Theme 2 Key Words Flashcards
Acid Test Ratio
Similar to the current ratio but excludes stocks from current assets. A more severe test of liquidity
Administration
A failing business appoints a specialist to rescue the business or wind it up
Appreciation of a Currency
A rise in the value of a currency
Assets
Resources that belong to a business
Authorised Share Capital
The maximum amount that can be legally raised
Average Cost/Unit Cost
The cost of producing one unit, calculated by dividing the total cost by the output
Bank Overdraft
An agreement between a business and a bank that means a business can spend more money that it has in its account. The overdraft limit is agreed and interest is only charged when the business goes overdrawn
Barriers to entry
Obstacles that make it difficult for new firms to enter a market
Batch Production
A method that involves completing one operation at a time on all units before performing the next
Boom
The peak of the economic cycle where GDP is growing at its fastest
Break-even
When a business generates just enough revenue to cover its total costs
Break-even Chart
A graph containing the total cost and total revenue lines, illustrating the break-even output
Break-even Output
The output a business needs to produce so that its total revenue and total costs are the same
Break-even Point
The point at which total revenue and total costs are the same
Budget
A quantitative economic plan prepared and agreed in advance
Budgetary Control
A business system that involves making future plans, comparing the actual and planned results and then investigating the causes of any differences
Buffer Stocks
Stocks held as a precaution to cope with unforeseen demand
Capacity Utilisation
The use that a business makes of its resources
Capital
Money put into the business by the owners
Capital Gain
The profit made from selling a share for more than it was bought
Capital Intensive
Production method that make more use of machinery relative to labour
Capital Productivity
The amount of output each unit of capital produces
Cartel
A group of businesses who join together to agree on pricing and output in a market in attempt to gain higher profits
Cash inflows
The flow of money into a business
Cash outflows
The flow of money out of a business
Cash flow
Cash flow forecast predictions of expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of the month
Cell Production
Involves producing a family of products in a small self-contained unit within a factory
Collateral
An asset that might be sold to pay a lender when a loan cannot be repaid
Consumer Income
The amount of income remaining after taxes and expenses have been deducted from wages
Consumer Trends
The habits or behaviours of consumers that determine the goods and services they buy
Contract of Employment
A written agreement between an employer and an employee in which each has certain obligations
Contribution
The amount of money left over after variable costs have been subtracted from revenue. The money contributes towards fixed costs and profit
Cost of sales
The direct costs of a business
Crowd Funding
Where a large number of individuals invest in a business or project on the internet, avoiding the use of a bank
Current Assets
Liquid assets i.e. those assets that will be converted into cash within one year
Current Liabilities
Money owed by the business that must be repaid within one year
Current Ratio
Assesses whether or not a business has enough resources to meet any debts that arise in the next 12 months. Found by dividing current liabilities into current assets
Debenture
A long term loan to a business
Deflation
A fall in the general price level
Depreciation
A fall in the value of a currency
Discrimination
Favouring one person over another e.g. race/gender/age/disability
Downturn
A period in the economic cycle where GDP grow, but more slowly
Division of Labour
Specialisation in specific tasks or skills by an individual
Downsizing
The process of reducing capacity, usually by laying off staff
Economic Growth
The rise in output of an economy as measured by the growth in GDP as a percentage
Economic Variables
Measures within the economy which have effects on business and consumers e.g. employment, inflation, exchange rates
Efficiency
Producing a level of output where average cost is minimised
Equities
Another name for an ordinary share
Exceptional costs
A one-off cost, such as a large bad debt
Exchange Rate
The price of one currency in terms of another
External Factors
Factors beyond the control of businesses cause it to collapse
External Finance
Money raised form outside the business
Extrapolation
Forecasting future trends based on past data
Fiscal Policy
Using changes in taxation and government expenditure to manage the economy
Fixed Cost
A cost that does not change as a result of change in output in the short run
Flow Production
Large scale production of a standard product, where each operation on a unit is performed continuously one after the other, usually on a production line
Forecasting
A business process, assessing the probable outcome using assumptions about the future
Full Capacity
The point where a business cannot produce any more output
Gross Domestic Product
A common measure of national income, output or employment
Gross Profit
The difference between revenue/turnover and cost of sales
Gross Profit Margin
Gross profit expressed as a percentage of revenue/turnover
Historical Figures
Quantitative information based on past trading records
Incorporated Business
A business model in which the business and the owners have separate legal identities
Inflation
A general rise in prices
Intangible Assets
Non-physical assets, such as brand names, patents and customer lists
Internal Factors
Factors that businesses are able to control cause it to collapse
Inventories
Stock such as raw materials and finished goods held by a business
Issued share capital
Amount of current share capital arising from the sale of shares
Job Production
