Definitions and Top Tips for AS level business

1. Business AS Levels:
Super Definitions Compilation
Units 1-5 (AS Level sections only)
Natanael Kevin
11A

2. UNIT 1 - Business and its
environment
Chapter 1: Enterprise
Consumer goods: the physical and tangible goods sold to the general public − they
include durable consumer goods, such as cars and washing machines, and non-durable
consumer goods, such as food, drinks and sweets, that can only be used once.
Consumer services: the non-tangible products sold to the general public − they
include hotel accommodation, insurance services and train journeys.
Capital goods: the physical goods used by industry to aid in the production of other
goods and services, such as machines and commercial vehicles.
Creating value: increasing the difference between the cost of purchasing
bought in materials and the price the finished goods are sold for.
Added value: the difference between the cost of purchasing raw materials and the
price the finished goods are sold for – this is the same as ‘creating value’.
Opportunity cost: the benefit of the next most desired option that is given up.
Entrepreneur: someone who takes the financial risk of starting and managing a new
venture.
Social enterprise: a business with mainly social objectives that reinvests most of its
profits into benefiting society rather than maximising returns to owners.
Triple bottom line: the three objectives of social enterprises: economic, social and
environmental.
TOP TIP:
Some questions may ask you to make references to businesses ‘in your own country’.
You are advised to take a close interest during the business course in the activities of
businesses – new and well established ones – in your country.

4. Chapter 2: Business structure
Primary-sector businessactivity: firmsengaged infarming, fishing,
oil extractionand all other industriesthat.
Secondary-sectorbusiness activity: firmsthat manufactureand
process products from naturalresources, including computers, brewing,
baking, clothes-making and construction.
Tertiary-sector businessactivity: firmsthat provideservicesto
consumersand other businesses, such as retailing, transport, insurance,
banking, hotels, tourism and telecommunications.
Public sector: comprisesorganisationsaccountabletoand controlled by
centralor local government (the state).
Private sector: comprisesbusinessesowned and controlled by
individualsor groups of individuals.
Mixed economy: economic resourcesareowned and controlled by both
privateand public sectors.
Free-market economy: economic resourcesowned largely by theprivate
sector with very little stateintervention.
Command economy: economic resourcesowned, planned and
controlled by the state.
Sole trader: a business in which one person provides the permanent
financeand, in return, has full control.
Limited liability: theonly liability –or potentialloss – a shareholder has
if the companyfails is theamount invested in the company, not the total
wealth of the shareholder.
Private limited company: a small to medium-sized businessthat is
owned by shareholders who areoften membersof the samefamily. This
companycannot sell shares to the generalpublic.
Share: a certificateconfirming partownership of a companyand entitling
the shareholder to dividendsand certainshareholder rights.

5. Shareholder: a person or institutionowning sharesin a limited company.
Public limited company: a limited company, often a largebusiness, with
the legal right tosell sharesto the general public – sharepricesare quoted
on thenationalstock exchange.
Memorandumof Association: statesthename of the company, the
addressof the head office.
Articles of Association: thisdocument coversthe internalworkingsand
control of the business – for example, the names of directorsand the
proceduresto be followed at meetingswill be detailed.
Franchise: a business that uses the name, logo and trading systemsof an
existing successfulbusiness.
Joint venture: twoor more businessesagreeto work closely together on a
particularproject.
Holding company: a businessorganisationthat ownsand controls a
number of separatebusinesses.
Public corporation: a business enterpriseowned and controlled by the
state – also known as nationalised industry.
TOP TIP:
PLC are in the privatesector of industry, but public corporationsarenot

7. Chapter 3: Size of business
Revenue: totalvalue of sales madeby a business in a given timeperiod.
Capital employed: thetotalvalue of all long-term financeinvested in the
business
Market capitalisation:thetotalvalue of a company’sissued shares.
Market share: sales of the businessas a proportionof totalmarket sales.
Internal growth: expansionof a businessby means of opening new
branches, shops or factories(also known as organic growth).
TOP TIP #1: Profit isnot a good measureof businesssize - but it canbe
used to assess business performance.
TOP TIP #2: If asked to comment on data showing the sizes of different
business, do remember that ifanother measurewere used, the conclusions

8. about relativesize might bevery different.
TOP TIP #3: Many businessobservers focus only on the benefitsof small
businesses. Do remember that largebusinessessupply most of the world’s
consumer goods and they do so with increasing efficiencyand, in most
cases. improving levels of quality.

