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IB Business Management Definitions > Unit 3: Finance and Accounts > Flashcards

Unit 3: Finance and Accounts Flashcards

1
Q

Capital Expenditure

A

Money spent to acquire fixed assets in a business
Can often be used as collateral for repayment external sources of finance

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2
Q

Sale of Assets

A

When a business sells off its unwanted or unused assets to raise funds

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2
Q

Revenue Expenditure

A

Money used in the day-to-day running of the business
Provide instant benefits

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3
Q

Personal Funds

A

Source of finance for sole traders
Comes mostly from their personal savings

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4
Q

Retained Profit

A

Profit that remains after a business has paid out dividends to its shareholders

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5
Q

Share Capital

A

Money raised from the sale of shares of a limited company

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6
Q

Overdraft

A

When a lending institution allows a firm to withdraw more money than it currently has in its account

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6
Q

Loan Capital

A

Money sourced from financial institutions such as banks
Interest is charged on the loan to be repaid

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7
Q

Trade Credit

A

An agreement between businesses that allows the buyer of goods or services to pay the seller at a later date

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8
Q

Crowdfunding

A

When a business venture is funded by a large number of people, each contributing a small amount of money

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9
Q

Leasing

A

A source of finance that allows a firm to use an asset without having to purchase it with cash
Finance lease agreement gives businesses the option of purchasing the asset at the end of the contract’s lifetime

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10
Q

Microfinance Providers

A

Institutions that provide banking services to low-income or unemployed individuals or groups

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11
Q

Business Angels

A

Highly affluent individuals who provide financial capital to small start-ups or entrepreneurs in return for ownership equity in their business

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12
Q

Variable Costs

A

Costs that change with the number of goods or services produced

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13
Q

Fixed Costs

A

Costs that do not change with the amount of goods or services produced

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14
Q

Direct Costs

A

Costs that can be identified with the production of specific goods or services

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15
Q

Indirect Costs

A

Costs that are not clearly identified with the production of specific goods or services

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16
Q

Revenue

A

A measure of the money generated from the sale of goods and services

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17
Q

Total Revenue

A

The total amount of money a firm receives from the sale of goods or services
Found by multiplying the price per unit by the number of units sold

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18
Q

Profit and Loss Account

A

Also known as the income statement
The record of income and expenditure flows of a business over a given time period

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19
Q

Dividends

A

A sum of money paid to shareholders, which is decided by the board of directors of a company

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20
Q

Balance Sheet

A

A financial statement that outlines the assets, liabilities and equity of a firm at a specific point in time

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21
Q

Assets

A

Resources of value that a business owns or that are owed to it

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22
Q

Liabilities

A

A firm’s legal debts or what it owes to other firms, institutions or individuals

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23
Q

Net Assets

A

Found by subtracting total liabilities from total assets

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24
Q

Intangible Assets

A

Assets that are non-physical in nature

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24
Q

Equity

A

Refers to the amount of money that would be returned to a business if all of its assets were liquidated

24
Q

Patents

A

Provide inventors with the exclusive rights to manufacture, use, sell or control the product or process they invented

25
Q

Liquidation

A

A situation where all of a firm’s assets are sold off to pay any debts

26
Q

Goodwill

A

The value of positive or favourable attributes that relate to a business (particularly in terms of stakeholders)

27
Q

Copyright Laws

A

Legislation that provides creators wit the exclusive right to protect the production and sale of their work

28
Q

Trademark

A

A recognizable, symbol, word, phrase or design that is officially registered and identifies a product or business

29
Q

Depreciation (HL)

A

The decrease in value of a fixed asset over time

30
Q

Straight-Line Depreciation (HL)

A

A method that spreads out the cost of an asset equally over its lifetime be deducting a given constant amount of depreciation of the asset’s value every year

31
Q

Units of Production Depreciation (HL)

A

Also called units of activity method
Calculates the depreciation of the value of an asset based on usage

32
Q

Residual Value

A

An estimation of an asset’s worth or value over its useful life
Also known as scrap or salvage value

33
Q

Gross Profit Margin

A

Calculated by dividing the gross profit by the sales revenue
Expressed as a percentage

34
Q

Profit Margin

A

Calculated by dividing the net profit before interest and tax by the sales revenue
Expressed as a percentage

35
Q

Return on Capital Employed (ROCE)

A

Assess the returns a firm is making from its capital employed
Ratio of profits before tax and interest and capital employed
Expressed as a percentage

36
Q

Capital Employed

A

Sum of non-current liabilities and equity

37
Q

Current Ratio

A

A ratio that compares a firm’s current assets to its current liabilities

38
Q

Acid Test Ratio

A

A stringent ratio that subtracts stock from the current assets and compares this to the firm’s current liabilities

39
Q

Stock Turnover Ratio (HL)

A

Measures how quickly a firm’s stock is sold and replaced over a given period

40
Q

Debtor Days Ratio (HL)

A

Measures the averages number of days a firm takes to collect its debts

41
Q

Creditor Days Ratio (HL)

A

Measures the average number of days a firm takes to pay its creditors

42
Q

Gearing Ratio (HL)

A

Measures the extent to which the capital employed by a firm is financed from loan capital

43
Q

Insolvency (HL)

A

A financial state where a person or firm cannot meet their debt payments on time

44
Q

Bankruptcy (HL)

A

A legal process that happens when a person or firm declares that they can no longer pay their debts to creditors
Sometimes managed by a licensed insolvency trustee, accompanying the 9 to 21 month process

45
Q

Cash Flow

A

Money that flows in and out of a business over a given period of time

46
Q

Profit

A

The positive difference between sales revenue and total costs

47
Q

Cash Flow Forecast

A

The future prediction of a firm’s cash inflows and outflows over a given period of time

48
Q

Investment

A

The act of spending money on purchasing an asset with the expectation of future earnings

49
Q

Payback Period

A

The length of time required for an investment project to pay back its initial cost

49
Q

Investment Appraisal

A

The quantitative techniques used in evaluating the viability or attractiveness of an investment proposal

50
Q

Average Rate of Return (ARR)

A

Measures the annual net return on investment as a percentage of its capital cost

51
Q

Net Present Value (NPV) (HL)

A

The difference in the summation of present values of future returns and the original cost of the investment

52
Q

Discounted Cash Flow (HL)

A

Uses a discount factor that converts future cash flows to their present value

53
Q

Budget (HL)

A

A quantitative financial plan that estimates the revenue and expenditure over a specified future time period

54
Q

Budget Holder (HL)

A

A person involved in the formulation and achievement of a budget

55
Q

Cost Centre (HL)

A

A section of a business where costs are incurred and recorded

56
Q

Profit Centre (HL)

A

A section of a business where both costs and revenues are identified and recorded

57
Q

Variance (HL)

A

Difference between the budgeted figure and the actual figure

58
Q

Favourable Variance (HL)

A

When the difference between the budgeted and actual figure is financially beneficial to the firm

59
Q

Adverse Variance (HL)

A

When the difference between the budgeted and actual figure is financially costly to the firm

60
Q

Decision-Making

A

A process that involves selecting a course of action from various possible alternatives
Aims to provide a solution to a given problem
Opportunity cost incurred, missing out on benefits associated with other alternatives

IB Business Management Definitions (6 decks)

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