Theme 2 Flashcards
1
Q
Economic Variables
A
Measures within the economy which have effects on business and
consumers e.g. unemployment, inflation and exchange rates
2
Q
Internal Finance
A
The raising of capital/cash from within/inside the business e.g.
business/owner’s capital, personal savings, retained profit
3
Q
Personal
savings/owner
s’ capital
A
A source of (internal) finance provided by the owner of a
business/personal money from the owner
4
Q
Retained profit
A
Profit is re-invested back into/kept by the business which is not paid as
a dividend. It is an internal source of finance
4
Q
Bank loan
A
An external method of finance/money borrowed from a bank paid back,
with interest (over a period of time)
5
Q
Sale of assets
A
A type of internal finance, involves selling resources that belong to the
business
6
Q
Business Angels
A
Individuals who typically may invest between £10,000 and £100,000 in
exchange for a stake in the business
7
Q
Crowd funding
A
An external source of finance where large numbers of individuals
provides funding for a business or project in return for shares/free
products/discounts
8
Q
External Finance
A
Money raised from outside the business
9
Q
Grant
A
A sum of money given by a government or other organisation. It does
not need to be repaid and no interest is charged
10
Q
Leasing
A
A contract to acquire the use of resources such as property or
equipment
11
Q
Overdraft
A
When a business has a negative balance in their bank account
because the amount withdrawn is greater than the current balance.
11
Q
Loan
A
An external source/method; amount of money borrowed, usually
repayable after a fixed term of more than 12 months
12
Q
Peer-to-peer
funding
A
When a person lends money to other individuals or businesses via
online transactions
13
Q
Share capital
A
The finance raised a business issuing/selling of new shares
14
Q
Trade credit
A
Where a firm receives stock/inventory/raw materials from a supplier,
which it does not have to pay for until later
15
Q
Venture capital
A
External source of finance when the business issues shares to a small
number of investor(s) in return for a capital injection into the company
16
Q
Liability
A
Responsibility for the financial debts of the business
17
Q
Limited liability
A
The amount of a company’s losses that a shareholder is liable for is
limited to the amount they have invested in the company.
18
Q
Unlimited
liability
A
A legal status which means that business owners are liable for all
business debts
19
Q
Business plan
A
A document giving details of a variety of aspects about the business in
order to provide a strategic look at the business and to attract
investors. It contains details such as the product, costs, revenues,
cashflow forecasts
20
Q
Cash flow
A
The movement of cash into and out of a business over a period of time
21
Q
Cash Inflow
A
The flow of money into a business
21
Q
Cash outflow
A
The flow of money out of a business
22
Cash-flow
forecasts
The predicted flow of cash into and out of a business over a period of
time
23
Closing
balance
Money left in the account at the end of the month. Net cash flow +
Opening balance
24
Net cashflow
The difference between the cash flowing in and out of a business over
a period of time cash inflows- cash outflows
25
Opening
balance
What is in the bank on the first day of the month
26
Consumer
trends
Habits or behaviour of those involved in the use of goods and services
27
Economic
uncertainty
Where firms/consumers are unable to predict their future
sales/incomes
27
Sales forecast
A prediction of the expected level of sales volume/revenue for a
business for a future period based on past data
28
Average cost
The cost of producing one unit. Total costs/output
29
Fixed costs
Costs that do not change when output/sales changes
30
Revenue
The amount of income for a business generated from its sales. Selling
price x quantity sold
31
Sales revenue
Selling price x sales volume
32
Total costs
Total fixed costs plus total variable costs.
33
Variable costs
Costs that do change when output/sales change
34
Break-even
The level of output where the total revenue is equal to the total cost.
