Keywords Flashcards
Acid Test Ratio
(Current Assets - Inventories) / Current Liabilities
What are assets?
Resources owned by a business.
What is a balance sheet?
Financial document that summarises net worth of a business. Records assets and liabilities. NOTHING TO DO WITH PROFIT.
What is batch production?
Makes a limited number of one identical product, then stops to reorganise and make a batch of something else.
What is break even?
Total sales revenue = Total costs
What is break-even output?
Fixed Costs / Contribution per Unit
What are budgets?
Financial plan concerning the revenue and costs of a business. Provides targets for costs or revenue that the business must aim to reach
What is a business plan?
Document setting out the strengths, aims and strategies of a business. Important planning tool and also used to apply for loans.
What is capacity?
Measures the maximum amount of output a firm can produce at a given moment.
What is capacity utilisation?
(Current Output / Maximum Possible Output) x 100
95% is a healthy level.
What is capital?
Funds provided by the shareholders to set up the business, fund expansion and purchase fixed costs. PART OF EQUITY.
What is capital expenditure?
Spending on business resources that can be used repeatedly over a period of time. To improve fixed assets
What is capital intensive?
Businesses that rely more heavily upon capital equipment e.g. machinery and computer rather than labour.
What is cash flow?
Flow of money in and out of the business in a given period of time.
What is cash inflow?
Money coming into the business, e.g. sales, interest payments received.
What is cash outflow?
Money going out of the business, e.g. payments to suppliers, rent.
What is cell production?
Where work is organised into teams. Teams are given responsibility of doing a part of production process as product moves through assembly line.
What is collateral?
Asset that might be sold to pay a lender when a loan can’t be repaid.
What is contribution per unit?
Selling price - variable cost per unit
What is current ratio?
Current Assets / Current Liabilities.
What is economies of scale?
Spreading fixed costs over many products. Falling unit cost falls as output increases.
What is the efficiency equation?
Total Production Cost / Total Output
What is external finance?
Funded from outside the business.
What is efficiency?
Making best possible use of all business’s resources, producing a level of output where average cost is minimised.
What is extrapolation?
Assuming that past trends will continue into the future.
What are fixed costs?
Cost that doesn’t change when output changes. E.g. factory rent.
What is flow production?
Producing as many identical products as possible for a mass market. Flow production is usually highly automated and product moves continuously through production process.
What is forecasting?
Business process, assessing the probable outcome using assumptions about the future.
What is a gross profit margin?
(Gross Profit / Revenue) x 100
What is an income statement?
Financial document summarising a business’s trading activity (sales and revenue) and expenses to show if it made a profit or a loss.
What is an incorporated business?
Business model in which the business and the owner(s) have separate legal identities.
What is internal finance?
Money generated by the business or current owners. E.g. sale of assets or retained profits.
What is job production?
Making one thing at a time, used for individual, unique products, normally made to customers’ specification. E.g. Rolls Royce.
What is labour intensive?
Businesses that rely more heavily on their workforce rather than capital equipment.
What are liabilities?
Debts of the business, what it owes to others.
What is limited liability?
Shareholders can only lose the original amount they invested.
What is liquidity? (ability)
Ability to convert an asset into any form without any delay. Most liquid asset is cash.
What is liquidity (amount)
Amount of cash that a business has and shows whether the business can pay its debts over the coming months.
What are long term finance?
Money borrowed for more than one year.
What are net assets?
Total Assets - Total Liabilities
What is net-profit margin?
Net Profit (before tax) / Revenue x 100
What is operating profit margin?
Operating Profit / Revenue x 100
What is productivity?
Output per input per hour
What is profit?
Difference between total cost and total revenue
What is revenue expenditure?
Spending on business resources that have already been consumed or shortly will be.
What is rights issue?
Issuing new shares to existing shareholders at a discount.
What is sales forecasting?
Projection of future sales revenue, based on previous sales data or market research.
What is sales revenue?
Price x Quantity sold
What is sales volume?
Quantity of output sold in a particular period of time.
What is short term borrowing?
Money borrowed for 12 months or less
What is stock?