9. Chapter 4: Business Objectives
Mission Statement - a statement ofthe business’s coreaimsphrased in a
way to motivateemployeesand to stimulateinterest byoutsidegroups.
Corporate Social Responsibility - appliesto those businessesthat
consider the interestsof the societyby taking responsibilityfor the impact
of their decisionsand activitiesoncustomers, employees, communitiesand
the environment.
Management by objectives - a methodsof coordinating and motivating
all staffin an organisationbydividing itsoverall aim intospecific targets
for each department, manager and employee.
Ethical code (code of conduct) - a document detailing a company’s
rules and guidelineson staffbehaviour that must befollowed by all
employees.
Top Tip #1: Remember the slogan SMART

10. Chapter 5: Stakeholders in a business
Stakeholders: peopleor groups of people who canbe affected by, and
thereforehave an interest in, any actionby an organisation.
Stakeholder concept: theview that businessesand their managershave
responsibilitiestoa wide rangeof groups, not just shareholders(see also
corporatesocialresponsibility).
Corporate social responsibility: theconcept that acceptsthat a
businessshould consider the interestsof societyin its activitiesand
decisions, beyond the legal obligationsthat it hasby taking responsibility
for the impact ofits decisionsand activitiesoncustomers, employees,
communitiesand theenvironment.
Top Tips:
 Do not confuse thetwo terms‘stakeholder’ and ‘shareholder’.
Stakeholder is a much morebroader term that covers manygroups,
including, of course, shareholders.
 Manyquestionsinvolve the conflict of stakeholder objectives.
Remember that it is difficult for a business to meet all of its
responsibilitiestoall stakeholdersat any one time. Compromise
might benecessary – meeting as manystakeholder objectivesas
possible or meeting theneeds of the most importantgroup ineach
situation.

11. UNIT 2 - People in organisation
Chapter 10: Management and Leadership
Manager: Responsible for setting objectives, organising resources and motivating staff
so that the organisation’s aims are met.
Leadership: The art of motivating a group of people towards achieving a common
objective
Autocratic leadership: A style of leadership that keeps all decision-making at the
centre of the organisation.
Democratic leadership: a leadership style that promotes the active participation of
workers in taking decisions.
Paternalistic leadership: A leadership style based on the approach that the manager
is in a better position than the workers toknow what is best for the organisation.
Laissez-faire leadership: A leadership style that leaves much of the business
decision-making to the workforce - a “hands off” approach and the reverse of the
autocratic style.
Informal leader: A person who has no formal authority but has the respect of
colleagues and some power over them.
Emotional intelligence (EI): The ability of managers to understand their own
emotions, and those of the people they work with, to achieve better business
performance.
TOP TIP: Paternalistic leadership is not part of the Cambridge syllabus; it has been
included here to act as a good contrast to democratic leadership style.

13. Chapter 11: Motivation
Motivation - the internaland externalfactorsthat stimulatepeopleto
takeactionsthat lead to achieving a goal.
Self actualisation - a sense of self fulfilment reached by feeling enriched
and developed by what one has learned and achieved.
Motivating factors (motivators) - aspectsof a worker’s job that can
lead to positivejob satisfaction, such asachievement, recognition,
meaningfuland interesting workand advancement at work.
Hygiene factors - aspectsof a worker’s job that havethe potentialto
causedissatisfaction, such aspay, working conditions, statusand over-
supervisionby managers.
Job enrichment - aimsto use the full capabilitiesofworkers by giing
them the opportunitytodo more challenging and fulfilling work.
Time based wage rate - payment toa worker madefor each period of
timeworked (e.g one hour)
Piece rate - a payment toa worker for each unit produced.
Salary - annual incomethat isusually paid on a monthly basis.
Commission - a payment to a sales person for each sale made.
Bonus - a payment madein additiontothe contracted wageor salary.
Performance related pay - a bonus schemeto reward staffabove
averagework performance.
Profit sharing - a bonus for staff based on the profitsof the business -
usually paid as a proportionof basic salary.
Fringe benefits - benefitsgiven, separatefrom pay, by an employer to
some or all employees.
Job rotation - increasing theflexibilityofemployees and the varietyof
work they do by switching from one job to another.

