Business key term theme 2
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- Created by: JudyF
- Created on: 22-01-18 09:36
Acid test ratio
Assesses whether or not a business has enough resources to meet any liabilities that will need to be settled within the next 12 months, without the use of stock. This makes it a more severe ratio than the current ratio. Calculated by current assets-i
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Administration
2a A failing business, or the courts, appoints a specialist to rescue the business or sell off its assets.
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Asset
Something a business owns, these can be current such as Inventories or non-current such as equipment.
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Batch production
A method of production where work is divided into parts, each part is completed before the next one. E.g. bakers and builders working on a new housing estate.
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Breakeven
The number of products a business must sell so that its total revenue is the same as its total costs. At this point the business will make no profit or loss.
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Budget
A quantitative economic plan, prepared and agreed in advance. This will detail how much capital different departments have available to them for a time period. 6b
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Buffer stock
Stocks held as a precaution to cope with unforeseen demand. This will need to be stored and therefore has costs associated with it.
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Business Angels
Individuals who typically invest £10,000-£100,000 into businesses in return for part ownership. Most businesses are start-ups or in the early stages of expansion. This is a form of external finance.
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Business cycle
Regular fluctuations in the level of output in an economy, showing booms and slumps.
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Business loan
A form of finance from a bank or finance institution which will be repaid over time. The repayments and interest will be agreed in advance. This is a form of external finance.
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Business plan
A plan for the development of a business, giving details such as the products to be made, resources needed, and financial forecasts such as cash flow, revenues and costs.
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Capacity utilisation
The use a business makes of its resources. A high capacity utilisation will reduce average unit cost.
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Capital intensive
Makes more use of machinery than staff in production. Often has high start-up costs.
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Cash flow
The flow of money into and out of a business over a period of time. Working capital = Inflows - Outflows.
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Cash flow forecast
The prediction of all expected receipts and payments of a business over a future period of time. This shows the expected cash balance at the end of each month.
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Cell production
A method of production that involves the production line split into a number of self-contained units. Each cell is responsible for a significant part of the finished product. At a later stage they are then put together to form a product.
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Contribution
The amount of money left over after variable costs have been subtracted from revenue. This then contributes towards the fixed costs, or afterwards, profit.
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Cost of sales
The cost of raw materials or stock purchased to produce a product. Calculated by opening stock + purchases - closing stock.
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Crowdfunding
Where a large number of individuals invest into a business project on internet sites such as Kickstarter. Often they receive products in return. This is a form of external finance.
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Current ratio
Assesses whether or not a business has enough resources to meet any liabilities that will need to be settled within the next 12 months. Calculated by current assets / current liabilities.
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Economic growth
The rise in output of an economy as measured by the growth in Gross Domestic Product (GDP).
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Economic uncertainty
The economic environment is difficult to predict and prone to shocks or unpredictable events creating uncertainty. Examples included recession or an high inflation.
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Economic variables
Measures within the economy which have effects on business and consumers, such as unemployment, interest rates and inflation
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Efficiency
Producing a level of output where average cost is minimised. This can therefore maximise profit.
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Exchange rates
The price of one currency in terms of another. E.g. £1=$2
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Fiscal policy
Using changes in taxation and government spending to manage the economy.
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Fixed cost
A cost which does not change as a result of a change in output in the short run, such as rent and insurance.
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Flotation
The process of selling a business' shares on the stock exchange for the first time. This is a form of external finance.
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Flow production
A large scale production of a standard product, where each operation on a unit is performed continuously one after the other, normally on a production line. E.g. bottling water and building laptops.
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Grant
A source of finance from government or a charity that sometimes does not need to be repaid. There can be a lot of 'red tape' to apply for these. This is a form of external finance.
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Gross profit
The difference between revenue and the cost of sales figure.
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Gross profit margin
Gross profit expressed as a percentage of revenue. (Gross profit/Revenue)x100
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Inflation
A general and persistent rise in prices which reduces purchasing power
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Interest
The cost of borrowing and reward for saving. Can be fixed or variable.
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Job production
A method of production that involves employing all factors to complete one product at a time, often handled by one person or a small group of people. E.g. hairdressers, graphic designers.
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Just-in-time
Ordering stock for delivery just as it is needed. This will keep storage costs to a minimum but needs reliable suppliers.
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Kaizen
A Japanese term meaning continuous improvement. Kaizen is said to be the 'umbrella concept', and everyone in the business is involved.
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Labour intensive
38a Makes more use of staff than machinery in production. This will often depend on the nature of the product and is seen in business such as the postal service and landscape gardening companies.