Fixed costs/Unit contribution
35
Unit
contribution
Selling price- variable cost per unit
36
Margin of
safety
The difference between the current or planned level of output/sales
and the break-even level of output
37
Adverse
variance
Negative variance e.g. higher costs than budget
38
Budget
A financial plan of income and expenditure prepared/agreed in
advance
39
Favourable
variance
Positive variance e.g. lower costs than budget
40
Historical
budgeting
A budget based upon previous financial figures
41
Variance
analysis
Shows the difference between budgeted and actual figures and can be
calculated at the end of a financial period, once actual figures are
known
42
Zero based
budget
A type of budget where no money is allocated for spending unless it
has firstly been justified
43
Cash
Normally takes time to catch up. Cash inflows and outflows will be
recorded after the respective debtor and creditor periods have elapsed
44
Cost of sales
Direct costs of a business
45
Gross profit
Revenue - cost of sales
46
Gross profit
margin
Gross profit/Sales revenue x100
47
Operating
profit
Gross profit- other operating expenses
48
Operating
profit margin
Operating profit/Sales revenue x100
49
Profit
Is recorded straight away after sales. Total revenue -total costs
50
Profit for the
year margin
Net profit/Sales revenue x100
51
Profit for the
year/net profit
Operating profit- interest
52
Profitability
The ability of a business to generate profit from its activities
53
Statement of
comprehensiv
e income
A document to show income and expenditure of a business over a
financial year
54
Tax
A charge made by governments on activities, earnings and income of
individuals and businesses
55
Acid test ratio
Current assets-Inventory/Current liabilities
56
Assets
Resources that belong to a business
57
Capital
Money put into the business by the owner
58
Current assets
Liquid assets, those assets that will be converted into cash within 12
months e.g. inventories, trade receivables and cash
59
Current
liabilities
Any money which is owed by a business that must be repaid within one
year
60
Current ratio
Current assets/Current liabilities
61
Liabilities
Money owed by the business to banks and suppliers
62
Liquidity
The ability to pay bills in cash when they fall due or The ability to meet
current liabilities with current assets
63
Net assets
Total assets-Total liabilities
64
Non current
assets
Long term resources that will be used by the business for more than
one year e.g. Property and equipment
65
Non current
liabilities
Money owed by the business for more than one year e.g. Loans
66
Shareholders
equity
The amount of money owed by the business to the shareholders
67
Statement of
financial
position/
Balance sheet
A summary at a particular point in time of the value of a firms assets,
liabilities and capital
68
Total equity
Share capital + Retained profit
69
Working
capital
The amount of money needed to pay for the day to day trading of a
business or current assets – current liabilities.
69
External
causes for
business
failure
Factors beyond the control of businesses cause for collapse e.g.
competition, legislation, customer tastes and economic conditions
70
Financial
factors for
business
failure
Often rising from poor cash flow management or working capital
71
Internal
causes for
business
failure
Factors which a business can contro
71
Non financial
factors for
business
failure
Can come from inside or outside the business e.g. poor management,
external shocks
72
Overtrading
The situation where a business does not have enough cash to support
its production and sales, usually because it is growing too fast
73
Batch
production
A manufacturing process in which components or goods are produced
in groups (batches). The manufacturing of a limited number of identical
products
74
Capital
intensive
This is where output of the firm is made primarily using
machinery/capital goods relative to the use of labour
75
Cell
production
A method of manufacturing where employees are organised into
multiskilled teams, with each team responsible for a particular part of
the production process
76
Efficiency
The ability to minimise waste therefore reducing the cost of production.
Making the best use of its resources
77
Flow
production
The manufacture of an item/product in a continuous process
78
Job production
A method of production where the production of a single good/service
is carried out one at a time that involves producing this good/service to
the specific requirements of the customer
79
Labour-intensive
production
A production method that requires a higher proportion of labour than
capita
80
Productivity
Output per person/machine per period of time
81
Standardisation
n
Using uniform resources and activities or producing a uniform product
82
Capacity
utilisation
The current output of a factory measured as a percentage of the total
maximum potential output. Current output/maximum possible output
x100
83
Downsizing
Involves reducing capacity, such as making employees redundant.