A method of production that involves employing all factors to complete one unit of output at a time
Kaizen
A Japanese term that means continuous movement
Labour Intensive
Production methods that make more use of labour relative to machinery
Labour Productivity
The amount of output each unit of labour produces
Lead time
The time between placing the order and the delivery of goods
Lean production
An approach to operations that focuses on the reduction of resource use
Lease
A contract to acquire the use of resources such as property or equipment
Liabilities
Money owed by the business to banks and suppliers for example
Limited Liability
A legal status that means shareholders can only lose the original amount they invested in the business
Liquidity
The ease with which assets can be converted into cash
Long Run
The time period where all factors of production are variable
Long term finance
Money borrowed for more than one year
Margin of Safety
The range of output between the break-even level and current level of output, over which a profit is made
Monetary Policy
Using changes in the interest rate and money supply to manage the economy
Net Cash Flow
The difference between the cash flowing in and the cash flowing out of a business in a given time period
Non-current assets
Long term resources that will be used by the business repeatedly over a period of time
Non-current liabilities
Money owed by the business for more than one year, sometimes called long term liabilities
Operating Profit
The difference between gross profit and business overheads, such as selling and administrative expenses
Operating Profit Margin
Operating profit expressed as a percentage of revenue/turnover
Outsourcing
Giving work to sub-contractors to reduce cost
Overtrading
The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast
Over-utilisation
The position where a business is running at full capacity and straining resources
Peer-to-peer lending (P2PL)
Where individuals lend to other individuals without prior knowledge of them , on the internet
Permanent Capital
Share capital that is never repaid by the company
Planning
A plan for the development of a business, giving details such as the products to be made, resources needed and forecasts such as costs, revenues and cash flows
Production
The transformation of resources into goods and services
Production cost budget
A firm’s planned production costs for a future period of time
Productivity
The output per unit of input per time period
Profit
The difference between total costs and total revenue, it can be negative
Profit for the year/Net Profit
The difference between operating profit and interest and exceptional items
Profit for the Year margin/Net Profit margin
Net profit after tax, expressed as a percentage of revenue/turnover
Quality
Features of as product that allow it to satisfy customer’s needs, it may refer to some standard of excellence
Quality Assurance
A method of working for businesses that takes into account customer’s wants when standardising quality. It often involves guaranteeing that quality standards are met
Quality Control
Making sure that the quality of a product meets specified quality performance criteria
Recession
A less severe form of depression
Recover or uprising
A period where economic growth begins to increase again after a recession
Re-order level
The level of current stock when new orders are placed
Re-order quantity
The amount of stock ordered when an order is placed
Revenue/Turnover
The total income of a business resulting from sales of goods or services
Sales Budget
A firm’s planned sales for future period of time - can be measured in terms of volume/revenue
Sales Forecast
Projection of future sales revenue, based on previous sales data
Sales revenue
The value of output sold in a particular time period
Sales volume
The quantity of output sold in a particular time period
Share capital
Money introduced into the business through the sale of shares
Shareholders’ Equity
The amount of money owned by the business to the shareholders
Short-term borrowing
Money borrowed for 12 months or less
Slump or Depression
The bottom of the economic cycle where GDP starts to fall with significant increases in unemployment
Statement of Comprehensive Income
A financial document showing a company’s income and expenditure over a particular time period of usually one year
Statement of Financial Position
A summary at a particular point in time of the value of a firm’s assets, liabilities and capital
Time Series Data
A method that allows a business to predict future levels from past figures
Total Costs
The entire cost of producing a given level of output
Total Quality Management
A managerial approach that focuses on quality and aims to improve the effectiveness, flexibility and competitiveness of the business
Total Revenue
The amount of money the business receives form selling output
Trade and other receivables
Money owed by the business by customers and any prepayments made by the business
Trade and other payables
Money owed by the business to suppliers and utilities, sometimes called trade creditors
Unincorporated Businesses
A business model in which there is no legal difference between the owners and the business
Unlimited Liability
A legal status which means that business owners are liable for all business debt
Unsecured Loans
Where the lender has no protection if the borrower fails to repay the money owed
Variance
The difference between actual financial outcomes and those budgeted
Variance Analysis
The process of calculating variances and attempting to identify their causes
Venture Capitalism
Providers of funds for small or medium sized companies that may be considered too risky for other investors
Working Capital
The funds left over to meet day to day expenses after current debts have been paid. Calculated by subtracting current liabilities from current assets
Zero-based budgeting
A system of budgeting where no money is allocated for costs or spending unless they can be justified by fund holder