14. Job enlargement - attempting toincreasethescope of a job by
broadening or deepening the tasks undertaken.
Job redesign - involves the restructuring thejob - usually with the
employees’ involvement and agreement - to makemore work interesting,
satisfying and challenging.
Quality circles - voluntary groupsof workers who meet regularlyto
discuss work related problems and issues.
Worker participation- workers are activelyencouraged tobecome
involved in decision-making withintheorganisation.
Team-working - productionisorganised so that groupsof workers
undertakecompleteunitsof work.
Top Tip #1: If you are answering a questionabout motivationaltheorists,
try to do more thanjust list their mainfindings - apply their ideasto the
businesssituationgiven.
Top Tip #2: Team working might not alwaysbe a suitablemethod to
organise a workforce. Some very good workers do not make effectiveteam
members.
Top Tip #3: You should be ablenot just to describeand explainthe
different methodsof financialand non-financialmotivationbut tosuggest
which ones might besuitableindifferent business situations - and why.

16. Chapter 12: Human resource
management
Human Resource Management: is a function in organisations designed to maximise
employee performance in service of an employer's strategic objectives.
Recruitment: process of identifying the need for a new employee and attracting suitable
candidates.
Selection: Interviewing, testing and screening candidates to choose the most suitable person.
Job description: detailed list of the key points about the job offering, including key tasks and
responsibilities.
Person specification: a detailed list of the qualities, skills and qualifications that an applicant
should have.
Employment contract: a legal document that sets out the terms and conditions about a
worker's job.
Labour turnover: measures the rate at which employees are leaving an organisation.
Labour turnover rate: number of employees leaving in one year / average number of people
employed x 100%
Training: work-related education to increase workforce skills and efficiency.
Induction training: introductory training programme to make new recruits familiar with the
system and layout of the business.
On-the-job training: Instruction at the place of work on how a job should be carried out.
Off-the-job training: All training undertaken away from the business
Employee appraisal: the process of assessing the effectiveness of an employee judged against
pre-set objectives.
Dismissal: being dismissed from a job due to being incompetent.
Unfair dismissal: ending a worker’s employment with an unfair reason according to the law.
Redundancy: a worker is no longer needed because the job is no longer required.
Work-life balance: ability of employee to balance work and personal life.
Equality policy: practices and processes aimed at achieving a fair organisation where
everyone is treated in the same way and have the opportunity to fulfil their potential.

17. Diversity policy: practices and processes aimed at creating a mixed workforce and placing
positive value on diversity in the workplace.
TOP TIPS:
 Do not confuse the job description and the person specification.
 The disadvantages of each method of recruitment are the reverse of the advantages of the
other method. For example, a drawback in external recruitment is that it does not give
internal staff a career structure or a chance to progress.
 The precise legal requirement of employment contracts are likely to vary slightly between
different countries. It would be useful for you to research what these legal requirements
are in your own country - but you are unlikely to be examined directly on them.
 One reason commonly given by firms for not training their staff is that these well-trained
staff will then be “poached

