Unit 1 Definitions Flashcards
Internal sources of finance
Profits and sales of assets
Types of sources of finance
External, Internal
External sources of finance
Overdraft, loans, selling shares, government incentives
Overdraft
A deficit in a bank account caused by drawing more money than the card holds
Profit
Total revenue minus total costs
Total revenue
Price multiplied by quantity
Total costs
Fixed costs plus variable costs
Fixed costs
Do not change with output e.g. rent
Variable costs
Do change with output e.g. material costs
Break even
The minimum output at which total revenue equals total costs
Liquid
Being liquid means a firm can meet its short term liabilities.
Measures of a firm’s success
Profit, growth, sales, number of employees
Revenue
Value of a firm’s sales
Loan
An external source of finance e.g. borrowing from a bank
Economies of scale
Fall in long run average costs, as the scale of production increases
Types of economies of scale
Purchasing, technical, managerial, marketing, financial
Diseconomies of scale
When unit costs rise as the scale of production increases
Division of labour
Where individual employees are given specialist tasks to undertake in the production process
Franchise
When one firm grants another firm the right to supply its products
Private limited company (ltd.)
A business owned by shareholders with limited liability, but not quoted on the Stock Exchange
Public limited company (plc.)
A company that has its shares quoted on the Stock Exchange
Privatisation
Transfer of assets from the public sector to the private sector
Limited liability
Investors may lose the money invested in the business, but not their personal possessions
Dividend
The amount paid out of profits to shareholders
Productivity
Output per worker per period of time
Diversification
When a business moves into a new business area to spread the risk by being in different markets
Primary sector
Involves the extraction of raw materials e.g. oil and agriculture
Secondary sector
Where raw materials manufactured into goods
Tertiary sector
The service sector of the economy
Interventionism
When the government tries to control the economy
Resource
Something used to produce output
Equilibrium
The point where demand and supply meet
Average revenue
Total revenue divided by the output
