Key Terms L1 Flashcards
Market capitalisation
Value of shares in circulation
Nominal value
Current value without taking inflation or other market factors into account
Nominal value
Current value without taking inflation or other market factors into account
Contribution
Difference between sales and variable cost
Looks at profit made on individual products
Break even
Number of items need to sell so not making a loss or a profit
Margin of safety
Measure how close a business is to its break even level
Effectively measures how far sales can fall before a business stops making profit
Cash flow
Money flowing in and out
Liquidity
How quickly assets can be turned into cash
Levels of working capital (WC)
Good credit control.
Efficiency of inventory control.
Liquid ratio
Whether business has enough cash or current assets to be able to pay its debts as they fall due
Current ratio ADVANTAGES
gives understanding how cash rich company is
Shows management efficacy
Gives idea about company operating cycle
Extrapolation
Data trends, forecast future
Total cost
Raw materials affected by waste
Harder to control
Profit important
Return investment
Source of finance
Motivating factor incentive
Profit margin
Calculates how efficient a business is when running profit into revenue
Profit in absolute terms
A value of profit earned
Profit in relative terms
Profit earned as a proportion of sales achieved or investment made
Operating profit tell us
How effective a business turns its sales into operating profit
How effective the core business is run
Whether business can add value during production process
Finance needed for?
Business set up
Growth + expansion
Factors effect finance
What it’s for
How quick you need it
What will it cost
Retained profit
Profit made by business
Internal
Flexibility
Long term
Family friend
When relatives / friends help you when business needs help
Short/ long term
Could damage relationship o
Trade credit
Loam given by one trader to another
Business can decide how long they want to get money ready
Short term
Fuels business growth
Did- late payment penalty
Government grant
Money awarded to your business from gov who don’t have payback
External source
Short term
Provide significant source of funding
Tight deadlines
