Unit 2 Key Terms Flashcards
Internal finance
money generated from within the business e.g. owner’s capital, retained profits, sale of assets
Owners capital
money the owner(s) invest into the business, often from their personal savings
Retained profits
a source of internal finance kept by the business rather than distributed to the shareholders/owners
External finance
money that comes from outside the business e.g. banks, business angels
Peer to peer funding
where individuals lend money to other individuals/businesses without having to use the traditional banking sector
Business angels
wealthy individuals who invest money into new or innovative businesses that they think have the potential to be successful
Crowd funding
an external method of finance involving raising small amounts of money from a large number of people typically over the internet
Loans
an amount of money borrowed from a lender that is paid back with interest over a period of time
Share capital
where money is raised in exchange for a share in the business
Venture capital
where funding is provided by an investor in exchange for a share in the business
Overdraft
when a bank allows a business to have a negative bank balance
Leasing
where a business pays to use assets owned by someone else e.g. premises, equipment
Trade credit
where a firm receives stock from a supplier and does not have to pay for it until later
Grant
a fixed sum of money given to a business by a government
Business plan
details about how a business expects to develop over time and includes details such as the product, forecasts for cash flow and profit.
It can be used to persuade financial backers to invest
Cash flow
the movement of money into and out of a business
Cash flow forecast
the predicted flow of cash into and out of a business over a period of time
Sales forecast
a prediction of the expected level of sales volume/value for a business for a future period of time using market research and past sales data
Consumer trends
habits/behaviour of those involved in the use of goods and services
Sales revenue
the amount of money a firm has earned in a given time period
Sales volume
the quantity of units sold
Fixed costs
costs that do not change when output/sales change e.g. rent, salaries
Variable costs
costs that change when output change e.g. raw materials
Profit
the surplus remaining from revenue after total costs have been deducted
Contribution
the difference between the selling price and the variable costs of a product
Break even
a situation where a business is neither making a profit or a loss
Break even output
the level of production where total costs equal total revenue
Margin of safety
the difference between the actual output and the breakeven output
Budget
a financial plan for income and expenditure for a given period of time or a target for costs and revenue a business or department must aim to reach over a given period of time
Historical budget
targets set for costs and revenue according to targets set in previous years
Zero based budget
a budget will be set at zero at the start of each yr and the budget holder will need to justify all the money that is allocated to it
Variance analysis
shows the difference between budgeted and actual figures as a way of judging how a business is performing
Adverse Variance
when a firm is performing worse than expected
Favourable variance
when a firm is performing better than expected
Statement of comprehensive income
a document to show income and expenditure of a business over a financial yr
Total revenue (AKA sales revenue or turnover)
the income earned from selling your product/service in a given period of time
Cost of sales (Direct costs)
the cost of raw materials/stock purchased to produce/supply a product/service
Gross profit
the difference between total revenue and cost of sales
Overheads (Indirect costs)
costs such as rent that dont directly relate to the production/sale of goods/services
Operating profits
the difference between gross profit and operating expenses
how much profit has been made in total from the trading activities of the business before any account is taken of how the business is financed.
Net profit (PFTY)
the difference between operating profit and interest
what is left after all the costs of a business have been taken from its sales revenue.
Profitability
the degree to which a business makes a profit from its activities usually by comparing the profit made in relation to its sales revenue
Statement of financial position
a snapshot of a firms finances at a particular time
Non current assets
an asset that the business is likely to keep for more than a yr
Current assets
an asset that the business is likely to EXCHANGE for cash within the accounting yr
Current liabilities
a debt which NEEDS to be paid off within a yr
Non current Liabilities
a debt that the business will pay off over SEVERAL yrs
Liquidity
how quickly a business can access cash in order to meet short-term debts (measured by the current ratio and acid test ratio)
Working capital
the amount of cash that the business has available to pay its day to day debts
Job production
a production method in which one off items are made
Batch production
small volumes of different products are produced in groups with products in each batch being identical
Flow production
Products are made in a continuously moving process
Productivity
a measure of output of a person, machine or process over a given time period
Cell production
an assembly line is divided into sets of tasks, each of which is completed by a work group
Efficiency
making the best possible use of all business resources to minimise average costs
Average costs
the cost per unit manufactured in a production run
Labour intensive production
the use of more WORKERS in the production process compared to the use of machinery
Capital intensive production
the use of more MACHINERY in the production process compared to the use of labour
Capacity
the maximum output that it can produce in a given period
Capacity utilisation
the current level of business output as a percentage of maximum output
Under utilisation
not using machines or resources to the fullest
Over utilisation
using resources so close to 100% that they might be over-stretched
Stock/inventory
items held by a business for future sales/processing such as raw materials, work in progress and finished products
Stock control chart
a diagram that shows details of inventory movements such as minimum and maximum inventory, reorder level and quantity and lead times
Buffer stock
the minimum stock level held in reserve to protect against surges in demand or late deliveries by suppliers
Usage rate
the quantity of a product/service consumed by a user in a given period
Lead time
how long it takes from an order being placed with the supplier and the items arriving
Reorder level
the level of stocks at which orders need to be placed
Reorder quantity
the amount the business orders from its suppliers
Just in time
stock arrives immediately before it is needed for production or sale in order to minimise costs
Lead time
The time it takes for goods to arrive after ordering them from a supplier
Quality
the extent to which a good/service meets customer requirements
(how “fit for purpose” a good is)
Quality management
techniques intended to reduce wastage as well as increase the quality of finished goods
Quality control
uses quality inspectors to check products at the end of production to ensure they are suitable for consumption
DETECTS FAULTS NOT PREVENTING THEM
Quality assurance
systems that ensure products produced/sold are fit for purpose as products are checked and tested at each stage of the production process
PREVENTS FAULTS FROM OCCURING
Quality circles
a meeting of a group of employees to discuss quality
Total quality management (TQM)
a quality system that places the responsibility of quality with every employee in the organisation
Kaizen
making small improvements in all business processes to achieve a culture of continuous improvement
Inflation
a sustained rise in the average price level in the economy
Consumer price index (CPI)
an index that tracks the changes in the average cost of a “basket” of goods and services that an average household regularly buys
Interest rates
the cost of borrowing and the reward for saving expressed as a percentage of the money borrowed/saved
Exchange rates
the price of one currency in terms of another
Exchange rate appreciation
when the value of currency increases relative to that of another
Exchange rate depreciation
a currency is worth less in terms of another foreign currency
Taxation
how the government raises money to finance expenditure
Business cycle
this measures economic activity over time and shows stages of boom, recession, slump and recovery
Gross domestic product (GDP)
the total market value of goods and services produced within a nation over a period of time (usually a yr)
Economic growth
an increase on the output of goods and services produced in an economy over time
Recession
a temporary decline in a country’s economic activity
Economic uncertainty
economic factors that make it difficult for businesses to predict their future performance (costs, sales and profits)
Legislation
the making of laws for people to follow
Consumer legislation
legislation that aims to prevent businesses using unfair selling practices
Health and safety legisaltion
legislation that makes employers responsible for the health, safety and welfare at work of all employees so that accidents should be minimised through training, risk assessment and safe working conditions
Employee legislation
legislation to ensure businesses comply with laws such as the national minimum wage, rights for redundancy, equal opportunities and heath and safety
Environmental legislation
legislation design to protect the environment against negative impacts caused by business’s production
Competition policy
aims to protect the interests of consumers and businesses as well as aiming to restrict anti-competitive practices such as abusing market power
Competitive environment
the number of similar companies within the same market
Competitive market
a large number of producers compete with one another to meet the needs and wants of consumers
