Theme 2 Key terms definitions

Question 1

What is Internal Finance?

Answer 1

Funds raised from within the business, such as owner’s capital, personal savings, or retained profit.

Question 2

What is Retained Profit?

Answer 2

Profit that is reinvested back into the business rather than distributed to shareholders.

Question 3

What is Sale of Assets?

Answer 3

Selling off a company’s assets to raise funds.

Question 4

What is External Finance?

Answer 4

Funds sourced from outside the business, including bank loans, overdrafts, and share capital.

Question 5

What is a Bank Loan?

Answer 5

A fixed amount of money borrowed from a bank, repayable with interest over a set period.

Question 6

What is an Overdraft?

Answer 6

An agreement allowing a business to withdraw more money from its bank account than is currently available, up to an agreed limit.

Question 7

What is Share Capital?

Answer 7

Money raised by issuing shares in the company to investors.

Question 8

What is Venture Capital?

Answer 8

Investment from individuals or firms in exchange for equity, typically used by startups and small businesses with high growth potential.

Question 9

What is Crowdfunding?

Answer 9

Raising small amounts of money from a large number of people, typically via online platforms.

Question 10

What is Trade Credit?

Answer 10

An arrangement where suppliers allow businesses to receive goods or services and pay for them at a later date.

Question 11

What is Limited Liability?

Answer 11

A legal status where a business owner’s financial liability is restricted to their investment in the company.

Question 12

What is Unlimited Liability?

Answer 12

A situation where business owners are personally responsible for all the debts of the business.

Question 13

What is a Cash Flow Forecast?

Answer 13

A financial document predicting the future cash inflows and outflows over a specific period.

Question 14

What is Sales Forecasting?

Answer 14

Estimating future sales volumes and revenue based on market analysis and historical data.

Question 15

What are Fixed Costs?

Answer 15

Expenses that do not change with the level of goods or services produced, such as rent and salaries.

Question 16

What are Variable Costs?

Answer 16

Expenses that vary directly with the level of production, such as raw materials and direct labor costs.

Question 17

What is the Break-Even Point?

Answer 17

The level of sales at which total revenues equal total costs, resulting in neither profit nor loss.

Question 18

What is Contribution?

Answer 18

The amount remaining from sales revenue after variable costs have been deducted, contributing towards fixed costs and profit.

Question 19

What is Gross Profit?

Answer 19

Sales revenue minus the cost of goods sold.

Question 20

What is Operating Profit?

Answer 20

Gross profit minus operating expenses.

Question 21

What is Net Profit?

Answer 21

Operating profit minus interest and taxes.

Question 22

What is Liquidity?

Answer 22

The ability of a business to meet its short-term financial obligations.

Question 23

What is the Current Ratio?

Answer 23

A liquidity ratio calculated as current assets divided by current liabilities, indicating the company’s ability to pay short-term obligations.

Question 24

What is the Acid Test Ratio?

Answer 24

A stringent liquidity ratio that measures a company’s ability to cover its short-term liabilities without relying on the sale of inventory; calculated as (Current Assets - Inventory) / Current Liabilities.

Question 25

What is Capacity Utilization?

Answer 25

The extent to which a business uses its production capacity; calculated as (Actual Output / Maximum Possible Output) × 100%.

Question 26

What is Productivity?

Answer 26

A measure of efficiency, typically calculated as output per worker over a given period.

Question 27

What is Quality Control?

Answer 27

The process of inspecting products to ensure they meet the required quality standards.

Question 28

What is Quality Assurance?

Answer 28

A proactive approach focusing on preventing defects by ensuring quality standards are met throughout the production process.

Question 29

What is Total Quality Management (TQM)?

Answer 29

A management philosophy that seeks continuous improvement in all aspects of a business by involving all employees.

Question 30

What is Just-In-Time (JIT)?

Answer 30

An inventory management system where materials are ordered and received only as they are needed in the production process, reducing inventory costs.

Question 31

What are Economies of Scale?

Answer 31

Cost advantages that a business can achieve due to an increase in production, leading to a reduction in average costs per unit.

Question 32

What are Diseconomies of Scale?

Answer 32

The point where a company grows so large that the costs per unit increase, leading to inefficiencies.

Question 33

What is Buffer Stock?

Answer 33

A reserve of extra inventory maintained to guard against unforeseen shortages or demand spikes.

Question 34

What is Lead Time?

Answer 34

The time interval between ordering and receiving goods or services.

Question 35

What is Reorder Level?

Answer 35

The predetermined inventory level at which new stock is ordered to replenish supplies before they run out.

Question 36

What is Outsourcing?

Answer 36

Contracting out certain business functions or processes to external providers to reduce costs or focus on core activities.

Question 37

What is Kaizen?

Answer 37

A Japanese term meaning 'continuous improvement,' involving all employees working together proactively to achieve regular, incremental improvements in the manufacturing process.

Question 38

What is Critical Path Analysis (CPA)?

Answer 38

A project management tool that outlines the sequence of crucial steps or tasks necessary to complete a project, identifying the longest path and potential bottlenecks.

Question 39

What is Contingency Planning?

Answer 39

The process of preparing for unexpected events by developing plans to mitigate potential negative impacts on a business.

Question 40

What does the Consumer Rights Act?

Answer 40

It protects consumers by ensuring products are satisfactory quality, fit for purpose, and as described.

Question 41

What does the Health and Safety at Work Act 1974 require?

Answer 41

It requires businesses to provide a safe working environment for employees.

Question 42

What does the National Minimum Wage Act 1998 ensure?

Answer 42

It ensures workers receive a legal minimum hourly wage.

Question 43

What does the Competition Act 1998 prevent?

Answer 43

It prevents anti-competitive practices like price-fixing and monopolies.

Question 44

What does the Environmental Protection Act 1990 regulate?

Answer 44

It regulates waste disposal and pollution control for businesses.

Question 45

What is Depreciation

Answer 45

When the value of a currency falls, making exports cheaper and imports more expensive.

Question 46

Define economic growth

Answer 46

The increase in a country's output of goods and services over time, usually measured by GDP (Gross Domestic Product).

Question 47

What is A recession?

Answer 47

A period of negative economic growth for two consecutive quarters, leading to lower demand and rising unemployment.

Question 48

What is boom?

Answer 48

A period of rapid economic growth with high consumer spending, investment, and employment.

Question 49

define Inflation

Answer 49

The rate at which the general price level of goods and services rises, reducing the purchasing power of money.

Question 50

What is the consumer price index (CPI)

Answer 50

A measure of inflation based on the average price change of a basket of goods and services over time.

Question 51

Define Interest rates

Answer 51

The cost of borrowing or the reward for saving, set by central banks like the Bank of England.

Question 52

What are exchange rates?

Answer 52

The value of one currency in terms of another, affecting the cost of imports and exports.

Question 53

What is Appreaciation

Answer 53

When the value of a currency rises, making exports more expensive and imports cheaper.

Question 54

Define boom

Answer 54

A period of rapid economic growth with high consumer spending, investment, and employment.

Question 55

What is profitability?

Answer 55

Profitability is a measure of a business’s ability to generate profit, usually shown as a percentage of revenue or investment. It shows how efficiently a business turns sales into profit.