3.3 Keywords - Effective Financial Management

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3.3 Effective Financial Management - Keywords & Definitions - Edexcel Business Studies GCSE

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Question Answer
Cash Flow The flow of cash into and out of a business
Financial Management Deliberately changing monetary variables like cash flows to achieve financial objectives such as improved cash flow
De-stocking Reducing the levels of stocks in a business
Trade Credit Where a supplier gives a customer a period of time to pay for a bill (or invoice) for goods or services once they have been delivered
Profit Occurs when the revenues of a business are greater than its costs over a period of time
Revenues The amount of money received from selling goods or services over a period of time
Break-even point The level of output where total revenues are equal to total costs; this is where neither a profit nor a loss is being made
Total revenue The revenue earned by a business from the sale of a given quantity sold x average price
Total Costs All the costs of a business; equal to fixed costs plus variable costs
Fixed Costs Costs which do not vary with the amount produced, such as rent, business rates, advertising costs, administration costs and salaries
Variable Costs Costs which change directly with the number of products made by a business, such as the cost of buying raw materials
Break-even chart A graph which shows total revenue and total cost, allowing the break-even point to be drawn
Margin of Safety The amount of output between the actual levels of output where profit is being made and the break-even level of output; if the margin of safety is zero, then production is at or below the break-even level
Financing a business How a business obtains money and other financial resources to start up, expand and if necessary pay off losses it has made
Internal Sources of Finance Finance which is obtained within the business such as retained profit or the sale of assets
External Sources of Finance Finance which is obtained from outside the business such as bank loans and cash from the issue of new shares
Retained Profit Profit which is kept back in the business and used to pay for investment in the company
Equity or share capital The monetary value of a business that belongs to the business’ owners. In a company, this would be the value of their shares
Share A part ownership in a business; for example a shareholder owning 25% of the shares of a business owns a quarter of the business
Overdraft Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn
Bonds A long-term loan where typically interest is paid at regular intervals like a year and the loan is all repaid at the end of the life of the bond. Bonds are traded on stock markets.
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