18. UNIT 3 - Marketing
Chapter 16: What is marketing?
Marketing: the managementtaskthat linksthe business to the customer
by identifying and meeting theneeds of customer profitably - it does this by
getting theright product at theright pricetothe right placeat the right
time.
Marketing objectives: thegoalsset for the marketing department to
help the business achieveitsoverall objectives.
Marketing strategy: long-term planestablished for achieving marketing
objectives.
Marketing orientation: anoutward-looking approach basing product
decisionson consumer demand, asestablished by market research.
Product orientation: aninward-looking approach thatfocuseson
making productsthat canbemade - or have been madefor a long time -
and then trying tosell them.
Asset-led marketing: anapproachtomarketing that basesstrategyon
firm’sexisting strengthsand assetsinstead of purely on what the customer
wants.
Societal marketing: thisapproach considersnot only the demandsof
consumersbut also theeffects on all membersof the public (society)
involved in some way when firmsmeet these demands.
Demand: the quantityofa product that consumersarewilling and able to
buy at a given pricein a timeperiod.
Supply: thequantityofa product that firmsareprepared tosupply at a
given pricein a timeperiod.
Equilibriumprice: themarket pricethat squaressupplyand demand for
a product.
Market size: thetotal level of sales of all producerswithina market.

19. Market growth: the percentagechangeinthetotalsize of a market
(volume or value) over a period of time.
Market share: the percentageofsales in the totalmarket sold by one
business. This is calculated bythe following formula: (firm’s sales in time
period/totalmarket salesin timeperiod) x100
Direct competitor: businessesthat providethesame or very similar
goods or services.
USP - unique selling point: thespecialfeatureof a product that
differentiatesit from thecompetitors’products.
Product differentiation: making a product distinctiveso that it stand s
out from competitors’productsinconsumers’perception.
Niche marketing: identifying and exploiting a small segment of a larger
market by developing productsto suit it.
Mass marketing: selling the sameproductsto the whole market with no
attempt totarget groupswithinit.
Market segment: a subgroup of a whole market inwhich consumershave
similar characteristics.
Market segmentation: identifying different segmentswithin a market
and targetingdifferent products.orservicestothem.
Consumer profile: a quantified pictureofconsumersof a firm's
products, showing proportionof agegroups, incomelevels, location, gender
and socialclass.
TOP TIPS:
 You mayneed to do some simple calculationsabout marketgrowth
and market share - it is a good idea to use a calculator tohelp you do
this.
 is very importanttounderstand that a firm’smarket sharecan fall
even though itssales arerising. This will happenif the totalmarket
sales are increasing at a faster ratethanone firm’s sales.

21. Chapter 17: market research
Market research: theprocess of collecting, recording and analysing data
about thecustomers, competitorsand themarket.
Primary research: the collectionof first-hand data that isdirectlyrelated
to a firm’sneeds.
Secondary research: collectionof data from second-hand sources.
Qualitative research: research intothe in-depth motivationsbehind
consumer buying behavior or opinions.
Quantitative research: researchthat leadsto numericalresultsthat can
be presented and analysed.
Focus groups: a group of people who are asked about their attitude
towardsa product, service, advertisementor new style of packaging.
Sample: the group of people taking part ina market research survey
selected to be representativeofthe target market overall.
Random sampling: every member of the target populationhasanequal
chanceof being selected.
Systematic sampling: everynth item in the target populationisselected.
Stratified sampling: thisdrawsa samplefrom a specified sub-group or
segment of the populationand uses random sampling toselect an
appropriatenumber from each stratum.
Quotasampling: when thepopulationhas been stratified and the
interviewer selectsan appropriatenumber ofrespondents from each
stratum.
Cluster sampling: using one or a number of specific groupsto draw
samples from and not selecting from the whole population, e.g., using one
town or region.
Open questions: thosethat invitea wide-rangingor imaginative
response–theresults will be difficult tocollate and present numerically.

22. Closed questions: questionstowhich a limited number of pre-set
answers areoffered.
Arithmetic mean: calculated bytotaling all the results and dividing by
the number of results.
Mode: thevalue that occursmost frequently in a set of data.
Median: the value of the middleitem when data have been ordered or
ranked. It dividesthe data intotwo equalparts.
Range: the differencebetweenthe highest and lowest value.
Inter-quartile range: therangeof the middle50% of the data.

