Unit 1: Business and its environment

Chapter 1: Business and its environment

Business: an organization that uses resources to meet the needs of customers by providing a product or
service that they demand.

Business activity: the use of scarce resources of our planet to produce goods and services that allow us
to enjoy a much higher standard of living.

Entrepreneur: an individual who has the idea for a new business, starts it up and carries most of the risk
but benefits from the reward.

Start-up capital: the capital needed by a business in order to buy the equipment and premises (land
along with the building).

Intellectual capital: intangible capital that includes human capital (well-trained and skilled employees)
and relational capital (good links with suppliers, banks and customers).

Customer: an individual or organization the purchases the good or service from a business.

Consumer: an individual who purchases goods and services for personal use.

Consumer goods: the physical and tangible goods sold to consumers that are not intended for resale,
These include durable and non-durable goods.

Consumer services: the non-tangible products sold to consumers that are not intended for resale, these
include services.

Capital goods: the physical goods used by the business to aid in the production of other goods and
services, such as machinery and office computers.

Factors of production: the resources needed by business to produce goods and services.

Land: land itself and all the renewable and non-renewable resources of nature such as coal, crude oil
and timber.

Labour: manual and skilled workforce needed by the business to run its operations.

Capital: not just finance but also capital goods that aid in the production of goods and services such as
machines, offices and vehicles.

Enterprise: initiative provided by risk-taking individuals who combine the other factors of production in
order to produce goods and services.

Added value: the difference between the cost of purchasing bought-in inputs and selling price of the
finished goods.

Adding value: increasing the difference between the cost of purchasing the bought-in inputs and the
selling price of the finished goods.
Opportunity cost: the next best alternative for gone.

Multinational business: a business organization that has its headquarters in one country, but with
operating branches, factories and assembly plants in other countries.

Intrapreneur: a business employee who takes direct responsibility for turning an idea into a profitable
new product or business venture.

Business plan: a written document that describes a business, its objectives, its strategies, the market it is
in and its financial forecasts.

Chapter 2: Business Structure

Primary sector business activity: firms engaged in farming, oil extraction and all other industries that
extract natural resources so that they can be used and processed.

Secondary sector business activity: firms that manufacture and process products from natural resources
and add value to them such as construction business.

Tertiary sector business activity: firms providing services to consumers and other businesses such as
transport, baking and hotels.

Quaternary sector business activity: businesses providing information services, such as computing,
management consultancy and research and development.

Public sector/corporation: organization accountable to and controlled by central or local government

(state), public corporation also known as nationalized industry.

Private sector: businesses owned and controlled by individual or group of individuals.

Command/planned economy: economic resources are owned, planned and controlled by the state.

Free-market economy: economic resources are owned largely by private sector with very little state
intervention.

Mixed economy: economic resources are owned and controlled by both private and public sectors.

Sole trader: a business in which one person provides the permanent finance and in return has full
control of the business and is able to keep all the profits.

Partnerships: a business formed by two or more people to carry on a business together, with shared
capital investment and usually shared responsibilities.

Unlimited liability: when a business owner has a full legal responsibility over the debts of the business.

Limited liability: the only liability or the potential loss a shareholder has on the invested amount in the
company when it fails, not the total wealth of the shareholder.

Share: is a certificate showing part owner-ship in a company and entitling the shareholder owner to the
dividends and certain shareholder rights
Share holder: a person or institution owing shares in a limited company.

Private limited company: a business that is owned by shareholders who are often members of the same
family, this company cannot sell shares to the general public.

Public limited company: a company whose shares are traded on a stock exchange and can be bought
and sold by the public.

Initial public offering (IPO): an offer to the public to buy shares in a public limited company.

Legal formalities: government insist to go through certain legal stages before establishing a company in
order to protect both investors and creditors.

Memorandum of association: this states the name of the company, the address of the head office
through which it can be contacted, the maximum share capital for which the company seeks
authorization and the declared aims of the business.

Articles of association: this document covers the internal workings and control of the business, the
names of directors and the procedures to be followed at meetings.

Cooperative: a jointly owned business operated by the members for their mutual benefit, to produce or
distribute goods or services.

