Theme 2: Managing business activities Flashcards
retained profit
profit that has been generated in previous years and are reinvested back into the business
business angels
individuals who specialise in making investments in start-up or expanding businesses
crowdfunding
finance provided by a large number of small investors on online platforms
loan
a sum of money that is borrowed and repaid with interest
overdraft
an agreement for a business to spend more than what they have in their account
share capital
finance raised from selling shares
venture capital
funds provided by specialist investors to businesses that have potential for growth
leasing
when a business has use of an asset, such as machinery or a vehicle, in return for regular payments
trade credit
agreement made with suppliers to buy resources which are paid for at a later date
liability
a debt a business has to pay
limited liability
assets of the owner are considered to be separate from the firm’s assets
unlimited liability
owners are fully responsible for all debts owed by the business
business plan
a written document that provides a forecast of items including sales, costs and cash flow
cash flow forecast
a prediction of anticipated cash inflows and outflows
sales forecast
prediction of future revenue
sales volume
number of units sold
sales revenue
value of all units sold
sales revenue formula
sales revenue = selling price x quantity sold
fixed costs
costs that do not change as the level of output changes
variable costs
costs that vary depending on the level of output
break-even
the level of output where total revenue is equal to total costs
break-even formula
break-even point = fixed costs ÷ contribution per unit
contribution per unit formula
contribution per unit = selling price - variable costs per unit
margin of safety
difference between actual level of output and the break-even level of output
budget
a financial plan a business sets about costs and revenue
historical budget
a budget based on previous financial figures
zero based budget
creating a new budget by justifying all expenses first
variance analysis
shows the difference between the budgeted figure and the actual figure achieved
favourable variance
when the actual figure achieved is better than the budgeted figure
adverse variance
when the actual figure achieved is worse than the budgeted figure
income statement
measures the profitability of a business over a period of time
gross profit
difference between revenue and the costs directly related to production
(revenue - cost of sales)
operating profit
difference between gross profit and the indirect expenses involved in operating the business
profit for the year (net profit)
difference between operating profit and any interest paid and received plus any one off costs
profit formula
profit = total revenue - total costs
profit margin
the amount by which the sales revenue exceeds the costs
gross/operating/net profit margin formula
(gross/operating/net profit ÷ revenue) x 100
balance sheet
shows the financial position of a business at a specific point in time
liquidity
ability of a business to pay its liabilities with its available assets
current ratio formula
current assets ÷ current liabilities
acid test ratio
(current assets - inventory) ÷ current liabilities
working capital
the money a business has to fund its day to day activities
production
the transformation of resources into finished goods or services
job production
producing one unit at a time specific to the customer’s needs and wants
batch production
producing groups of the same product before moving on to a group of different products
flow production
involves the continuous manufacturing of standardised products
cell production
workers are organised into teams with different responsibilities for a particular part of the production process
labour/capital productivity
measures the output per worker/machine over a period of time
labour/capital productivity formula
output ÷ number of workers/machines
efficiency
refers to the ability of a business to use its resources as cost-effectively as possible to produce products
average cost per unit formula
average cost = total costs ÷ number of units
labour intensive
when a business predominantly uses physical labour in the production process
capital intensive
when a business predominantly uses machinery and technology in the production process
capacity utilisation
measures how effectively a business uses its assets to produce output
capacity utilisation formula
(current output ÷ maximum potential output) x 100
lead time
the length of time from the point of stock being ordered from the supplier to it being delivered
buffer stocks
a quantity of goods or raw materials kept in case of stock shortages
just in time (JIT) stock management
involves ordering raw materials only when required to be delivered just before the production process
lean production
involves the minimisation of resources used in production
quality
considers the features and characteristics of a product that satisfy customer needs and wants
quality control
inspecting the quality of output at the end of the production process
quality assurance
inspecting the quality of production throughout the production process
quality circles
where groups of workers meet regularly to solve quality problems
total quality management (TQM)
the continuous elimination of manufacturing errors by ensuring that the products are checked for quality at every stage of production
continuous improvement (kaizen)
a business taking continuous steps to improve productivity through the elimination of all types of waste in production