23. Chapter 18: The marketing mix – product
and price
Marketing mix: the four key decisionsthat must be taken in theeffective
marketing ofa product.
Customer relationshipmanagement (CRM): using marketing
activitiestoestablish successfulcustomer relationshipsso that existing
customer loyalty canbe maintained.
Brand: an identifying symbol, name, imageor trademarkthat
distinguishesa product from itscompetitors.
Intangible attributes ofa product: subjectiveopinionsof customers
about a product that cannot bemeasured or compared easily.
Tangible attributes ofa product: measurablefeaturesof a product that
canbe easily compared with other products.
Product: theend result of the productionprocesssold on the market to
satisfya customer need.
Product positioning: theconsumer perceptionofa product or service
compared with itscompetitors.
Product portfolio analysis: analysing therangeof existing productsofa
businessto help allocateresourceseffectively betweenthem.
Product life cycle: thepatternof sales recorded by a product from launch
to withdrawalfrom themarket and is one of the mainforms of product
portfolioanalysis.
Consumer durable: manufactured productthat canbereused and is
expected tohave a reasonably long life, such as a car or washing machine.
Extension strategies: thesearemarketing planstoextend thematurity
stageof theproduct before a brand new one is needed.

24. Price elasticityof demand (PED): measuresthe responsiveness of
demand following a changein price: PED = % changein quantity
demanded / % changein price.
Mark-up pricing: adding a fixed mark-up for profit to the unit priceof a
product.
Target pricing: setting a pricethat will give a required rateof returnat a
certainlevel of output/sales.
Full-cost pricing: setting a pricebycalculating a unit cost for the product
(allocated fixed and variablecosts) and thenadding a fixed profit margin.
Contribution-costpricing: settingpricesbased on thevariablecosts of
making a product in order to make a contributiontowardsfixed costsand
profit.
Competition-based pricing: a firm will base itspriceupon the priceset
by its competitors.
Dynamic pricing: offering goods at a pricethat changesaccording the
level of demand and the customer’sabilitytopay.
Penetration pricing: settinga relativelylow price, often supported by
strong promotion, in order to achievea high volume of sales.
Market skimming: setting a high pricefor a new product when a firm
has a unique or highly differentiatedproduct with low priceelasticityof
demand.

26. Chapter 19 - The marketing mix - promotion and
place
Promotion: The use of advertising, sales promotion, personal selling, direct mail, trade fairs,
sponsorship, and public relations to inform consumers and persuade them to buy.
Promotion mix: The combination of promotional techniques that a firm uses to sell a product.
Above-the-line-promotion: A form of promotion that is undertaken by a business by paying
for communication with consumers.
Advertising: Paid-for communication with consumers to inform and persuade. Eg: Tv and
cinema advertising.
Below-the-line promotion: Promotion that is not a directly paid-for means of
communication, but based on short-term incentives to purchase.
Sales Promotion: Incentives such as special offers or special deals directed at consumers or
retailers to achieve short-term sales increases and repeat purchases by consumers.
Personal Selling: A member of the sales staff communicates with one consumer with the aim
of selling the product and establishing a long-term relationship between company and
consumer.
Sponsorship: Payment by a company to the organisers of an event or team/individuals so that
the company name becomes associated with the event/team/individual.
Public relations: The deliberate use of free publicity provided by newspapers, TV and other
media to communicate with and achieve understanding by the public.
Branding: The strategy of differentiating products from those of competitors by creating an
identifiable image and clear expectation about a product.
Marketing and promotion budget: The financial amount made available by a business for
spending on marketing/promotion during a certain time period.
Channel of distribution: This refers to the chains of intermediaries as a product passes
through from producer to final consumer.
Internet (online) marketing: Refers to advertising and marketing activities that use the
Internet, email, and mobile communications to encourage direct sales via electronic commerce.
E-commerce: The buying and selling of goods and services by businesses and consumers
through an electronic medium.
Viral marketing: The use of social media sties or text messages to increase brand awareness
or sell products.