Joint ventures: two or more businesses agree to work closely together on a particular project and create
a separate business division to do so.

Franchiser: a person or business that sells the right to open stores and sell products or services, using
the same brand name and identity.

Franchisee: a person or business that buys the right from franchiser to operate franchise.

Franchise: the legal right to use the brand name and logo of an existing successful business.

Social enterprise: a business with mainly social objectives that re-invests most of its profit into
benefiting society rather than maximizing returns to the owners.

Chapter 3: size of businesses

Revenue: the total value of sales made during the trading period, it is calculated;

Revenue = selling price * quantity sold.

Capital employed: the total value of all long-term finance invested in the business.

Market capitalization: the total value of a company’s issued shares, it is calculated as;

Market capitalization = current share price * total numbers of shares issued.

Market share: sales of the business as a proportion of total market sales, its calculated as;

Market share = total sales of a business/ total sales of industry * 100.

Small businesses: these businesses employ few people and will have a relatively low annual revenue.

Family-owned businesses: these businesses are owned and managed by at least two or more members
of the same family.

Organic (internal) growth: expansion of a business by means of opening new branches, shops or
factories.

External growth: business expansion achieved by integrating with another business by either merger or
takeover.

Merger: an agreement by the owners and managers of two businesses to bring them together in a new
combined business. This is often referred to as friendly merger.

Takeover: when a company buys more than 50% of shares of another company and becomes its
controlling owner. It can be called an acquisition.

Horizontal integration: integration with the business in the same industry and at the same stage of
production.

Vertical integration: integration with the business in the same industry.

Forward vertical integration: vertical integration with a customer business.

Backward vertical integration: vertical integration with a supplier business.

Conglomerate integration: integration with a business in a different industry.

Synergy: means that ‘the whole is greater than the sum of parts’, in business it is assumed that the new
businesses will be more successful than the original separate business.

Strategic alliance: agreement between two organizations to undertake a mutually beneficial project
while remaining independent (joint ventures).

Chapter 4: business objectives

Business objective: a stated measurable target that a business plans to achieve.

Corporate objectives: long term goals of a company.

Corporate social responsibility: when a business considers the interest of society by taking the
responsibility towards workers, customers and environment.

Pressure groups: organizations created by people with a specific aim to put pressure on firms and
government to reduce the impact of negative externalities like negative effect to third party.

Sustainability of operations: business operations that can be maintained for the long term for example
by protecting the environment and not damaging the quality of life for future generations.

Triple bottom line: the three objectives of social enterprises: economic, social and environmental.
SMART objectives: aims that are specific, measurable, achievable, realistic and time limited.

Business aims: a long term goal that a business hopes to achieve.

Mission statement: a brief statement of business’s core objectives, phrased in a way to motivate its
employees and stimulate interests from outside groups.

Annual report: a document that gives details of a company’s activities over the year, including its
financial accounts.

Business strategy: a long term plan of action for a business, in order to achieve a particular objective.

Tactic: a short term action as a part of an overall strategy.

Ethical code of conduct: a set of guiding principles to assists practitioners in performing the business in
the right way.

Chapter 5: Stake holders

Stake holders: individuals or groups who can be affected by, and have an interest in, any action taken by
an organization.

Internal stake holders: individuals or groups who work within the business, or own it, and are affected
by the operations of the business.

External stake holders: individuals or groups who are separate from the business but are affected by or
interested in its operations.

Unit 2: Human resource management

Chapter 10: Human resource management
HR management: the strategic approach to the effective management of employees to help business
gain a competitive advantage.

HR manager: a qualified, experienced and skilled member of staff selected by the top level of
management to deal with the aspects of people in the organization from work-force planning till their
dismissal from the organization.

Work force audit: a check on the skills and qualifications of existing workers/managers.

Work force planning: forecasting the number of employees and the skills that will be required by the
organization to achieve its objectives.

Labour turnover: measures the rate at which employees are leaving an organization, it is calculated as;

Labour turnover = number of employees leaving in one year/ average number of people employed *100.
Recruitment: the process of identifying the need for a new employee, defining the job to be filled and
the type of person needed to fill it, and attracting suitable candidates for the job.