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Lean production
An approach to operations that focuses on reduction of resource use. This could mean less factory space, materials, time and wastage in a bid to reduce costs.
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Leasing
When a business rents resources such as property or equipment for a set period of time. This is a form of external finance.
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Liability
Something a business owes, these can be current such as an overdraft or non-current such as mortgage.
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Limited liability
Where a business and its owners have separate legal identities, meaning shareholders can only lose the original amount they invested into a business. Applies to private and public limited companies.
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Liquidity
The ease with which assets can be converted into cash.
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Margin of safety
The difference between the current output and the breakeven level of output. Sales can fall by this amount without making a loss.
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Operating profit
The difference between gross profit and the business expenses, such as wages and utilities.
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Operating profit margin
Operating profit expressed as a percentage of revenue. (Operating profit/Revenue)x100
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Overdraft
With agreement of the bank, a business can spend more money than it has in its account, resulting in a negative balance. This has high interest charges and is a form of external finance.
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Over-utilisation
The point at which a business is running at full capacity and straining resources.
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Owners capital
Capital provided by the current owner of a business, maybe from savings or redundancy. This is a form of internal finance.
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Peer-to-peer funding
Where individuals lend to other individuals without prior knowledge of them, normally on the internet via sites such as funding circle. This is a form of external finance.
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Productivity
The output per unit of input per period of time. If businesses are more productive their cost per product falls, making them more competitive
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Profit for the year (net profit)
Profit made by the business after interest has been deducted. This is the figure that tax will be charged on.
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Profit for the year (Net profit) after tax
Profit made by the business after tax has been paid. This will be retained by the business or paid in dividends to shareholders.
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Profit for the year (net profit) margin
Profit for the year (net profit) expressed as a percentage of revenue. (Profit for the year (net profit) /Revenue)x100
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Quality assurance
55a A method of working for businesses that takes into account customers wants when standardising quality. It often involves guaranteeing that quality standards are met. 55
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Quality chains
56a When employees form a series of links between customers and suppliers in business, both internally and externally.
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Quality circles
Groups of workers meeting regularly to solve problems and discuss work issues. This is intended to motivate workers.
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Quality control
Making sure the quality of a product meets specified quality performance criteria, usually done by checking the product at the end of the production process by inspectors.
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Rationalisation
Reducing the number of resources, particularly labour and capital put into the production process, usually undertaken because a business has less than full capacity.
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Retained profit
Profit after tax that is 'ploughed back' into the business. This is a form of internal finance.
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Rights issue
Issuing new chares to existing shareholders at a discount.
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Sale of assets
When a person or business sells assets it owns, such as equipment or vehicles it no longer uses, in order to raise finance. This is a form of internal finance.
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Sales forecast
A prediction of future sales volume and revenue, often based on previous sales data or market research.
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Sales revenue
The money made from selling products over a period of time. Calculated by price x quantity
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Sales volume
The number of products sold over a period of time.
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Share capital
A way of raising finance through sale of shares. If more shares are issued this will reduce the percentage of ownership held by each share. This is a form of external finance.
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Solvency
The degree to which a business is able to meet its debts when they fall due.
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Stock (Inventories)
The raw materials, work in progress and finished goods a business has to sell. It is a current asset
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Total quality management
A managerial approach focuses on quality and aims to improve the effectiveness, flexibility and competitiveness of the business.
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Trade credit
A period of time given to a customer between receiving the goods and payment being due. Often 30 days. This is a form of external finance.
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Unlimited liability
Where a business and its owners are one and the same, meaning the owners are responsible for all business debts. Applies to sole traders and partnerships.
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Variable cost
A cost which rises as output rises, such as raw materials or packaging.
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Venture capital
A source of finance where an experienced business person provides funds for small or medium sized companies that may be considered too risky for other investors, in return for equity. This is a form of external finance.
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Working capital
It is a measure of liquidity. It measures the funds left over to meet day the day expenses after the current liabilities have been paid. Calculated by current assets - current liabilities.
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Zero-based budgeting
A system of budgeting where no money is allocated for costs unless they have been justified by the fund holder.
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Other cards in this set
Card 2
Front
2a A failing business, or the courts, appoints a specialist to rescue the business or sell off its assets.
Back
Administration
Card 3
Front
Something a business owns, these can be current such as Inventories or non-current such as equipment.
Back
Card 4
Front
A method of production where work is divided into parts, each part is completed before the next one. E.g. bakers and builders working on a new housing estate.
Back
Card 5
Front
The number of products a business must sell so that its total revenue is the same as its total costs. At this point the business will make no profit or loss.
Back
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