This would reduce costs, such as wages
84
Full capacity
The point where a business cannot produce any more output
85
Over utilisation
The position where a business is running at full capacity and straining
resources
86
Under
utilisation
The position where a business is producing at less than full capacity
87
Buffer stocks
Stock held as protection in case of reduction in supply
88
Inventory
The raw materials/work-in-progress held by a business
89
Just in time
(JIT)
A stock control system that organises operations so that items of stock
arrive immediately before they are needed for production or sale
90
Lean
production
A production method that involves using as few resources as possible
in the production of a good or service. It can include concepts such as
waste minimisation, Just in Time (JIT) and TQM
91
Re order level
The level of current stock when new orders are placed
92
Re order
quantity
The amount of stock ordered when an order is placed
93
Stock
Items held by the business for future sale/processing such as raw
materials/work in progress (WIP)/finished products
94
Stock control
The optimum quantity of goods/components a business holds for the
purpose of resale/production
95
Stock control
diagram
Shows details of inventory movements such as minimum and
maximum inventory levels, reorder level and quantity and lead times
96
Stock rotation
The flow of stock into and out of storage
97
Waste
minimisation
Producing goods and services at a given quality using as few
resources as possible/identification of an impact of waste minimisation
98
Work in
progress
Partially finished goods
99
Quality
A positive feature of a product that makes it stand out from competitors
99
Quality
assurance
A system where the product is checked/tested at each stage of the
production process. It focuses on preventing faults with products during
production
100
Kaizen/continu
ous
improvement
A Japanese philosophy which places emphasis on making small
improvements in all business processes as it tries to achieve a culture
of continuous improvement; good processes bring good results
101
Quality circles
Small groups of workers who meet regularly to discuss and resolve
problems in production
102
Quality control
A method that uses quality inspectors as a way of finding any faults.
Checking that final products are of a good enough standard, capable of
doing what they were intended to do
103
Quality
management
The process of a business maintaining a desired level of excellence in
a product/service by paying attention to each stage of the process
104
Total Quality
Management/
TQM
A right first time approach ensuring that at every stage of production
clothing is checked for quality, rather than a sample, which should
eliminate any defects
105
Barriers to
entry
Obstacles that make it difficult for new firms to enter the market
106
Appreciation
The rise in price of one currency against another currency
107
Boom/peak
The high point in the business cycle where GDP is growing quickly
108
Business cycle
Measures economic activity over time and shows stages of boom,
downturn (where there is rising unemployment), recession and
recovery
108
Consumer
Prices Index
Consumer price index. The measure of average prices in an economy
109
Deflation
A fall in the general price level
110
Depreciation
A fall in the value of a currency
111
Downturn
A period in the economic cycle where GDP grows but slowly
112
Economic
influences
Economic variables such as economic growth, inflation, interest rates
and unemployment
113
Exchange rate
The price of one currency in terms of another.
114
Inflation
The general increase in the level of prices in an economy in a year
114
Government
expenditure
The amount spent by the government in its provision of public service
115
Recovery
A period where economic growth begins to increase again after a
recession
116
Interest rate
The price of borrowing money/the return on saving money
117
Recession
When GDP falls for two or more quarters (6 months)
118
Unemploymen
t
The % of the working population who are without a job and actively
seeking work
119
Consumer
legislation
Legislation that is designed to protect consumers from poor-quality
products and poor business practices.
120
Consumer
protection
legislation
Is legislation aimed against any business’ unfair selling practices. The
consumer has basic legal rights if the product/service is given a
misleading description, of an unsatisfactory quality, unfit for purpose
121
Discrimination
Favouring one person or group over another
122
Employee
protection
legislation
Laws that a business must follow that give employees basic rights to
prevent them from being exploited, e.g. minimum wages, redundancy
payments, maternity leave, etc.
123
Environmental
protection
legislation
Legislation designed to reduce the impact of businesses and protect
the environment
124
Health and
safety
Measures put in place by businesses to prevent accident or injury in
the workplace
125
Legislation
A collective name for laws and regulations used by governments to
restrict certain activities
126
National
minimum
wage
A wage rate set by the government. It is illegal to pay below this
127
Market
structure
The characteristics of a market, such as the size of the barriers to entry
to the market, the number of businesses in the market, which
determines the behaviour of businesses within the market