Selection: the series of steps by which candidates are interviewed, tested and screened to choose the
most suitable person for a vacant post.

Internal recruitment: when a business aims to fulfill a vacancy from within its existing workforce.

External recruitment: when a business aims to fulfill a vacancy with a suitable applicant from outside of
the business.

Recruitment agency: a business that offers the service of recruiting applicants for the vacant post.

Job description: a detailed list of key points about the job to be filled, stating all its key tasks and
responsibilities.

Person specification: a detailed list of the qualities, skills and qualifications that a successful applicants
will need to have for the vacant post.

Applicant form: a set of questions answered by applicants to give employer information about the
applicant, such as educational background and work experience.

Assessment center: a place where applicants go through a range of tests (such as aptitude test) in order
to test their potential ability to perform a particular role.

CV: a detailed document highlighting applicant's academic achievement, professionalism, rewards and
work experience.

Resume: a document which consists of applicant's work expenses, educational background, qualities and
skills.

Reference: a comment from previous employer of applicant to check on the character and previous
work performance.

Employment contract: a legal document that sets out the terms and conditions governing a worker’s job.

Training: work related education to increase workforce skills and efficiency.

Induction training: introductory training program to familiarize new recruits with the systems used in
the business and the people they will be working with.

On-the-job training: instruction at the place of work on how a job should carried out.

Off-the-job training: training undertaken away from the place of work.

Employee appraisal: the process of assessing the effectiveness of an employee judged against the pre-
set targets.

Multi-skilling: the training of an employee in several skills to allow for greater flexibility within the
business.

Employee morale: attitude and level of satisfaction of employee when at work.

Employee welfare: employee’s health and safety when at work.

Work-life balance: a situation in which employees are able to allocate the right amount of time and
effort to work and their personal life outside the work.

Redundancy: when a job is no longer required, employee doing this job becomes unnecessary, through
no fault of their own.

Dismissal: being dismissed or fired from a job due to incompetence of task or breach of discipline.

Unfair dismissal: ending a worker’s employment contract in a way that is against company’s policy or is
regarded unfair by the law.

Equality: everyone is treated the same way without prejudice and hence providing the opportunity to
fulfil their potential regardless of gender, race, religion, disability, age, or sexual orientation.

Diversity: a mixed workforce (consisting people from different areas) allowing diverse qualities,
knowledge and skills to implemented on a business.

Industrial action: measures taken by the workforce or trade union to put pressure on management to
settle an industrial dispute in favour of employees.

Trade union: an organization of working people with the objective of improving the pay and working
conditions of its members and providing them with support and legal services.

Collective bargaining: the process of negotiating terms of employment between an employer and a
group of workers who are usually represented by a trade union official.

Trade union recognition: when an employer formally agrees to conduct negotiations on pay and working
conditions with a trade union rather than bargain individually with each worker.

Gross misconduct: when an employee is involved in stealing or other serious offence.

Chapter 11: Motivation

Motivation: the internal and external factors that stimulate a desire in workers to be continually
interested in, and committed to, doing job well.

Self-actualisation: a sense of self-fulfillment reached by feeling enriched and developed by what one has
learned and achieved.

Herzberg motivators (motivating factors): aspects of a worker’s job that can lead to positive job
satisfaction, such as achievement, recognition of achievement, meaningful and interesting work,
responsibility, and advancement at work.

Hygiene factors: aspects of the workers job that have the potential to cause dissatisfaction, such as pay,
working conditions, status and over-supervision by managers.
Performance-related pay: a bonus scheme rewarded for above-average work performance.

Development: the gaining of new or advanced skills and knowledge as well as opportunities to apply
what is gained.

Employee promotion: the advancement of an employee within a business to a higher level of

responsibility and status.

Employee status: the level of recognition offered by an employer to a worker in terms of pay, level of
responsibility and benefits.

Employee participation: active encouragement of employees to become involved in decision-making

within an organization.

Team working: is where each worker operates within a small group of employees.

Empowerment: the giving of skills, resources, authority and opportunity to employees so that they can
take decisions and be accountable for their work.

