AQA, Business, AS, Finance defintions.


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  • Created by: sarah
  • Created on: 21-05-10 17:14

Budget - An agreed plan establishing, in numerical or financial terms, the policy to be pursued and the anticipated outcomes of that policy.

Variance Analysis - The process by which the outcomes of budgets are examined and then compared with the budgeted figures. The reasons for any differences (variances) are then found.

F...Variance = Budgeted figure - actual figure.

Favourable Variance - When costs are lower than expected or revenue is higher than expected.

Adverse Variance - When costs are higher than expected or revenue is lower than expected.

Bank Overdraft - An agreement whereby the holder of a current account at a bank is allowed to withdraw more money than there is in the account. The agreement specifies the maximum level of overdraft.

Short-term loan - a sum of money provided to a firm or an individual for a specific, agreed purpose. Repayment of loan will take place within two years, and possibly much less.

Factoring - When a factoring company (usually a bank) buys the right to collect the money from the credit sales of an organisation.

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Sale of assets - when a business transfers ownership of an item that it owns to another business or individual, usually in return for cash.

Sale and leaseback of assets - When assets that are owned by a firm are sold to raise cash and then rented back so that the company can still use them for an agreed period of time.

Working Capital - The day-to-day finance used in a business, consisting of assets (e.g cash, stock and debtors) minus liabilities (e.g creditors and overdraft).

Profit -The difference between the income of a business and its total costs - Profit = Revenue - total costs.

F...Profit = Revenue - Total costs.

Profitability - The ability of a business to generate profit or the efficiency of a business in generating profit.

Net Profit Margin - This measures net profit (although operating profit can be used) as a percentage of sales (turnover). Net and operating profits are considered the best measure of a firms profit, while sales turnover is an excellent measure of scale.

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F...Net Profit Margin % = (Net profit before tax / Sales (turnover) ) x 100

Return on Capital = Ratio showing net profit ( operating profit is also used ) as a percenatge of capital invested.

F...Return on Capital % = (Net profit before tax / Capital invested) x 100

Capital Invested - All of the money provided to the business by owners.

Liquidity - The ability to convert an asser into cash without loss or delay.

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