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IB Business Management HL 2016+ > Unit 3 - Accounts and Finance > Flashcards

Unit 3 - Accounts and Finance Flashcards

1
Q

average rate of return ARR

A

calculates the average annual profit of an investment project

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2
Q

acid test ratio

A

liquidity ratio that measures the ability of a firm to meet its debts within the next 12 months, but it ignores stock because not all stock can be easily turned into cash in the short-run

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3
Q

appropriation account

A

final section of the P&L account and shows how the profits after tax are distributed between the owners and as retained profits

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4
Q

assets

A

items with a monetary value that belong to a business; they can either be fixed assets (e.g. machinery, tolls, buildings) or current assets (e.g. cash, stock, debtors)

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5
Q

book value

A

value of an asset as shown on a balance sheet

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6
Q

budget HL

A

financial plan of expected revenue and expenditure for an organisation or a department for a given time period

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7
Q

budget holder HL

A

person, usually a middle or senior manager, placed in charge of a budget who is responsible and accountable for all revenue and expenditure within the allocated budget

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8
Q

budgetary control HL

A

process of investigating any differences between budgeted figures and actual figures

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9
Q

business angels

A

wealthy entrepreneurs who risk their own money in small to medium sized businesses that have high growth potential

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10
Q

capital employed

A

value of all long-term sources of finance for a business, e.g. bank loans, share capital, reserves

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11
Q

cash

A

actual money a business has received from selling its products and exists in form of cash in hand (cash held in the business) or cash at bank (cash held in a bank account)

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12
Q

cash flow

A

movement of money into and out of an organisation; cash inflows mainly come from sales revenue, cash outflows mainly from expenditures

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13
Q

cash flow forecast

A

financial document that records the actual cash inflows and outflows for a business over a specified trading period

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14
Q

closing balance

A

value of cash left in a business at end of the month, as shown in its cash flow forecast

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15
Q

costs of goods sold COGS

A

(= direct costs = variable costs) costs that are directly linked to the production, e.g. costs of raw material

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16
Q

creditor days ratio HL

A

efficiency ratio that measures the average number of days it takes for a business to pay its creditors

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17
Q

creditors

A

individuals or organisations that have sold goods or services on credit and will collect this money within the next 12 months

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18
Q

contingency fund

A

reserve budget that is set aside for emergency and back-up use

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19
Q

current assets

A

resources owned by a business and intended to be used within the next 12 months, e.g. cash, debtors, stocks

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20
Q

current ratio

A

efficiency ratio that shows the ability of a firm to meet its debts within the next 12 months

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21
Q

debentures

A

type of long-term loan with fixed annual interest payments which are repayable on maturity

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22
Q

debt factoring

A

financial service whereby a factor (such as the bank) collects debts on behalf of other businesses, in return for a fee

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23
Q

debtor days ratio HL

A

efficiency ratio that measures the average number of days it takes to collect the money owed from debtors

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24
Q

debtors

A

customers who have purchased goods or services on credit, so owe the business money which is collected within the next 12 months

