Theme 2 Key Terms Flashcards
1
Q
What are economic variables?
A
Features of an economy which have effects on business and consumers e.g. unemployment, inflation and exchange rates
2
Q
What is 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
What is 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
What is 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
5
Q
What is the sale of assets?
A
A type of internal finance, involves selling resources that belong to the business
6
Q
What is a bank loan?
A
An external method of finance/money borrowed from a bank paid back, with interest (over a period of time)
7
Q
What are business angels?
A
Individuals who invest in a business in exchange for a stake in the business (shares)
8
Q
What is crowd funding?
A
An external source of finance where a large number of individuals provide funding for a business or project in return for shares/free products/discounts
9
Q
What is peer-to-peer funding?
A
When a person lends money to other individuals or businesses via online transactions
10
Q
What is external finance?
A
Money raised from outside the business
11
Q
What is a 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
12
Q
What is leasing?
A
A contract to acquire the use of resources such as property or equipment
13
Q
What is a loan?
A
An external source/method; amount of money borrowed, usually repayable after a fixed term of more than 12 months
14
Q
What is an overdraft?
A
When a business has a negative balance in their bank account because the amount withdrawn is greater than the current balance
15
Q
What is share capital?
A
The finance raised by a business issuing/selling of new shares
16
Q
What is trade credit?
A
Where a firm receives stock/inventory/raw materials from a supplier, which it does not have to pay for until later
17
Q
What is venture capital?
A
External source of finance when the business issues shares to a small number of investors in return for a capital injection into the company
18
Q
What is a liability?
A
A liability is an obligation to pay another person/lender/supplier
19
Q
What is limited liability?
A
The obligation of a shareholder for the debts of a business is limited to the value of their investment.
20
Q
What is unlimited liability?
A
The obligation of a business owner to cover all the debts of the business.
21
Q
What is a 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
22
Q
A
23
Q
What is cash flow?
A
The movement of cash into and out of a business over a period of time.
24
Q
What is cash inflow?
A
The flow of cash into a business.
25
What is cash outflow?
The flow of cash out of a business.
26
What are cash-flow forecasts?
The predicted flow of cash into and out of a business over a period of time.
27
What is the closing balance?
Cash left in the account at the end of the month. Net cash flow + Opening balance.
28
What is net cash flow?
The difference between the cash flowing in and out of a business over a period of time cash inflows - cash outflows.
29
What is the opening balance?
Cash in the bank on the first day of the month.
30
What are consumer trends?
Habits or behaviour of those involved in the use of goods and services.
31
What is economic uncertainty?
Where firms/consumers are unable to predict their future sales/incomes and costs.
32
What is a sales forecast?
A prediction of the expected level of sales volume/revenue for a business for a future period.
33
What is the average cost?
The cost of producing one unit. Total costs/output.
34
What are fixed costs?
Costs that do not change when output/sales changes.
35
What is revenue?
The amount of income for a business generated from its sales. Selling price x quantity sold.
36
What is sales revenue?
Selling price x sales volume.
37
What are total costs?
Total fixed costs plus total variable costs.
38
What are variable costs?
Costs that vary according to the level of output.
39
What is break-even?
The level of output where the total revenue is equal to the total cost.
40
How is the break-even point calculated?
Fixed costs / Unit contribution.
41
What is unit contribution?
Selling price - variable cost per unit.
42
What is the margin of safety?
The difference between the current or planned level of output/sales and the break-even level of output.
43
What is adverse variance?
Negative variance e.g. higher costs than budget.
44
What is a budget?
A financial plan of income and expenditure prepared/agreed in advance.
45
What is favourable variance?
Positive variance e.g. lower costs than budget.
46
What is historical budgeting?
A budget based upon previous financial figures.
47
What is 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.
48
What is zero based budget?
A type of budget where no money is allocated for spending unless it has firstly been justified.
49
What is cash?
An asset of a business which can come from investors, lenders or customers.
50
What is the cost of sales?
The cost of inventory bought or produced.
51
How is gross profit calculated?
Revenue - cost of sales.
52
What is gross profit margin?
Gross profit / Sales revenue x 100.
53
What is operating profit?
Gross profit - other operating expenses.
54
55
What is operating profit margin?
Operating profit/Sales revenue x100
56
How is profit calculated?
Total revenue - total costs
57
What is the formula for profit for the year margin?
Net profit/Sales revenue x100
58
What does profitability refer to?
Profit as a proportion of sales.
59
What is a statement of comprehensive income?
A document to show income and expenditure of a business over a financial year.
60
What is tax?
A charge made by governments on activities, earnings and income of individuals and businesses.
61
How is the acid test ratio calculated?
Current assets - Inventory / Current liabilities
62
What are assets?
Valuable things that a business can use.
63
What is capital?
Cash put into the business by the owner.
64
What are current assets?
Liquid assets that will be converted into cash within 12 months e.g. inventories, trade receivables and cash.
65
What are current liabilities?
Debts owed by a business that must be repaid within one year.
66
How is the current ratio calculated?
Current assets / Current liabilities
67
What are liabilities?
Debts owed by a business to lenders and suppliers.
68
What does liquidity refer to?
The ability to pay bills in cash when they fall due or the ability to meet current liabilities with current assets.
69
How are net assets calculated?
