Unit 6: Finance Flashcards
Asset
Something owned by a business
Average rate of return
The average amount of profit made from an investment, as a percentage of the initial
cost.
Break-even Chart
A graph showing costs and revenue, and the point where they cross is the break-even point, this shows the output required to break-even
Break-even Output
How many units must be sold in order to break-even. At this point, total costs and total revenue are the same
Cash
Money that the business has in cash or in the bank available to spend
Cash flow
The money moving into and out of the business
Cash flow forecast
A prediction of how much money will flow into and out of the business. It is a planning tool
Cash Inflow
Money coming into the business
Cash Outflow
Money going out of the business
Closing Balance
How much money still in the bank account at the end of a month / year
External Sources of Finance
Getting money from business, people, or other organisations outside the business. Formexample, loans from banks, selling shares to private investors, subsidies from the Government
Fixed Costs
Costs that do not change when our output changes. For example, rent
Government Grants
Money given to businesses by the Government in exchange for them operating in a particular place or way. They must be applied for
Gross Profit / GP Margin
Gross Profit = Total revenue - Total costs
Hire Purchase
Buying items by making an initial payment, then paying the remaining money owed over a longer period of time
Income Statement
A document that summarises the money moving into and out of the business. Showing whether a profit or loss is being made
Interest Rates
The reward for saving, the cost of borrowing. A percentage added to the balance (of the savings or loan) for a given period of time – such as each month
Internal sources of finance
Funding the business using the owners’ own money, by selling assets belonging to the business, or by making use of Sale & Leaseback
Liability
The responsibility for debts of a business. If a business takes out a loan, it becomes a liability – the business is responsible for repaying
Loans / Mortgages
An amount of money borrowed for a period of time, with an agreed rate of interestand deadline, repaid in instalments. Mortgages are a special type of loan, for more
money paid back over a longer time in order to buy property
Loss
Where expenditure is greater than income
Margin of Safety
How many more sales are being made than necessary to break-even
Net Cash flow
The difference between cash inflows and outflows.
Net Cash inflow = Cash Inflows - Cash Outflows
Net Profit
Net profit = Operating profit - Tax and finance costs
Operating Profit / OP Margin
Operating profit = Gross profit - Overheads
Operating profit margin (%) = Operating Profit divided by Revenue x 100
Overdraft
Agreed amount that can be spent when the balance of a bank account if £0, this allows the balance to be negative
Profit
Where income is greater than expenditure
Profit Margin
What percentage of revenue is being kept by the business after different costs have been paid
Profit Maximisation
Setting out to make the most profit possible, even if it means not achieving, or having to put on hold, other goals
Raising Finance
Getting the money to invest in machinery etc. to start or grow a business
Retained Profit
Profit from previous years that has been kept for future projects. This is an internal source of finance
Revenue
Income from sales. Sales revenue = cost of product x quantity sold
Sale & Leaseback
A business sells an asset and then leases it back from the new owners. An internal source of finance that allows a business to release money tied up in buildings or expensive equipment
Share issue
The business is divided into more shares, the new shares are made available for the public to buy, and the business receives the money. An external source of finance
Statement of Financial Position or Balance Sheet
Also called a Balance Sheet – a document that summarises the assets, liabilities, and equity of a business
Total Costs
All costs a business must pay in order to operate
Statement of Financial Position or Balance Sheet
Also called a Balance Sheet – a document that summarises the assets, liabilities, and equity of a business
Total Costs
All costs a business must pay in order to operate
Variable Costs
Costs that change depending on the level of production. For example, when more units are produced, more raw materials are consumed.
