Unit 5

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Investment
Items that are purchased by firms because they help them to produce goods or services
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Return of investment
(Return on investment/cost of investment)x100
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Debts
Money owed by an individual or organisation
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Long term funding
Does not require repayment within a year
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Debts as proportion of long term funding
(Debts/ long term funding)x100
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Depreciation
The fall in value of an asset overtime, reflecting the rear and tear of the asset as it becomes older, the reduction in its economic use or its obsolescence
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Obsolescence
When an asset is still functioning but is no longer considered useful because its out of date.
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Budget
An agreed plan establishing, in numerical or financial terms, the policy to be persued and the anticipated outcomes of that policy
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Variance analysis
The process by which the outcomes of budgets are examined and then compared with the budgeted figures
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Favourable variance
When costs are lower than expected or revenue is higher than expected
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Adverse (unfavourable) variance
When costs are higher than expected and revenue is lower
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Cash inflows
Receipts of cash, typically arising from sales of items, payments by debtors, loans received
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Cash outflows
Payments of cash, typically arising from the purchase of items, payments to creditors or loans repaid
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Net cash flow
The sum of cash inflows into an organisation minus the outflows over a period of time
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Receivables
People who owe the business money- Debtors
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Payables
People who are owed money by the business- Creditors
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Contribution per unit
Selling price per unit-variable cost per unit
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Total contribution
The difference between total revenue and total variable costs. Contribution per unit x units of output or sales revenue- total variable costs
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Break even output
The level of output at which total sales revenue is equal to total costs of production- Fixed costs/contribution per unit
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Margin of safety
The difference bettwen the actual output and the break even output- actual output-break even output
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Profability
The ability of a business to generate profit or the efficiency of a business in generating profit
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Gross profit margin
How efficient the business is at transforming raw materials into products- (Gross profit/sales revenue)x100
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Operating profit margin
How efficient the business is at making a profit from the resources its using for is trading activities- (Operating profit/sales revenue)x100
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Profit for the year margin
How much shareholders may benefit directly from the financial performance of the business
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Management accounting
The creating of financial information for use by internals users of the business
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Financial accounting
The provision of financial information to show external users the financial position of the business.
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Internal sources of finance
Ways of raising finance from within the business e.g.retained profit or debt factoring
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External sources of finance
Ways of raising finance from outside the business, such as loans and overdrafts
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Factoring
When a factoring company buys the right to collect the money from credit sales of a business
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Bank overdraft
When a bank allows an individual or organisation to overspend its current account in the bank up of an agreed limit for a stated period of time
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Retained profits
The part of a firms profit that is reinvested in the business rather than distributed to shareholderes
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Loan capital
Money received by an organisation in return for the organisations agreement to pay interest during the period of the loan and to repay the loan within an agreed time
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Venture capital
Finance that is provided to small or medium sized firms that seek growth but may be considered risky
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Other cards in this set

Card 2

Front

(Return on investment/cost of investment)x100

Back

Return of investment

Card 3

Front

Money owed by an individual or organisation

Back

Preview of the back of card 3

Card 4

Front

Does not require repayment within a year

Back

Preview of the back of card 4

Card 5

Front

(Debts/ long term funding)x100

Back

Preview of the back of card 5
View more cards

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