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.
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.
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.