unit 5 key words

• What does the Average Rate of Return (ARR) measure?


  It measures and compares the profitability of an investment over its life.
• What is a Break-Even Forecast?


  It is a prediction about the break-even quantity based on estimates of future sales revenues and costs.
• What is the Break-Even Quantity?


  It is the amount a business must sell to cover its costs without making a profit or loss.
• How is Cash defined in a business context?


  Cash includes not only notes and coins but also money in a bank account.
• What does a Cash Flow Forecast show?


  It shows the expected flow of money into and out of a business over a period of time.
• What is the Closing Balance?


  It is the amount of cash left at the end of the month, which becomes the opening balance for the next month.
• What is Crowdfunding?


  Crowdfunding is money raised through an appeal to the public.
• What does Expenditure refer to in a business?


  Expenditure refers to money that the business pays out.
• How are Expenses defined?


  Expenses are the costs of operating a business.
• What is the Finance Function in a business?


  It is sometimes referred to as the finance department and is only found in larger businesses.
• What does Financial Information include?


  It includes details of profit, loss, cash flow, break-even, profit margin, and average rate of return.
• What are Fixed Costs?


  Fixed costs are the costs that stay the same as output changes, such as rent.
• How is Gross Profit calculated?


  Gross Profit is calculated as sales minus the cost of sales.
• What is the Gross Profit Margin?


  Gross Profit Margin is gross profit divided by sales multiplied by 100.
• What is Interest in a financial context?


  Interest is the amount of money that has to be paid on borrowed money.
• What does Income refer to in a business?


  Income refers to the money that the business receives.
• What is Liquidity?


  Liquidity is the ability of a business to pay its short-term debts that must be paid in the near future.
• What are Loans in a business context?


  Loans are sums borrowed for a certain period at an agreed rate of interest.
• What is a Loss in business terms?


  A Loss occurs when costs are greater than revenue.
• What is the Margin of Safety?


  The Margin of Safety is the amount by which a business’ actual output is greater than its break-even output.
• What is Negative Cash Flow?


  Negative Cash Flow occurs when more cash is flowing out of the business than flowing in during one month.
• How is Net Cash Flow calculated?


  Net Cash Flow is calculated as the total inflow minus total outflow.
• What is Net Profit?


  Net Profit is gross profit minus the expenses of operating the business.
• What is the Net Profit Margin?


  Net Profit Margin is net profit divided by sales multiplied by 100.
• What is the Opening Balance?


  Opening Balance is the amount of cash available at the beginning of the month that was the closing balance at the end of the previous month.
• What is an Overdraft?


  An Overdraft is an arrangement with a bank that allows a business to spend more money than it has in its account.
• What is Owners’ Capital?


  Owners’ Capital is money from savings put into the business by the owner.
• What is Positive Cash Flow?


  Positive Cash Flow occurs when more cash is flowing into the business than is flowing out during one month.
• How is Profit defined?


  Profit is the revenue received by a business minus the costs of running the business.
• What are Profitability Ratios?


  Profitability Ratios are calculations such as gross profit margin and net profit margin that help interpret data.
• What is Retained Profit?


  Retained Profit is profit that is not distributed to shareholders as dividends.
• What does Revenue refer to?


  Revenue refers to the money from sales.
• What is the Sale of Assets?


  Sale of Assets refers to items sold by the business.
• What is Security in a financial context?


  Security is something of value offered to a lender as a guarantee of payment.
• What is a Share Issue?


  Share Issue is money raised from investors by selling new shares.
• What are Short-Term Debts?


  Short-Term Debts are the bills that a business has to pay in the near future, such as electricity or rent.
• What does Taking on a Partner involve?

  Taking on a Partner involves adding a new partner who contributes some new capital.
• What is the Time Period in finance?


  Time Period refers to the length of time for which the finance is required.
• How are Total Costs calculated?

  Total Costs are calculated as the addition of fixed and variable costs.
• What is Total Inflow?


  Total Inflow is the total amount of cash flowing into a business.