Theme 2 - key terms - exam board

Question 1

What are economic variables?

Answer 1

Features of an economy which have effects on business and consumers e.g. unemployment, inflation and exchange rates

Question 2

What is internal finance?

Answer 2

The raising of capital/cash from within/inside the business e.g. business/owner’s capital, personal savings, retained profit

Question 3

What is personal savings/owners’ capital?

Answer 3

A source of (internal) finance provided by the owner of a business/personal money from the owner

Question 4

What is retained profit?

Answer 4

Profit is re-invested back into/kept by the business which is not paid as a dividend. It is an internal source of finance

Question 5

What is the sale of assets?

Answer 5

A type of internal finance, involves selling resources that belong to the business

Question 6

What is a bank loan?

Answer 6

An external method of finance/money borrowed from a bank paid back, with interest (over a period of time)

Question 7

What are business angels?

Answer 7

Individuals who invest in a business in exchange for a stake in the business (shares)

Question 8

What is crowd funding?

Answer 8

An external source of finance where a large number of individuals provide funding for a business or project in return for shares/free products/discounts

Question 9

External finance

Answer 9

Money raised from outside the business.

Question 10

Grant

Answer 10

A sum of money given by a government or other organisation. It does not need to be repaid and no interest is charged.

Question 11

Leasing

Answer 11

A contract to acquire the use of resources such a property or equipment.

Question 12

Loan

Answer 12

An external source/method; amount of money borrowed, usually repayable after a fixed term of more than 12 months.

Question 13

Overdraft

Answer 13

When a business has a negative balance in their bank account because the amount withdrawn is greater than the current balance.

Question 14

Peer-to-peer funding

Answer 14

When a person lends money to other individuals or businesses via online transactions.

Question 15

Share capital

Answer 15

The finance raise a business issuing/selling of new shares.

Question 16

Trade credit

Answer 16

When a firm receives stock/inventory/raw materials from a supplier, will it does not have to pay for until later.

Question 17

Venture capital

Answer 17

External source of finance when the business issues shares to a small number of investor(s) in return for a capital injection into the company.

Question 18

Business plan

Answer 18

A document giving the details of a variety of aspects about the business in order to provide a strategic look at the business and to attract investors. Details how the business is going to develop over a period of time. It contains details such as the product, costs, revenues, cash flow forecasts.

Question 19

Cash flow

Answer 19

Movement of cash into and out of a business over a period of time.

Question 20

Cash inflow

Answer 20

The flow of cash into a business.

Question 21

Cash outflow

Answer 21

The flow of cash out of a business.

Question 22

Cash-flow forecasts

Answer 22

The predicted flow of cash into and out of a business over a period of time.

Question 23

Closing balance

Answer 23

Cash left in the account at the end of the month. Net cash flow + opening balance.

Question 24

Net cash flow

Answer 24

The difference between the cash flowing in and out of a business over a period of time cash inflows - cash outflows.

Question 25

Opening balance

Answer 25

Cash in the bank on the first day of the month.

Question 26

Cash

Answer 26

An asset of a business which can come from investors, lenders or customers.

Question 27

Cost of sales

Answer 27

The cost of inventory bought or produced.

Question 28

Cost of sales

Answer 28

The cost of inventory bought or produced.

Question 29

Gross profit

Answer 29

Revenue - cost of sales.

Question 30

Gross profit margin

Answer 30

(Gross profit/ sales revenue) x 100

Question 31

Operating profit

Answer 31

Gross profit - other operating expenses

Question 32

Operating profit margin

Answer 32

(Operating profit/ sales revenue) x 100

Question 33

Profit

Answer 33

It’s recorded straight away after sales. Total revenue - total costs.

Question 34

Profit for the year/ net profit

Answer 34

Operating profit - interest.

Question 35

Profitability

Answer 35

Profit as a proportion of sales.

Question 36

Statement of comprehensive income

Answer 36

A document to show income and expenditure of a business over a financial year.

Question 37

Tax

Answer 37

A charge made by governments on activities, earnings and income of individuals and businesses.

Question 38

External causes for business failure

Answer 38

The factors outside the control of a business which might cause it to fail, e.g., competition, legislation, consumer tastes and economic conditions.

Question 39

Financial factors for business failure

Answer 39

Factors which many contribute to a business running out of cash, e.g., late payments, inability to borrow.

Question 40

Internal causes for business failure

Answer 40

Factors which a business can control, e.g., poor decision-making, loss of key staff.

Question 41

Non financial factors for business failure

Answer 41

Can come from inside or outside the business, e.g., poor management, external shocks.

Question 42

Overtrading

Answer 42

The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast.