Theme 2 key terms Flashcards
Fixed costs
Those that do not change as the number of sales change e.g. rent
Variable costs
Those that change in line with the amount of business e.g. cost of buying raw materials
Working capital
The finance available for the day to day running of the business
Angel investors
Investors who back a business before it opens its doors, taking full equity risk
Collateral
An asset used as security for a loan. It can be sold by a lender if the borrower fails to pay back a loan
Crowd funding
Obtaining external finance from many individuals, small investments usually web based
Public limited company(PLC)
A company with limited liability and shares, which are available to the public. Its shares can be quoted on the stock market
Seedcorn capital
The early stage(sowing a seed) finance that might come from angel investors
Share capital
Business finance that has no guarantee of repayment or annual income, but gains a share of control of the business and its potential profits
Stock market
A market for buying and selling company shares. it supervises the issuing of shares by companies. It is also a second hand market for stocks and shares
Venture capital
High risk capital invested in a combination of loans and shares, usually in a small, dynamic business
Bankrupt
When an individual is unable to meet personal liabilities, some of all of which can be a consequence of business activities
Creditors
Those owed money by a business
Limited liability
Owners are not liable, they can lose no more than the sum they invested
Sole trader
A one person business with unlimited liability
Unlimited liability
Owners are liable for any debts incurred by the business, even if it requires them to sell all their assets and possessions and become personally bankrupt
Best case
An optimistic estimate of the best possible outcome
Business plan
A document setting out a business idea and showing how it can be financed, marketed and put into practice
Cash flow forecast
Estimating future monthly inflows and outflows, to find out the net cash flow
Just-In-Time
Ordering stock so that it arrives just before it is needed
Overdraft
Short term borrowing from a bank. The business only borrows as much as it needs to cover its daily cash shortfall
Worst case
A pessimistic estimate assuming the worst possible outcome
Contingency plans
Plans held in reserve in case things go wrong
Real incomes
Changes in household incomes after allowing for changes in prices
Sales forecast
A method of predicting future sales using statistical methods
Trend
The general path that a series of values follows over time, disregarding variations or random fluctuations
Piece rate labour
Paying workers per item they make, that is without regular pay
Sales revenue
The number of units sold in a time period multiplied by the average selling price of those units
Sales volume
The number of units sold in a time period
Total costs
All the costs of producing a specific output level
Total variable costs
All the variable costs of producing a specific level of output- that is variable costs per unit multiplied by the number of units sold
Variable costs
Those that change in line with the amount of business
Break even chart
A line graph showing total revenues and total costs at all possible levels of output or demand from zero to maximum capacity
Contribution
This is the total revenue less variable costs. The calculation of contribution is useful for business that are responsible for a range of products
Margin of safety
The amount by which current output exceeds the level of output necessary to break even
Adverse variance
A difference between budgeted and actual figures that is damaging to a firms profit
Criteria
Yardsticks against which success or the lack of it can be measured
Delegation
Passing authority down the hierarchy to allow junior employees some decision making power
Expenditure budget
Setting a maximum figure on what department or manager can spend over a period of time, this controls costs
Favourable variance
A difference between between budgeted and actual figures that boost a firms profit
Income budget
Setting a minimum figure for the revenue to be generated by a product, a department or a manager.
Zero budgeting
Setting all future budgets at £0, to force managers to have to justify the spending levels they say they need in the future
Corporation tax
A levy of the incomes of companies i.e. the percentage you pay a percentage of your tax pre profit
Dividends
Annual payments made to shareholders
Fixed overheads
The indirects costs that have to be paid however the business is performing e.g. rent
Contingency finance
Planning for the unexpected by either keeping a cash cushion in the firms current account or keeping an overdraft facility little used
Credit period
The length of time a supplier allows a buyer to wait before paying
Liquidation
Closing the business down by selling off all the assets , paying debts and returning what is left to the shareholders
Liquidity
The ability of a business to pay its bills on time, which all depends upon having enough cash in the bank
Working capital cycle
How long it takes for a complete cycle from cash out(buying stocks) to cash back in from a customer payment. it could vary from one day to one year
Administration
When the directors of a business feel forced by the threat of insolvency to hand over management control to an administrator(usually an accountant), who may try to sell the business or perhaps close it down and sell off the assets
Business model
The underlying plan of how the business is going to make profit in the long term
Enterprise resource planning
Planning that log all of a firms costs, working methods and resources within a piece of software; this provides a model of the business that can be used to answer questions
Supply chain
The whole path from suppliers of raw materials through production and storage onto customer delivery
Barrier to entry
Factors that make it hard for new firms to break into an existing market
GDP
Gross domestic product is the value of all the goods and services produced in a country in a year
Job enrichment
Giving people the opportunity to use their ability
Lean production
Focusing on minimising wastage of resources throughout the supply process
Downtime
Any period when machinery is not being used in production; some downtime is necessary for maintenance but too much may suggest incompetence
Excess capacity
When there is more capacity than justified by current demand
Rationalisation
Reorganising in order to increase efficiency. This often implies cutting capacity to increase the percentage utilisation
Sub contracting
Where another business is used to perform or supply certain aspects of a firms operations
Buffer stock
The desired minimum stock level held by a firm just in case something goes wrong
Competitive advantage
A feature that gives one business an edge over its rivals
Competitiveness
The extent to which a firm can stand up to or beat its rivals
Opportunity cost
The cost of missing out on the next best alternative when making a decision
Stockholding cost
The overheads resulting from the stock levels held by a firm
Right first time
Avoiding mistakes and therefore achieving high quality with no wastage of time or materials
Trade off
Accepting less of one thing achieve more of another
Zero defects
Eliminating quality defects by getting things right the first time
Consumer demand
The level of spending by consumers in general
Discretionary income
A persons income after deducting tax and fixed payments such as rent and utility bills
Economic climate
The atmosphere surrounding the economy
Real
Changes in money excluding the distorting effects of change in prices. so a fall in real wages may mean that wages are unchanged but prices have risen
Recession
Two or more quarters of negative growth
Collusion
When managers from different firms get together to discuss ways to work together to restrict supply/raise prices
Non-price competition
All competitive strategies other than price such as branding product design and technological innovation