E.g. raw materials, products-in-progress and finished products held by firm to enable production and meet customer demand.
What is stock control charts?
Overall objective of stock control is to maintain stock levels so that the total cost of holding stock is minimised.
What is total contribution?
Contribution per unit x units sold
What is total cost?
Entire cost of producing a given level of output
What is total equity?
Total amount invested into the business from share capital and retained profit.
What is a trend?
Patterns indicated by figures of sales.
What is under-capitalised?
Business isn’t raising enough capital when setting up.
What is unincorporated?
Business model in which there is no legal difference between owners and the business.
What is unlimited liability?
Legal status which means the business owners are liable for all business debts, therefore they may have to sell assets to pay back debt.
What is variable cost?
Cost that rises as output rises.
What is variance analysis?
Calculating and investigating the differences between actual results and the budget.
What is venture capital?
Specialist providers of funds for small or medium sized companies that may be too risky for other investors.
What is working capital?
Current Assets - Current Liabilities
Pays for day-to-day running costs such as wages and sales on credit.
What insolvency?
When a company can’t pay its debts because it is making a loss.
What is zero-based budgeting?
No budget is set and no money is allocated to cover costs. Managers must be prepared to bid for and justify spending on their departments.
What is over trading?
When a business expands too quickly and tries to engage in more business than the investment in working capital will allow.
What is outsourcing?
Business buys some inputs from other businesses.
What is buffer stocks?
Level of stock kept just in case. There may be a problem with delivery and the new stock may not arrive so buffer stocks allow the business to continue production.
What is just-in-time?
Stock control system that does away with the need to hold large quantities of stocks or raw materials. Stocks arrive as and when they are needed.
What is waste minimisation?
Seeks to increase productivity by examining every stage of production or operational systems to see if they can be improved, so making efficiency gains.
What is lean production?
General term given to any system of production that tries to minimise waste during the production process, which helps to cut costs.
What is total quality management?
System whereby everybody throughout the business takes responsibility for quality.
What is kaizen?
A system of continuous improvement at every stage of production no matter how small the improvements might be.
What is lead time?
The time taken between the idea for a product and its being ready for sale - it should be as short as possible.
What is quality control?
Traditional method of checking that products are of a good enough standard.
What is quality assurance?
Takes customers’ needs into account and involves employees in looking at every aspect of the business, in an attempt to improve the quality of the product or service.
What are quality circles?
Small groups of employees that meet regularly and look at how quality can be improved.
What is inflation?
Sustained increase in the average price level in the economy. The value of money falls.
What are exchange rates?
Strong Pound - Cheaper Import
Weak Pound - Cheaper Export
What are exchange rates?
Price of borrowing money. Lower interest rates means higher investment and spending.
What is direct taxation?
Income tax, National Insurance and corporation tax.
What is indirect taxation?
VAT, excise duties (e.g. alcohol), car tax, etc.
What is a business cycle?
Boom, Downturn, Recession, Recovery
What is a boom?
Time of rapid growth and expansion in the economy.
What is a downturn?
Boom slows and the rate of growth decreases
What is recession?
At least two consecutive quarters of negative growth.
What is recovery?
Positive growth returns, slowly at first then picking up pace.
What is economic forecasting?
Process of predicting future economic variables and events.
What is a contingency plan?
Devised in advance to cope with a range of possible situations
What is trade descriptions act?
Devised in advance to cope with a range of possible situations
What is sale of goods act?
Prevents businesses from misleading consumers by claiming qualities the goods do not possess. Products must be as described, fit for purpose and of a satisfactory quality.
What is consumer protection act?
Designed to make sure that products reach a reasonable level of safety.
What is regulation?
Government rules that set standards for organisations. These standards protect consumers, employees and the environment.
What is cartels?
Agreements between two or more firms to fix prices or carve up markets or reduce output. They reduce competition and drive up prices. Illegal in most developed economies.
What is the monetary policy?
Management of money supply and interest rates by the government.
What is the Fiscal Policy
Government adjusts its spending levels and tax rates to monitor and influence the national economy.
