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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
Q

depreciation

A

fall in the value of fixed assets, due to wear and tear or out of fashion

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26
Q

expenses

A

(= overheads = indirect costs = fixed costs) costs which are not directly linked to the production, e.g. costs of rent, advertising

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27
Q

discounted cash flow HL

A

reduces the value of money a business receives in future years

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28
Q

external sources of finance

A

getting sources of finance from outside the organisation, e.g. overdrafts, loans

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29
Q

final accounts

A

annual financial statements that all limited companies are legally obliged to report; these include balance sheet, trading account, profit and loss account

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30
Q

first-in first-out HL

A

FIFO values stock based on the order in which they were purchased

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31
Q

fixed assets

A

resources owned by a business and not intended for sale within the next 12 months, e.g. land, machinery

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32
Q

gearing

A

measures the percentage of a firm‘s capital employed that comes from long-term liabilities

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33
Q

gross profit

A

difference between sale revenue and its direct cost

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34
Q

gross profit margin

A

profitability ratio which shows the percentage of sales revenue that turns into gross profit

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35
Q

intangible assets

A

fixed assets but do not exist in a physical form, e.g. copyrights, brand names

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36
Q

investment appraisal

A

financial decision-making tool that helps managers to assess whether certain investment projects should be undertaken based on quantitative techniques

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37
Q

liabilities

A

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

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38
Q

liquid assets

A

assets of a business that can be turned into cash quickly

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39
Q

liquidity

A

ability of a business to convert assets into cash quickly and easily without a fall in its value

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40
Q

liquidity crisis

A

cash flow emergency situation where a business doesn’t have enough cash to pay its current liabilities

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41
Q

last-in first-out HL

A

LIFO values stock based on the cost of the most recent stocks purchased

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42
Q

net assets

A

shows the value of a business by calculating the value of all its assets minus long-term liabilities

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43
Q

net cash flow

A

cash that is left over after cash inflows minus cash outflows

44
Q

net present value HL

A

calculates total discounted cash flows, minus the initial cost of an investment project

45
Q

net profit

A

surplus that a business makes after all the expenses have been paid for out of gross profit

46
Q

net profit margin

A

profitability ration which shows the percentage of sales revenue that turns into net profit

47
Q

opening balance

A

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
Q

overdrafts

A

allow a business to spend in excess of the amount in its bank account, up to a predetermined limit

49
Q

overheads

A

(= expenses = indirect costs = fixed costs) costs which are not directly linked to the production, e.g. costs of rent, advertising

50
Q

overtrading

A

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
Q

payback period

A

investment appraisal technique which estimates the length of time needed to get the initial cash flow of an investment project back

52
Q

profit and loss account

A

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
Q

qualitative investment appraisal

A

judging whether an investment project is worthwhile through non-numerical means, e.g. whether the investment is in line with the corporate culture

54
Q

quantitative investment appraisal

A

judging whether an investment project is worthwhile through numerical means, e.g. payback period, ARR, NPV

55
Q

ratio analysis

A

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
Q

reducing balance method HL

A

way of depreciation that diminishes the value of a fixed asset by the same percentage each year throughout its useful life

57
Q

return on capital employed

A

efficiency ratio which measures the profit of a business in relation to its size (as measured by capital employed)

58
Q

share capital

A

money raised from selling shares in a company

59
Q

shareholder’s funds

A

shows the sources of finance of a company less its long-term liabilities, e.g. retained profit, reserves

60
Q

SMART budgeting HL

A

budgets that are specific, measurable, achievable, realistic and time-specific

61
Q

sources of finance

A

where or how a business obtains its funds

62
Q

stock turnover ratio HL

A

efficiency ratio which measures the number of times a firm sells its stocks within 1 year

63
Q

stock

A

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
Q

straight line method HL

A

way of depreciation that diminishes the value of a fixed asset by the same value each year throughout its useful life

65
Q

trading account

A

appears at the top section of the P&L account and shows the gross profit (or loss) of the business

66
Q

variance HL

A

discrepancy between actual outcomes and budgeted outcomes; favourable variances are beneficial for the business, adverse variances are harmful

67
Q

window dressing

A

legal act of manipulating financial data to make the result look more flattering

68
Q

working capital

A

amount of finance available to a business for its daily operations

69
Q

average cost

A

total costs divided by the quantity produced

70
Q

average revenue

A

total revenue divided by the quantity sold

71
Q

balance sheet

A

shows financial information on assets, liabilities and the capital invested on one specific day

72
Q

break-even analysis

A

tool used to calculate the level of sales needed to cover all costs of production

73
Q

break-even chart

A

graph that shows a firm’s costs, revenues and profits

74
Q

break-even point

A

position on a break-even chart where the total cost line intersects the total revenue line, where TR = TC

75
Q

break-even quantity

A

level of output that generates neither any profit nor loss

76
Q

cash flow statement

A

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

77
Q

cost

A

sum of money that a business needs in the production process

78
Q

contribution

A

difference between sale revenue and total variable costs; the difference contributes towards the payment of fixed costs

79
Q

contribution analysis

A

tool that helps managers to identify areas of their business that are relatively profitable and areas that might need more attention

80
Q

contribution per unit

A

price minus average variable cost or contribution divided by quantity sold

81
Q

cost centre HL

A

department or unit that generates costs but no revenues, e.g. marketing department

82
Q

current liabilities

A

debts that must be repaid within the next 12 months

83
Q

direct costs

A

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

84
Q

fixed costs

A

(= overheads = indirect costs = indirect costs) costs which are not directly linked to the production, e.g. costs of rent, advertising

85
Q

grants

A

government financial gifts to support businesses

86
Q

indirect costs

A

(= overheads = expenses = fixed costs) costs which are not directly linked to the production, e.g. costs of rent, advertising

87
Q

insolvency

A

situation where a firm’s working capital is insufficient to meet its current liabilities

88
Q

internal sources of finance

A

getting funds from within the organisation, e.g. retained profits

89
Q

leasing

A

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
Q

loans

A

money obtained from commercial lenders such as banks; interest charges are imposed; the money is paid back in instalments over a predetermined period

91
Q

margin of safety

A

difference between a firm’s level of demand and its break-even quantity

92
Q

price

A

amount of money a product is sold for

93
Q

profit

A

positive difference between a product’s revenue and its costs

94
Q

profit centre HL

A

department or unit that generates profit and thus, both revenues and costs can be identified, e.g. each Starbucks branch

95
Q

residual value HL

A

estimate of the value of an asset at the end of its useful life

96
Q

retained profit

A

value of profits that the business keeps (after paying taxes and dividends)

97
Q

revenue

A

money a business receives from the sale of its products

98
Q

revenue expenditure

A

spending on the day-to-day running of a business, e.g. rent, wages

99
Q

revenue stream

A

money a business receives from its various business activities

100
Q

semi-variable costs

A

costs of production that have an element of both fixed and variable costs, e.g. power and electricity

101
Q

stock valuation HL

A

technique used to measure the value of a firm’s inventories

102
Q

total cost

A

sum of variable cost and fixed cost

103
Q

trade credit

A

allows a business to „buy now and pay later “; creditor is a supplier

104
Q

variable costs

A

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

105
Q

venture capital

A

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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