Finance Key Terms

• Assets are items owned by a business that have value and can be sold to generate cash.
• A balance sheet is a financial statement that shows the assets, liabilities, and owner's equity of a business at a specific point in time.
• A bank loan is an amount of money provided to a business for a stated purpose in return for a payment in the form of interest charges
• Break-even output is that level of output at which total costs exactly equal revenue from sales
• Budgets are financial plans that forecast revenue from sales and expected costs over a time period
• A budget balance is the difference between government spending and revenue over the financial year
• Capital expenditure refers to funds used to acquire or upgrade long term assets such as buildings, machinery, vehicles etc.
• Capital is the money invested into a business and is used to purchase a range of assets including machinery and inventories
• Capital structure refers to the way in which a business has raised the capital it requires to purchase its assets
• Cash flow forecasts state the inflows and outflows of cash that the business expects to experience over a period of time
• Cash flow is the movement of cash into and out of a business over a period of time
• Commission is a method of payment in which the amount paid to an employee is relative to the value of goods or services than an employee sells
• A consolidated balance sheet is the total balance sheet for a business, including all its divisions
• Contingency funds are funds set aside by businesses to cover unexpected costs
• Contribution is the difference between revenue and variable costs
• Crowdfunding is practise of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet
• Debentures are loans with fixed interest rates that are long-term and may not even have a repayment date
• Depreciation is the reduction of the value of an asset over a period of time
• Direct costs are costs that are directly related to the production of a product or service (Cost of Sales)
• Diseconomies of scale is when the cost of production increases as the number of units produced increases.
• Dividends are that part of a company's profits that are paid to shareholders in proportion to the number of shares that they own
• Economies of scale occur when unit costs fall as a business expands; these economies relate to the volume of output
• Economies of scope is when producing two or more goods together results in a lower marginal cost than producing them separately. One common way is making different products using the same raw materials or factory.
• A financial objective is a goal or target pursued by the finance department within an organisation
• Financial services are professional services involving the investment, lending, and management of money and assets
• Fixed costs are costs that do not alter when the business alters its level of output
• Gross Domestic Product (GDP) measures the value of a country's total output of goods and services over a period of time, normally one year
• Gross profit is income recieved from sales minus the cost of sales
• Income statements record a business's sales revenue over a trading period and all relevant costs incurred as well as the business's profit or loss
• Indirect costs are costs that are not directly related to the production of a product or service.
• Investment is the purchase of assets such as property, vehicles and machinery that will be used for a considerable time by the business
• Long-term finance are those sources of finance that are needed over a longer period of time, usually a year
• The margin of safety measures the amount by which a business's current level of output exceeds break-even output
• Mortgages are long-term loans, repaid over periods of up to fifty years, and used to purchase property
• Net gains are the expected values of a course of action minus the costs associated with it
• Non-current assets are items that a business owns and which it expects to retain for one year or longer. Examples include property and vehicles
• Operating profit is the financial surplus arising from a business's normal trading activities and before taxation
• An overdraft exists when a business is allowed to spend more than it holds in its current bank account up to an agreed limit
• Overtrading occurs when there are liquidity problems linked to the financing of rapid growth
• Present value is the value of a future stream of income from an investment, converted into its current worth