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25
depreciation
fall in the value of fixed assets, due to wear and tear or out of fashion
26
expenses
(= overheads = indirect costs = fixed costs) costs which are not directly linked to the production, e.g. costs of rent, advertising
27
discounted cash flow HL
reduces the value of money a business receives in future years
28
external sources of finance
getting sources of finance from outside the organisation, e.g. overdrafts, loans
29
final accounts
annual financial statements that all limited companies are legally obliged to report; these include balance sheet, trading account, profit and loss account
30
first-in first-out HL
FIFO values stock based on the order in which they were purchased
31
fixed assets
resources owned by a business and not intended for sale within the next 12 months, e.g. land, machinery
32
gearing
measures the percentage of a firm‘s capital employed that comes from long-term liabilities
33
gross profit
difference between sale revenue and its direct cost
34
gross profit margin
profitability ratio which shows the percentage of sales revenue that turns into gross profit
35
intangible assets
fixed assets but do not exist in a physical form, e.g. copyrights, brand names
36
investment appraisal
financial decision-making tool that helps managers to assess whether certain investment projects should be undertaken based on quantitative techniques
37
liabilities
debts owed by a business; current liabilities are short-term debts which need to be repaid within 12 months, long-term liabilities are repayable over a longer period
38
liquid assets
assets of a business that can be turned into cash quickly
39
liquidity
ability of a business to convert assets into cash quickly and easily without a fall in its value
40
liquidity crisis
cash flow emergency situation where a business doesn’t have enough cash to pay its current liabilities
41
last-in first-out HL
LIFO values stock based on the cost of the most recent stocks purchased
42
net assets
shows the value of a business by calculating the value of all its assets minus long-term liabilities
43
net cash flow
cash that is left over after cash inflows minus cash outflows
44
net present value HL
calculates total discounted cash flows, minus the initial cost of an investment project
45
net profit
surplus that a business makes after all the expenses have been paid for out of gross profit
46
net profit margin
profitability ration which shows the percentage of sales revenue that turns into net profit
47
opening balance
amount of cash at the beginning of a trading period the opening balance is the same value as the preceding month‘s closing balance
48
overdrafts
allow a business to spend in excess of the amount in its bank account, up to a predetermined limit
49
overheads
(= expenses = indirect costs = fixed costs) costs which are not directly linked to the production, e.g. costs of rent, advertising
50
overtrading
situation that occurs when a business attempts to expand too quickly, without the sufficient resources to do so, usually by accepting too many orders
51
payback period
investment appraisal technique which estimates the length of time needed to get the initial cash flow of an investment project back
52
profit and loss account
shows the trading position of a business at the end of a specified accounting period and split into 3 parts: trading account, P&L account, appropriation account
53
qualitative investment appraisal
judging whether an investment project is worthwhile through non-numerical means, e.g. whether the investment is in line with the corporate culture
54
quantitative investment appraisal
judging whether an investment project is worthwhile through numerical means, e.g. payback period, ARR, NPV
55
ratio analysis
management tool that compares different financial figures found in the balance sheet and PLA of a business and helps to analyse and judge the financial performance of a business
56
reducing balance method HL
way of depreciation that diminishes the value of a fixed asset by the same percentage each year throughout its useful life
57
return on capital employed
efficiency ratio which measures the profit of a business in relation to its size (as measured by capital employed)
58
share capital
money raised from selling shares in a company
59
shareholder’s funds
shows the sources of finance of a company less its long-term liabilities, e.g. retained profit, reserves
60
SMART budgeting HL
budgets that are specific, measurable, achievable, realistic and time-specific
61
sources of finance
where or how a business obtains its funds
62
stock turnover ratio HL
efficiency ratio which measures the number of times a firm sells its stocks within 1 year
63
stock
physical goods that a business has in its possession for further production (e.g. raw material, unfinished goods) or for sale (e.g. finished goods)
64
straight line method HL
way of depreciation that diminishes the value of a fixed asset by the same value each year throughout its useful life
65
trading account
appears at the top section of the P&L account and shows the gross profit (or loss) of the business
66
variance HL
discrepancy between actual outcomes and budgeted outcomes; favourable variances are beneficial for the business, adverse variances are harmful
67
window dressing
legal act of manipulating financial data to make the result look more flattering
68
working capital
amount of finance available to a business for its daily operations
69
average cost
total costs divided by the quantity produced
70
average revenue
total revenue divided by the quantity sold
71
balance sheet
shows financial information on assets, liabilities and the capital invested on one specific day
72
break-even analysis
tool used to calculate the level of sales needed to cover all costs of production
73
break-even chart
graph that shows a firm’s costs, revenues and profits
74
break-even point
position on a break-even chart where the total cost line intersects the total revenue line, where TR = TC
75
break-even quantity
level of output that generates neither any profit nor loss
76
cash flow statement
financial document that records the actual cash inflows and outflows for a business over a specified trading period
77
cost
sum of money that a business needs in the production process
78
contribution
difference between sale revenue and total variable costs; the difference contributes towards the payment of fixed costs
79
contribution analysis
tool that helps managers to identify areas of their business that are relatively profitable and areas that might need more attention
80
contribution per unit
price minus average variable cost or contribution divided by quantity sold
81
cost centre HL
department or unit that generates costs but no revenues, e.g. marketing department
82
current liabilities
debts that must be repaid within the next 12 months
83
direct costs
(= COGS = variable costs) costs that are directly linked to the production, e.g. costs of raw material
84
fixed costs
(= overheads = indirect costs = indirect costs) costs which are not directly linked to the production, e.g. costs of rent, advertising
85
grants
government financial gifts to support businesses
86
indirect costs
(= overheads = expenses = fixed costs) costs which are not directly linked to the production, e.g. costs of rent, advertising
87
insolvency
situation where a firm’s working capital is insufficient to meet its current liabilities
88
internal sources of finance
getting funds from within the organisation, e.g. retained profits
89
leasing
form of hiring whereby a contract is agreed between the leasing company (the lessor) and the customer (the lessee); the lessor is the legal owner of the assets, the lessee pays rent to use the assets
90
loans
money obtained from commercial lenders such as banks; interest charges are imposed; the money is paid back in instalments over a predetermined period
91
margin of safety
difference between a firm’s level of demand and its break-even quantity
92
price
amount of money a product is sold for
93
profit
positive difference between a product’s revenue and its costs
94
profit centre HL
department or unit that generates profit and thus, both revenues and costs can be identified, e.g. each Starbucks branch
95
residual value HL
estimate of the value of an asset at the end of its useful life
96
retained profit
value of profits that the business keeps (after paying taxes and dividends)
97
revenue
money a business receives from the sale of its products
98
revenue expenditure
spending on the day-to-day running of a business, e.g. rent, wages
99
revenue stream
money a business receives from its various business activities
100
semi-variable costs
costs of production that have an element of both fixed and variable costs, e.g. power and electricity
101
stock valuation HL
technique used to measure the value of a firm’s inventories
102
total cost
sum of variable cost and fixed cost
103
trade credit
allows a business to „buy now and pay later “; creditor is a supplier
104
variable costs
(= COGS = direct costs) costs that are directly linked to the production, e.g. costs of raw material
105
venture capital
high-risk capital invested by venture capital firms or individuals, usually at the start of a business idea; the finance is usually in the form of loans and/or shares

IB Business Management HL 2016+ (5 decks)

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