27. Integrating marketing mix: The key marketing decisions complement each other and work
together to give customers a consistent message about the product.
TOP TIP: You may be asked to recommend and evaluate a marketing strategy for a product. As
with actual businesses, the best results come to those who suggest a fully integrated marketing
mix, clearly aimed at achieving a set marketing objective.
When writing about promotion of a product, try to consider the marketing objectives of the
business. Is the promotion being used likely to help achieve these objectives?
Spending huge amounts of promotion will never guarantee the success of a product - the
promotion has to match the marketing objectives and integrate well with the rest of the
marketing mix.
Do not confuse ‘place’ or ‘distribution’ decisions with transportation methods. Place is about
how and where the product is to be sold to a customer - Transportation is about how the product
is to be physically delivered.

28. UNIT 4 - Operations and project
management
Chapter 22: The nature of operations
Added value: the difference between the cost of purchasing raw materials and the price the fi
nished goodsare sold for – this is the same as ‘creating value’.
Intellectual property: anintangible asset that has been developedfromhuman ideas and
knowledge.
Production: convertinginputs into outputs − the levelof productionis the number of units
producedduring a time period.
Productivity: the ratio of outputs to inputs during production, e.g., output per worker per time
period.
Efficiency: producingoutput at the highest ratio of output: input.
Effectiveness: meetingthe objectivesof the enterprise by using inputs productively to meet
consumer needs.
Labour intensive: ahigh levelof labour input comparedwith capital equipment.
Capital intensive: ahigh quantity of capitalequipment comparedto labour input.
TOP TIP:
Don’t think that operations management is only for manufacturing business. Business
providing service, such as banks and bicycle-repair shops, must also plan to use
resources productively and effectively.

29. Chapter 23: Operations planning
Operational planning: preparing input resourcesto supply productsto meet expecteddemand.
CAD – computer-aided design: the use of computer programs to create two- or three-
dimensional (2D or 3D)
graphical representationsof physicalobjects.
CAM – computer-aided manufacturing: the use of computer software to controlmachine tools
and related
machinery in the manufacturing of componentsor complete products.
Operational flexibility: the ability of a business to vary boththe levelof productionand the range
of products
following changes in customer demand.
Process innovation: the use of a new or much improvedproductionmethod or service-delivery
method.
Job production: producinga one-off item specially designed for the customer.
Batch production: producinga limited number of identical products – each item in the batch
passes through one
Flow production: producingitems in a continually moving process.
Mass customisation: the use of flexible computer-aidedproductionsystemsto produce items to
meet individual
Optimal location: a business location that givesthe best combination of quantitative and
qualitative factors.
Quantitative factors (business location): these are measurable in financial terms and will have
a direct impact on either the costsof a site or the revenuesfromit and its profitability.
Qualitative factors: these are non-measurable factorsthat may influence business decisions
Multi-site locations: a business that operates frommore than one location.
Off shoring: the relocationof a business processdone in one country to the same or another
company in another
Trade barriers: taxes(tariffs) or other limitations on the free international movement of goods
and services.
Scale of operation: the maximum output that can be achievedusing the available inputs
(resources)– this scale

30. Economies of scale: reductionsin a fi rm’s unit (average)costs of productionthat result from an
increase in the
Diseconomies of scale: factorsthat cause average costsof productionto rise when the scale of
operationis increased.
Enterprise resource management (ERM): the use of a single computer applicationto plan the
purchase and use of resourcesin an organisation to improve the efficiency of operations.
Supply chain: allof the stages in the productionprocessfromobtaining raw materials to selling to
the consumer – from point of origin to point of consumption.
Sustainable: productionsystemsthat prevent waste by using the minimum of non-renewable
resourcesso that levelsof productioncan be sustained in the future.
TOP TIP: When answering questions about economics of scale, make sure your is
applied to the business specified in the questions.