Quality Circles (QC): a group of workers who have the experience in particular work area, meet regularly
to identify, analyse and solve the problems arising in that area of operation.

Piece rate: payment to a worker for each unit produced.

Time-based wage rate: payment to a worker made for each period of time worked (e.g. one hour)

Salary: annual income that is usually paid on a monthly basis.

Commission: a payment to a salesperson for each sale made.

Bonus: a payment made in addition to the contracted wage or salary upon achieving the targets set by
managers such as increase in output or sales.

Profit sharing: a bonus for employees based on the profits of the business, usually paid as a proportion
of the basic salary.

Share-ownership schemes: a scheme that gives employees shares in the company they work for or
allows them to buy those shares at a discount.

Fringe benefits: benefits given, separate from pay, by an employer to some or all employees such as free
transport or insurance etc.

Job rotation: a scheme that allows employees to switch from one job to another.

Job enlargement: an attempt to increase the scope of a job by broadening or deepening the tasks
undertaken.

Job enrichment: a reduction of direct supervision as workers take more responsibility for their own work
and are allowed some degree of decision-making authority.

Job redesign: the restructuring of job to make the work more interesting, satisfying and challenging.
Chapter 12: Management
Manager: the person responsible for setting objectives, organizing resources and motivating workers so
that the objectives of the business are met.

Management: the organization and coordination of activities in order to achieve the objectives of the
business.

Autocratic management: a management style where one manager takes all decisions without the
participation of employees in decision making.

Democratic management: a management style that encourages the active participation of workers in
taking decisions.

Paternalistic management: a management style where issues are explained and consulted with
employees, but do not allow them to take decisions.

Laissez-faire management: a management style that leaves much of the business decision-making to the
workforce under very broad limits.

Theory X: the view that some managers believe that employees are lazy, fear-motivated and in need of
constant direction.

Theory Y: the view that some managers believe employees are internally motivated, enjoy their work
and are prepared to take on additional responsibilities.

Unit 3: Marketing
Chapter 17: The nature of marketing
Demand: the quantity of a product that consumers are willing and able to buy at a given price in a
specific time period.

Supply: the quantity of a product that producers are prepared to supply at a given price in a specific time
period.

Equilibrium price: the price level at which demand is equal to supply.

Customer (or market) orientation: an approach that produces products based upon the customers
demand.

Product orientation: an approach that focuses upon making products and then trying to sell them.

Branding: the process of differentiating a product by developing a symbol, name, image or trade mark
for it.

Industrial market: the selling of products by business to another business, also known as business to
business or B2B.
Consumer market: the selling of products to the final end user, also known as B2C.

Consumer products: goods or services sold to end users.

Industrial products: goods or services sold to businesses.

Mass marketing: selling standardized products or range of products in the same way to whole market.

Niche marketing: identifying and selling to a small segment of a larger market by developing
differentiated products to suit that segment.

Market segment: a subgroup of a whole market in which consumers have similar characteristics.

Market segmentation: the identification of different groups of consumers within a market and
marketing different products or services to those customers.

Consumer profile: helps with the market research that consists of consumer data like age, income,
gender, social class and location.

Market size: the total value (or quantity) of sales of all producers within a market in a given time period.

Market growth: the percentage change in the total size of market (volume or value) over a period of
time.

Brand leader: the brand with the highest market share.

Market share: sales of a business as a proportionate to the total sales of the market/industry over a
period of time.

Customer relationship marketing (CRM): using marketing activities to build and establish good customer
relationships so that the loyalty of existing customers can be maintained.

Chapter 18: market research

Market research: the process of collecting and analyzing data about customers, competitors and the
market.

Primary research: collection of first hand data that is directly related to the needs of the business.

Secondary research: use of existing data that was originally collected for another purpose.

Qualitative data: non-numerical data which provides consumers perspective towards the perceived
value of product, price and advertising.

Quantitative data: numerical data gained from the research which can be statistically analysed.

Sampling: the process of selecting a group of respondents from a larger population.

Sample: a group of people taking part in a market research survey selected to be representative of the
overall target market.
Sampling bias: when a sample is not a good representation of the whole population, because it is chosen
in ways which give some people a greater chance of being selected.

