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Business AS Level Definitions CIE > Section 5 > Flashcards

Section 5 Flashcards

1
Q

Start-up capital

A

Capital needed by an entrepreneur to set up a business

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2
Q

Working capital

A

Capital needed to pay for raw materials, day-to-day running costs and credit offer to customers

Working capital = current assets - current liabilities

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3
Q

Capital expenditure

A

Purchase of assets that are expected to last for more than one year. Used to bring income into the business

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4
Q

Revenue expenditure

A

Spending on all costs and assets other than fixed assets and includes wages, salaries and materials for the stock

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5
Q

Liquidity

A

The ability of a firm to be able to pay its short-term debts

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6
Q

Liquidation

A

When a firm ceases trading and its assets are sold for cash to pay suppliers and other creditors

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7
Q

Overdraft

A

Bank agrees to a business borrowing up to an agreed limit as and when required

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8
Q

Factoring

A

Selling of claims over trade receivables to a debt factor in exchange for immediate liquidity – a proportion of the value of debts will be received as cash

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9
Q

Hire purchase

A

An asset is sold to a company that agrees to pay fixed repayments over an agreed time period

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10
Q

Leasing

A

Obtaining the use of equipment and paying a rental/leasing charge over a fixed period
Avoids the need for the business to raise long-term capital to buy an asset

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11
Q

Equity finance

A

Permanent finance raised by companies through the sale of shares

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12
Q

Long-term loans

A

Loans which do not need to be re-paid for at least one year

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13
Q

Long-term loans/bonds/debentures

A

Bonds issued by companies to raise debt finance, often with a fixed rate of interest

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14
Q

Rights issue

A

Existing shareholders are given the right to buy additional shares at a discounted price

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15
Q

Venture capital

A

Risk capital invested in business start-ups or expanding small businesses that have good profit potential but do not find it easy to guide finance from other sources

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16
Q

Micro finance

A

Providing financial services for poor and low income customers who do not have access to banking services such as loans/overdraft

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17
Q

Crowdfunding

A

Use of small amounts of capital from large numbers of individuals to finance a new business venture 

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18
Q

Business plan

A

Detail document giving evidence about a new/existing business that aims to convince external lenders and investors to extend finance

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19
Q

Direct cost

A

Costs which can clearly be identified with each unit of production and can be allocated to a cost centre

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20
Q

Indirect costs

A

Costs that cannot be identified with a unit of production/allocated accurately to a cost centre

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21
Q

Fixed cost

A

Costs that do not vary with output in the short run

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22
Q

Variable cost

A

Costs that vary with output

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23
Q

Marginal cost

A

Extra cost of producing one more unit of output

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24
Q

Break even point

A

Level of output at which total costs equal to total revenue – neither a profit or a loss is made

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25
Q

Margin of safety

A

Amount by which the sales level exceeds the breakeven level of output

26
Q

Contribution per unit

A

Selling price – variable cost per unit

27
Q

Income statement

A

Records the revenue, costs and profit/loss of a business over a given period of time

28
Q

Gross profit

A

Sales revenue – cost of sales

29
Q

Revenue

A

Total value of sales made during the trading period

30
Q

Cost of sales

A

Direct costs of goods that are sold during the financial year

31
Q

Operating profit/Net profit

A

Gross profit – overhead expenses

32
Q

Profit for the year

A

Net profit – interest costs and corporation tax

33
Q

Dividends

A

The share of the profits paid to shareholders as a return for investing in the company

34
Q

Retained earnings

A

Profit left after all deductions, including dividends 

35
Q

Low quality profit

A

Once off profit that cannot easily be repeated or sustained

36
Q

High quality profit

A

Profit that can be repeated and sustained

37
Q

Statement of financial position

A

Accounting statement that records the values of a business assets, liabilities and shareholders equity at one point in time

38
Q

Shareholders equity

A

Total value of assets – total value of liabilities

39
Q

Share capital

A

Value of capital raise from shareholders by the issue of shares

40
Q

Intangible asset

A

An assets value that do not have physical presence

41
Q

Goodwill

A

Arises when a business is valued at or sold for more than the balance sheet value of its assets

42
Q

Cash flow statement

A

Record of the cash received and outflow over a period of time

43
Q

Gross profit margin

A

Gross profit
Sales revenue. X100

High margin = high gross profit

44
Q

Profit margin

A

Net profit
Sales revenue. X100

High margin = high net profit

45
Q

Operating/net profit margin

A

Net profit

Sales revenue. X100

46
Q

Liquidity

A

The ability of a firm to pay short-term debts

47
Q

Current ratio

A

Current assets. : Current liabilities
Current liabilities. Current liabilities

Should be 1.5/2:1

48
Q

Acid test ratio

A

Current assets – inventory. : Current liabilities
Current liabilities. Current liabilities

Should be 0.5/1:1

49
Q

Window dressing

A

Presenting the company accounts in a favourable light – to flatter the business performance

~ selling assets right before releasing account
~ reducing depreciation

50
Q

Cash flow

A

Sum of cash payments to business – sum of cash payments

51
Q

Insolvent

A

Business is unable to meet its short-term debts

52
Q

Cash flow forecast

A

Estimate of a firms future cash inflows and outflows

53
Q

Net monthly cash flow

A

Estimation of a firms future from its inflows and outflows

54
Q

Opening cash balance

Closing cash balance

A

Cash held by the business at the start of the month

Cash held by the business at the end of the month; to become the next months opening balance

55
Q

Credit control

A

Monitoring of debts to ensure that credit period are not exceeded

56
Q

Bad debt

A

Unpaid customers bills which are unlikely to ever be paid

57
Q

Overtrading

A

Expanding a business rapidly without obtaining all of the necessary finance so that a cash flow shortage develops

58
Q

Return on capital employed – ROCE

A

Measures efficiency of capital to generate profit

Net profit
Capital employed. X100

59
Q

Semi variable cost

A

Includes elements of both fixed and variable costs

60
Q

Trade credit

A

Delaying payments of bills for goods/services received

Business AS Level Definitions CIE (5 decks)

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