Unit 5 Finance Key Words
Average Rate of A method of measuring and comparing the profitability of an
Return (ARR) investment over the life of the investment
Break-Even A prediction about the break-even quantity based on estimates of
Forecast future sales revenues and costs
Break-Even The amount a business must sell to earn enough revenue to just
Quantity cover its costs so that it does not make a profit nor a loss
Not simply notes and coins held in the business, but also money in a
Cash
bank account
Cash Flow A statement showing the expected flow of money into and out of a
Forecast business over a period of time
The amount of cash left at the end of the month. This becomes the
Closing Balance
opening balance at the start of the next month
Crowdfunding Money raised through an appeal to the public
Expenditure Money that the business pays out
Expenses The costs of operating a business
Sometimes referred to as the finance department. Only found in
Finance Function
larger businesses
Includes details of profit, loss, cash flow, break-even, profit margin
Financial
and average rate of return. These can be used in helping business
Information
decision-making
Fixed Costs The costs that stay the same as output changes, for example, rent
Gross Profit Sales minus the cost of sales
Gross Profit
Gross profit divided by sales multiplied by 100
Margin
Interest The amount of money that has to be paid on borrowed money
Income Money that the business receives
The ability of a business to pay its short-term debts which must be
Liquidity
paid in the near future
Loans The sums borrowed for a certain period at an agreed rate of interest
Loss Occurs in a business when costs are greater than revenue
The amount by which a business’ actual output is greater than its
Margin of Safety
break-even output
Negative Cash When during one month, more cash is flowing out of the business
Flow than flowing in
Net Cash Flow The total inflow minus total outflow
Net Profit Gross profit minus the expenses of operating the business
Net Profit Margin Net profit divided by sales multiplied by 100
The amount of cash available at the beginning of the month that was
Opening Balance
the closing balance at the end of the previous month
An arrangement with a bank that a business can spend more money
Overdraft
than it has in its account
Owners’ Capital Money from savings put in to the business by the owner
When, during one month, more cash flow is flowing into the
Positive Cash Flow
business than is flowing out of it.
The revenue received by a business minus the costs of running the
Profit
business
Profitability Calculations such as gross profit margin and net profit margin which
Ratios help to interpret data
Retained Profit Profit that is not distributed to shareholders as dividend
Revenue The money from sales
Sale of Assets Items sold by the business
Something of value that is offered to a lender as a form of guarantee
Security
of payment
Share Issue Money raised from investors by selling new shares
The bills that a business has to pay in the near future, for example
Short-Term Debts
electricity or rent
Taking on a
Adding a new partner who contributes some new capital
Partner
Time Period The length of time for which the finance is required
Total Costs The addition of fixed and variable costs
Total Inflow The total amount of cash flowing into a business
Total Outflow The total amount of cash flowing out of a business
When the business has the goods to sell and agrees to pay at some
Trade Credit
time later
Variable Costs The costs that change as output changes, for example, wages