Arithmetic mean: the value calculated by totalling all the results and dividing by the number of results.

Mode: the value that occurs most frequently in a set of data

Median: the value of the middle item when the data has been recorded or ranked. It divides the data
into two equal parts.

Range: the difference between the highest and lowest value.

Coding: the process of categorizing qualitative data to identify the main themes and links between
them.

Chapter 19/20 : marketing mix

Product: good or service that is the end result of the production process and are sold on the market to
satisfy customer needs.

Brand: a name or logo that distinguishes a product from its competitors.

Tangible attributes: the measurable features of the product that can be compared with the competitors
product.

Intangible attributes: the opinions of customers about the perceived value of the product that cannot be
measured or compared easily.

New product development (NPD): the design, creation and marketing of new goods and services.

Goods: products which have a physical existence, such as washing machines and chocolate bars.

Services: products which have no physical existence, but satisfy customer needs in other ways such as
hairdressing, car repairs and banking.

Product positioning: customer's view of a product or service as compared to its competitors.

Product portfolio: analyzing the range of existing products of a business to help allocate resources
effectively between them.

Product life cycle: the pattern of sales for a product from launch to withdrawal from the market.

Consumer durable: a manufactured product that can be re-used and is expected to have a reasonably
long life, such as a car or washing machine.

Extension strategy: a marketing plan to extend the maturity stage of the product before a completely
new one is launched.

Balanced product portfolio: a declining output of some goods is replaced by the increasing demand for
the recently introduced products.
Boston matrix: a method of analyzing the product portfolio of a business in terms of market share and
market growth.

Marketing mix: the four key decisions on product, price, promotion and place that must be taken to
enable the effective marketing of a product.

Product differentiation/Unique selling point: the special feature of a product that makes it different
from competitors products.

Marketing: Marketing is the management task that links a business to its customers by identifying and
meeting the needs of customers through a range of activities such as the 4Ps – product, price,
promotion, place.

Marketing objectives: the goals set for the marketing department to help the business achieve its
overall corporate objectives.

Marketing strategy: a plan of action giving details of how a business intends to achieve its marketing
objectives by creating a competitive advantage.

Integrated marketing mix: a combination of marketing methods and techniques, to help business target
potential customers.

Mark-up pricing: adding a fixed mark-up for profit to the unit cost of product.

Cost-plus pricing: setting a price by calculating the total cost for the product and then adding a fixed
profit mark-up.

Contribution-cost pricing: setting prices based on the variable cost of making a product, in order to make
a contribution towards fixed cost and profit.

Competitive pricing: making pricing decisions based on the price set by competitors.

Price discrimination: charging different group of consumers different prices for the same good or
service.

Dynamic pricing: offering products at a price that changes according to the level of demand and
customer’s ability to pay.

Penetration pricing: setting a relatively low price to achieve high volume of sales.

Market skimming: setting a high price for a new product when a firm has a unique or highly
differentiated product with low price elasticity of demand.

Psychological pricing: setting a price which matches the customer’s view about the perceived value of
the product.

Above the line promotion (ATL): refers to generally untargeted, massive campaigns to raise brand
awareness and reach more people.

Below the line promotion: refers to generally targeted, small campaigns to inform and generate
customer’s interest in the product.
Promotion: the use of advertising, sales promotion and direct promotion to inform or spread the
awareness of the product among customers and persuade them to buy.

Advertising: advertising is communicating information about a product or business through the media
such as TV, newspaper etc. and persuade them to buy.

Direct promotion: a range of promotional activities which are directly aimed at target customers, also
known as direct marketing.

Sales promotion: the use of incentives such as special offers or special deals directed at customers, to
achieve short-term sales increases and repeat purchases by customers.

Promotion mix: the combination of promotional techniques that a firm uses to sell a product.

Digital promotion: the promotion of products using digital technologies, mainly on the internet.

e-commerce: the buying and selling of goods and services by businesses and consumers through an
electronic medium.

Channel of distribution: the chain of intermediaries a product passes through from a producer to final
customer.

Digital distribution: products in the form of digital format such as games, audio, video, TV programs,
films, movies etc. are distributed over the internet.