31. Chapter 24: Inventory management
Inventory (Stock): Materials and goods required to allow for the production and supply of
products to the customer.
Economic order quantity: The optimum or least-cost quantity of stock to re-order taking
into account delivery costs and stock-holding costs.
Buffer inventories: The minimum inventory level that should be held to ensure that
production could still take place should a delay in delivery occur or should production rate
increase.
Re-order quantity: The number of units ordered each time.
Lead time: The normal time taken between ordering new stocks and their delivery.
Just-in-time: This inventory-control method aims to avoid holding inventories by requiring
supplies to arrive just as they are needed in production and completed products are produced to
order.
TOP TIPS: Remember to apply your answer to the business in the question of the case study
when writing about inventories and inventory - handling systems - for example. if the business
sells toys, it is likely to hold high inventories of toys at festival times.
Any question about JIT that involves discussing how appropriate it is in different business cases
should lead to an answer that considers the potential drawbacks of the approach as well as its
more obvious benefits.
You will not be asked to calculate the optimum order size but it is advised that your remember
the cost of running out of them - and apply these to the business in the question.

32. UNIT 5 - Finance and accounting
Chapter 28: Business finance
Start-up capital: the capital needed by an entrepreneur toset up a business
Working capital: the capital needed to pay for raw materials, day-to-day running
costs and credit offered to customers. In accounting terms working capital = current
assets - current liabilities.
Capital expenditure: the purchase of assets that are expected tolast for more than
one year, such as building and machinery.
Revenue expenditure: spending on all costs and assets other than fixed assets and
includes wages and salaries and materials bought for stock..
Liquidity: the ability of firm to be able to pay its short-term debts.
Liquidation: when a firm ceases trading and its assets are sold for cash to pay
suppliers and other creditors.
Overdraft: bank agrees to a business borrowing up to an agreed limit as and when
required.
Factoring: selling of claims over trade receivables toa debt factor in exchange for
immediate liquidity - only a proportion of the value of the debts will be received as cash.
Hire purchase: an asset is sold to a company that agrees to pay fixed repayments over
an agreed time period - the asset belongs to the company.
Leasing: obtaining the use of equipment of vehicles and paying a rental or leasing
charge over a fixed period, this avoids the need for the business to raise long term-
capital to buy the asset; ownership remains with the leasing company.
Venture capital: risk capital invested in business start-ups or expanding small
businesses that have good profit potential but do not find it easy to gain finance from
other sources.
Microfinance: providing financial services for poor and low-income customers who do
not have access to banking services, such as loans and overdrafts offered by traditional
commercial banks.
Crowdfunding: the use of small amounts of capital from a large number of individuals
to finance a new business venture.

33. Business plan: a detailed document giving evidence about a new or existing business,
and that aims to convince external lenders and investors to extend finance to the
business.
TOP TIPS: When answering case study questions, you should analyse what type of
legal structure the business has and what sources if finances are available to it.
You should be able to recommend appropriate sources of finance for businesses needing
capital for different reasons.

34. Chapter 29: Costs
Direct costs: these costscan be clearly identified with each unit of
productionand canbe allocated to a cost centre.
Indirect costs: coststhat cannot be identified with a unit of productionor
allocated accuratelytoa cost centre.
Fixed costs: costs that do not vary with output inthe short run.
Variable costs: coststhat vary with output.
Marginal costs: theextra cost of producing onemore unit of output.
Break-even point of production: thelevel of output at which total
costs equaltotalrevenue.
Top tip: Not all direct costsarevariablecosts. A juicemachinewill be a
direct cost, but its cost does not depend on the number of fruitsjuiced by
the machine.
Margin of safety: the amount by which the sales level exceedsthe break-
even level of output.
Contribution per unit: price less direct cost per unit.
TOP TIP:
break-evenchart will only be accuratefor a limited amount oftime
(changesin cost, market, conditions)

