot meet its short-term
| debts
268
Cash inflows:
payments in cash received by a business,
such as those from customers (trade receivables) or from
the bank, e.g. receiving a loan.
269
Cash outflows:
payments in cash made by a business,
| such as those to suppliers and workers.
270
Cash-flow forecast:
estimate of a firm’s future cash
| inflows and outflows.
271
Net monthly cash flow:
estimated difference between
| monthly cash inflows and cash outflows.
272
Opening cash balance:
cash held by the business at the
| start of the month.
273
Closing cash balance:
cash held at the end of the month
| becomes next month’s opening balance
274
Overtrading:
expanding a business rapidly without
obtaining all of the necessary finance so that a cash-flow
shortage develops.
275
Credit control:
monitoring of debts to ensure that credit
| periods are not exceeded.
276
Bad debt:
unpaid customers’ bills that are now very
| unlikely to ever be paid
277
Creditors:
suppliers who have agreed to supply products
| on credit and who have not yet been paid.