Physical distribution: the movement of finished products from the end of production unit to the
consumer.

Unit 4: Operations management

Chapter 23: the nature of operations
Transformational process: an activity or group of activities that transforms one or more inputs, adds
value to them, and produces outputs for customers.

Labour intensive: involving a high level of labour input compared with capital equipment.

Capital intensive: involving a high quantity of capital equipment compared with labour input.

Productivity: ratio of outputs to inputs during the production (for e.g. output per worker per time
period)

Labour productivity = total output in a given time period/ total workers employed.

Average labour cost = annual pay/ labour productivity.

Level of production: number of units produced during a time period.

Production: the process that transforms the inputs to outputs.

Efficiency: producing at the highest ratio of output to input.

Effectiveness: meeting customers needs profitably by using inputs productively.

Job production: the production of one-off item specifically designed for customers.

Batch production: the production of limited number of identical products, each item is passed through
one stage before moving to the next stage.

Flow production: Production of items in a continually moving process.

Mass customization: the use of flexible computer aided technology on production line to make products
that meet individual customers requirement for customised products.

Economies of scale: are cost advantages achieved by businesses when the production becomes efficient.
Companies can achieve economies of scale by increasing production and lowering costs.

Chapter 24: inventory management

Inventory: materials and goods held by the business which are required for the production of final goods
and their supply to customers.

Inventory management: the process of ordering, storing and dispatching the inventory to customers.

Economic order quantity (EOQ): the optimum quantity of stock to re-order taking into account the
delivery cost and cost of holding the stocks.

Buffer inventory: minimum inventory level that should be held to ensure that continuous production
takes place in case if the supplier delays the delivery of supplies.

Re-order quantity: number of units re-ordered each time.

Re-order level: the level of inventory that signals for the new order to be sent to supplier.

Lead time: the time between ordering new supplies and their delivery.

Supply chain: the activities involved in creating a product for sale, starting with the delivery of raw
materials and finishing with the delivery of finished products.

Supply chain management: handling the entire production flow of a product production (from raw
materials to finished products) to minimise cost but improve the customer service.

JIT inventory management: aims to achieve zero inventory levels by requiring the supplies to arrive just
as they are needed in production.

JIC inventory management: aims to reduce the risk of running out of inventories by holding highy buffer
inventory levels.
Chapter 25: capacity utilization
Maximum capacity: the highest level of output that can be achieved.

Capacity utilization: the current output level achieved as a proportionate to the maximize output
capacity.

Out sourcing: using another business (a third party) to undertake one business's function without using
the one's own employees.

Excess capacity: this exists when the current levels of output are less than the full-capacity output of a
business also known as spare capacity.

Rationalisation: reducing capacities by closing factories/production units.

Capacity shortage: when a demand for a business's products exceeds production capacity.

Business process outsourcing (BPO): a third party business (a specialist contractors) undertake the part
one's business's function such as human resource or finance.

Unit 5: Finance and accounting

Chapter 29: business finance
Start-up capital: the capital needed by an entrepreneur to purchase the essential capital equipment and
premises (a piece of land together with the building).

Working capital: a finance needed by the business to run the day to day operations like building up
inventories, paying bills and giving credits to customers.

Short-term finance: money required for short term period upto one year.

Long-term finance: money required for more than one year.

Liquidity: the ability of a business to pay its short term debt.

Liquidation: when a business ceases trading and sells its assets to pay those whom the business owes
money to like to pay suppliers and creditors.

Administration: when administrators manage a business that is failing to run operations and is unable to
pay the debts.

Bankruptcy: when the administration fails to improve the operations and can't help business pay its
debts than it leads to liquidation.

Current assets: assets that are either cash or likely to be turned into cash within 12 months (inventory,
debtors or trade receivables).

Non-current assets: buildings, machinery.

Current liabilities: debts that usually have to be paid within one year.

Capital expenditure: the purchase of non-currents assets like premises (a piece of land together with the
building) and machinery.

Revenue expenditure: spending on all costs like wages, salaries and raw materials etc.

Internal sources of finance: raising finance from the business’s own assets or from profits left in the
business (retained profits).