35. Chapter 30: Accounting information
Top Tip #1: It is important tolearnthe new termsand forms of layout as
these will be the one used by the companyaccountsthat you will study
during thecourse. Whereit aidsunderstanding, both theold termsand the
new ones.
Top Tip #2: Questions that involve the interpretationor analysisof
accountswill use the statement offinancialpositionformat. Thehorizontal
format will not be used.
Top Tip #3: Many questionswill ask for methodsof increasing
profitabilityofa business. If thequestionneeds an evaluativeanswer, it is
very importantthat you consider at least one reason why your suggestion
might not be effective.
Top Tip #4: When commenting onratioresults, it is often advisableto
questionthe accuracyof the data used and the limitationsofusing just a
limited number of ratioresultsin your analysis.
Income statement - recordsthe revenue, costs and profit (or loss) of a
businessover a given period of time.
Gross profit - equalto sales revenue less cost of sales
Revenue (sales turnover) - the totalvalue of sales madeduring the
trading period =selling pricex quantitysold
Cost of sales - this is the direct cost of the goods that were sold during the
financialyear.
Operating profit (net profit) - gross profit minusoverhead expenses.
Profit of the year (profit after tax) - operating profit minusinterest
costs and corporationtax.
Dividends- the share of the profitspaid to shareholdersas a returnfor
investing the company.

36. Retained earnings (profit)- the profit left after all deductions,
including dividends, havebeen made, thisis ploughed backintothe
companyas a sourceof finance.
Low-quality profit - one-off profit that cannot beeasily be repeated or
sustained.
High-qualityprofit - profit that canbe repeated and sustained.
Statement of financial position (balance sheet) - an accounting
statement that recordsthevalues of a business’assets, liabilitiesand
shareholders’ equityat one point in time.
Shareholders’ equity- totalvalue of assets - totalvalue of liabilities
Asset - an item of monetaryvalue that is owned by the business.
Liability - a financialobligationof a businessthat is is required topay in
the future.
Share capital - the totalvalue of capitalraised from shareholdersby the
issue of shares.
Non-current assets - assets to be kept and used by the business for more
thanone year. Used to be referred as fixed assets.
Intangible assets - itemsof value that do not have a physicalpresence,
such as patents, trademarksand current assets.
Current assets - assets that arelikely to be turned into cash before the
next balancesheet date.
Inventories - stocks held by the businessin the form of materials, workin
progressand finished goods.
Trade receivables (debtors) - thevalue of paymentsto be received from
customerswho have bought goodson credit.
Current liabilities- debtsof the business that will have to be paid within
one year.

37. Accounts payable (creditors) - value of debtsfor goods bought on
credit payabletosuppliers, also known as tradepayables.
Non-current liabilities- value of debts of the businessthat will be
payableafter more thanone year.
Intellectualcapital or property - theamount by which the market
value of a firm exceedsits tangibleassetsless liabilities - an intangible
asset.
Goodwill - ariseswhen a business is valued at or sold for more thanthe
balancesheet value of itsassets.
Cash flow statement - record of the cash received by a business over a
period of timeand the cash outflows from the business.
Gross profit margin - ratiothat comparesgrossprofit (profit before
deductionof overheads) with revenue. gross profit margin=(gross profit /
revenue) x 100
Operating profit margin - ratiothat comparesoperating profit revenue.
operating profit margin=(operating profit / revenue) x 100
Liquidity - the abilityofa firm to payits short term debts.
Current ratio = current assets/ current liabilities
Acid test ratio = liquid asset / current liabilities
Liquid assets =current assets - inventories (stocks)
Window dressing - presenting thecompanyaccountsina favourable
light - to flatter thebusiness performance.

39. Chapter 31: Forecasting and managing
cash flows
Cash flow: the sum of cash paymentsto a business(inflows) less thesum
of cash payments(outflows).
Liquidation: whena firm ceases trading and itsassetsare sold for cash to
pay suppliersand other creditors.
Insolvent: whena business cannot meet its short-term debts.
Cash in flows: paymentsincash received by a business, such as those
from customersor from the bank, e.g., receiving a loan.
Cash outflows: paymentsmadeby the business.
Top tip: Cash must always be in hand becausepaymentsarealwaysbeing
made. Profit canwait.
Top tip: Forecastsarenot actualaccounts, theyareestimates.