Total assets - Total liabilities
70
What are non-current assets?
Long term resources that will be used by the business for more than one year e.g. Property and equipment.
71
What are non-current liabilities?
Debts owed by the business for more than one year e.g. Loans.
72
What is shareholders' equity?
The value of the shareholders' investment in a business.
73
What is a statement of financial position?
A summary at a particular point in time of the value of a firm's assets, liabilities and equity.
74
How is total equity calculated?
Share capital + Retained profit or, owner's capital + retained profit less drawings.
75
What is working capital?
The amount of cash available to pay for the day to day trading of a business or current assets - current liabilities.
76
What are external causes for business failure?
The factors outside the control of a business which might cause it to fail, e.g. competition, legislation, customer tastes and economic conditions.
77
What are financial factors for business failure?
Factors which may contribute to a business running out of cash, e.g. late payments, inability to borrow.
78
What are internal causes for business failure?
Factors which a business can control e.g. poor decision-making, loss of key staff.
79
What are non-financial factors for business failure?
Can come from inside or outside the business e.g. poor management, external shocks.
80
What is overtrading?
The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast.
81
82
What is batch production?
A manufacturing process in which components or goods are produced in groups (batches).
83
What is capital intensive production?
This is where output of the firm is made primarily using machinery/capital goods relative to the use of labour.
84
What is 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.
85
What is efficiency in production?
The ability to minimise waste therefore reducing the cost of production.
86
What is flow production?
The manufacture of an item/product in a continuous process.
87
What is job production?
A method of production where the production of a single good/service is carried out one at a time to the specific requirements of the customer.
88
What is labour-intensive production?
A production method that requires a higher proportion of labour than capital.
89
What is productivity?
Output per person/machine per period of time.
90
What is standardisation?
Using uniform resources and activities or producing a uniform product.
91
What is capacity utilisation?
The current output of a factory measured as a percentage of the total maximum potential output.
92
What is downsizing?
Involves reducing capacity, such as making employees redundant.
93
What is full capacity?
The point where a business cannot produce any more output.
94
What is over utilisation?
The position where a business is running at full capacity and straining.
95
What is under utilisation?
The position where a business is producing at less than full capacity.
96
What are buffer stocks?
Stock held as protection in case of reduction in supply.
97
What is inventory?
The raw materials/work-in-progress held by a business.
98
What is 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.
99
What is lean production?
A production method that involves using as few resources as possible in the production of a good or service.
100
What is the reorder level?
The level of current stock when new orders are placed.
101
What is the reorder quantity?
The amount of stock ordered when an order is placed.
102
What is stock?
Items held by the business for future sale/processing such as raw materials/work in progress (WIP)/finished products.
103
What is stock control?
The optimum quantity of goods/components a business holds for the purpose of resale/production.
104
105
What is stock control?
Shows details of inventory movements such as minimum and maximum inventory levels, reorder level and quantity and lead times.
106
What is stock rotation?
The flow of stock into and out of storage.
107
What is waste minimisation?
Producing goods and services at a given quality using as few resources as possible/identification of an impact of waste minimisation.
108
What is work in progress?
Partially finished goods.
109
What is Kaizen?
A Japanese practice 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.
110
What is continuous improvement?
A positive feature of a product that has no defects.
111
What is 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.
112
What are quality circles?
Small groups of workers who meet regularly to discuss and resolve problems in production.
113
What is 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.
114
What is 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.
115
What is Total Quality Management (TQM)?
A right first time approach ensuring that at every stage of production products are checked for quality, rather than a sample, which should eliminate any defects.
116
What is an exchange rate?
The rise in the price of one currency against another currency.
117
What are barriers to entry?
Obstacles that make it difficult for new firms to enter the market.
118
What is a boom/peak?
The high point in the business cycle where GDP is growing quickly.
119
What is the business cycle?
Measures economic activity over time and shows stages of boom, downturn (where there is rising unemployment), recession and recovery.
120
What is the Consumer Prices Index?
A measure which shows changes in average prices over time.
121
What is deflation?
A fall in the general price level.
122
What is depreciation?
A fall in the value of a currency.
123
What is a downturn?
A period in the economic cycle where GDP grows but slowly.
124
What are economic influences?
Economic variables such as economic growth, inflation, interest rates and unemployment.
125
What is government expenditure?
The amount spent by the government in its provision of public services and welfare benefits.
126
What is inflation?
The general increase in the level of prices in an economy in a year.
127
What is an interest rate?
The price of borrowing money/the return on saving money.
128
What is a recession?
When GDP falls for two or more quarters (6 months).
129
What is recovery?
A period where economic growth begins to increase again after a recession.
130
What is unemployment?
The % of the working population who are without a job and actively seeking work.
131
What is consumer legislation?
Legislation that is designed to protect consumers from poor-quality products and poor business practices.
132
133
What is consumer protection legislation?
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.
134
What does discrimination refer to in a business context?
Favouring one person or group over another.
135
What is 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.
136
What is environmental protection legislation?
Legislation designed to reduce the impact of businesses and protect the environment.
137
What is health and safety legislation?
Measures put in place by businesses to prevent accident or injury in the workplace.
138
What is the national minimum wage?
A wage rate set by the government. It is illegal to pay below this.
139
What is 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.