External sources of finance: raising finance from the sources outside the business, for example banks.

Retained earnings: profits retained after paying taxes and dividends to shareholders.

Crowd funding: accumulating small amounts of capital from a large number of individuals to finance a
new business venture.

Collateral security: an asset which a business pledges to a lender and which must be sold off to pay a
debt if the loan is not paid.

Leasing: obtaining the use of an asset and paying a leasing charge over a fixed period of time, avoiding
the need to raise capital to buy the asset. The asset is owned by the leasing company. (usage right
without ownership).

Hire purchase: obtaining the use of an asset and paying little payments over a period of time until the
final payment is made, avoiding the need to make a large initial payment. The asset is owned by the
business. (usage right with ownership)

Mortgage: an agreement between you and a lender that gives the lender the right to take your
property if you fail to repay the money you've borrowed plus interest.

Business mortgages: medium to long-term loans offered by banks that can be used to fund the
purchase of business premises. The loan will be secured by the property, in case if the business fails to
repay then lender/bank will sell the property.

Long-term loans: loans that do not have to be repaid for at least one year.

Venture capital: risk capital invested in business start-ups or small business that have good potential of
profits but find difficult to raise the capital.

Share capital: permanent capital raised by companies through the sale of shares.

Debentures: long-term bonds sold by companies to raise finance and in return the company pays the
interest over a period of time to the person who holds the debenture.

Bank overdrafts: bank allows the account holder to overdraw the money more than present in the
account of account holder, but a high rate of interest will be charged above it. This is important source
of finance for small unincorporated businesses.

Factoring: selling of claims over trade receivables (debtors) to a specialist organization (debt factor) in
exchange for immediate liquidity.
Microfinance: providing financial services to entrepreneurs and low-income individuals who don’t have
access to banking services such as loans and over drafts.

Chapter 30: forecasting and managing cash flows

Cash flow: total money coming in the business less the total money going out of the business.

Cash flow forecast: an estimate of future cash inflows and outflows of a business.

Insolvent: when a business is unable to pay its short-term debts.

Opening cash balance: cash held by the business at the start of the month.

Closing cash balance: cash held by the business at the end of the month, which becomes next month's
opening balance.

Net cash flow: estimated difference between cash inflows and cash outflows for the period of a year.

Over trading: expanding a business rapidly without taking necessary finance into account, resulting in a
cash flow shortage.

Credit control: monitoring of debts to ensure that customers pay on time.

Bad debt: unpaid customer’s bills that are now very unlikely to ever be paid.

Chapter 31: Costs

Break-even point: the level of output at which total cost equal total revenue, when neither a profit nor a
loss is made.

Break-even level of output = fixed cost/ contribution per unit.

Profit = revenue – costs.

Profit = contribution – overheads.

Average cost: total cost divided by the number of units produced.

Full costing: a method of costing in which the indirect cost is allocated to the product as a proportion of
total direct cost.

Contribution costing: costing method that allocates only direct cost not indirect cost.

Marginal cost: the additional cost of producing one more unit of output.

Margin of safety: the amount by which the current output level exceeds the break-even level of output.

Contribution per unit: the price of a product less the direct (variable) cost of producing it.
Variable cost: cost that varies with the level of output during the production time period.

Indirect cost: cost that doesn’t vary with the level of output during the production time period

Chapter 32: Budgets

Budgets: the detailed financial plan for the future

Budgeting: a spending plan for the business by establishing performance targets.

Target: a short term goal that must be reached before an overall objective can be achieved.

Budget holder: the individual responsible for the achievement of a budget.

Incremental budgeting: uses last year's budget as a base and an adjustment is made for the coming year

Zero budgeting: each year budgets are set to zero and budget holders or manager justify the new
budget everytime.

Flexible budgeting: Budgets are allowed to fluctuate according to the varying level of output or sales.

Variance analysis: the difference between the actual figures and original budgets, and analysis for the
reasons of variance.

Favorable variance: surplus of profit than budgeted.

Adverse variance: deficit or less profit than budgeted.

Delegated budgets: budgets for which junior managers have been given some authority to set and
achieve.

(Compiled by: Ali Mustafa)

(AS Level)