Theme 2 Key terms definitions Flashcards
What is Internal Finance?
Funds raised from within the business, such as owner’s capital, personal savings, or retained profit.
What is Retained Profit?
Profit that is reinvested back into the business rather than distributed to shareholders.
What is Sale of Assets?
Selling off a company’s assets to raise funds.
What is External Finance?
Funds sourced from outside the business, including bank loans, overdrafts, and share capital.
What is a Bank Loan?
A fixed amount of money borrowed from a bank, repayable with interest over a set period.
What is an Overdraft?
An agreement allowing a business to withdraw more money from its bank account than is currently available, up to an agreed limit.
What is Share Capital?
Money raised by issuing shares in the company to investors.
What is Venture Capital?
Investment from individuals or firms in exchange for equity, typically used by startups and small businesses with high growth potential.
What is Crowdfunding?
Raising small amounts of money from a large number of people, typically via online platforms.
What is Trade Credit?
An arrangement where suppliers allow businesses to receive goods or services and pay for them at a later date.
What is Limited Liability?
A legal status where a business owner’s financial liability is restricted to their investment in the company.
What is Unlimited Liability?
A situation where business owners are personally responsible for all the debts of the business.
What is a Cash Flow Forecast?
A financial document predicting the future cash inflows and outflows over a specific period.
What is Sales Forecasting?
Estimating future sales volumes and revenue based on market analysis and historical data.
What are Fixed Costs?
Expenses that do not change with the level of goods or services produced, such as rent and salaries.
What are Variable Costs?
Expenses that vary directly with the level of production, such as raw materials and direct labor costs.
What is the Break-Even Point?
The level of sales at which total revenues equal total costs, resulting in neither profit nor loss.
What is Contribution?
The amount remaining from sales revenue after variable costs have been deducted, contributing towards fixed costs and profit.
What is Gross Profit?
Sales revenue minus the cost of goods sold.
What is Operating Profit?
Gross profit minus operating expenses.
What is Net Profit?
Operating profit minus interest and taxes.
What is Liquidity?
The ability of a business to meet its short-term financial obligations.
What is the Current Ratio?
A liquidity ratio calculated as current assets divided by current liabilities, indicating the company’s ability to pay short-term obligations.
What is the Acid Test Ratio?
A stringent liquidity ratio that measures a company’s ability to cover its short-term liabilities without relying on the sale of inventory; calculated as (Current Assets - Inventory) / Current Liabilities.
What is Capacity Utilization?
The extent to which a business uses its production capacity; calculated as (Actual Output / Maximum Possible Output) × 100%.
What is Productivity?
A measure of efficiency, typically calculated as output per worker over a given period.
What is Quality Control?
The process of inspecting products to ensure they meet the required quality standards.
What is Quality Assurance?
A proactive approach focusing on preventing defects by ensuring quality standards are met throughout the production process.
What is Total Quality Management (TQM)?
A management philosophy that seeks continuous improvement in all aspects of a business by involving all employees.
What is Just-In-Time (JIT)?
An inventory management system where materials are ordered and received only as they are needed in the production process, reducing inventory costs.
What are Economies of Scale?
Cost advantages that a business can achieve due to an increase in production, leading to a reduction in average costs per unit.
What are Diseconomies of Scale?
The point where a company grows so large that the costs per unit increase, leading to inefficiencies.
What is Buffer Stock?
A reserve of extra inventory maintained to guard against unforeseen shortages or demand spikes.
What is Lead Time?
The time interval between ordering and receiving goods or services.
What is Reorder Level?
The predetermined inventory level at which new stock is ordered to replenish supplies before they run out.
What is Outsourcing?
Contracting out certain business functions or processes to external providers to reduce costs or focus on core activities.
What is Kaizen?
A Japanese term meaning ‘continuous improvement,’ involving all employees working together proactively to achieve regular, incremental improvements in the manufacturing process.
What is Critical Path Analysis (CPA)?
A project management tool that outlines the sequence of crucial steps or tasks necessary to complete a project, identifying the longest path and potential bottlenecks.
What is Contingency Planning?
The process of preparing for unexpected events by developing plans to mitigate potential negative impacts on a business.
What does the Consumer Rights Act?
It protects consumers by ensuring products are satisfactory quality, fit for purpose, and as described.
What does the Health and Safety at Work Act 1974 require?
It requires businesses to provide a safe working environment for employees.
What does the National Minimum Wage Act 1998 ensure?
It ensures workers receive a legal minimum hourly wage.
What does the Competition Act 1998 prevent?
It prevents anti-competitive practices like price-fixing and monopolies.
What does the Environmental Protection Act 1990 regulate?
It regulates waste disposal and pollution control for businesses.
What is Depreciation
When the value of a currency falls, making exports cheaper and imports more expensive.
Define economic growth
The increase in a country’s output of goods and services over time, usually measured by GDP (Gross Domestic Product).
What is A recession?
A period of negative economic growth for two consecutive quarters, leading to lower demand and rising unemployment.
What is boom?
A period of rapid economic growth with high consumer spending, investment, and employment.
define Inflation
The rate at which the general price level of goods and services rises, reducing the purchasing power of money.
What is the consumer price index (CPI)
A measure of inflation based on the average price change of a basket of goods and services over time.
Define Interest rates
The cost of borrowing or the reward for saving, set by central banks like the Bank of England.
What are exchange rates?
The value of one currency in terms of another, affecting the cost of imports and exports.
What is Appreaciation
When the value of a currency rises, making exports more expensive and imports cheaper.
Define boom
A period of rapid economic growth with high consumer spending, investment, and employment.
What is profitability?
Profitability is a measure of a business’s ability to generate profit, usually shown as a percentage of revenue or investment. It shows how efficiently a business turns sales into profit.
