Business Studies Edexcel Unit 1 Key Terms

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Added value

The difference between the price of a good or service and the cost of its material inputs.

Autocratic Management

A style of management where decisions are made by the individual, with little or no consultation, with others. Disagreement or discussion is not encouraged. Can be characterised as giving orders.

Break Even Point

The level of output where neither a profit nor a loss is being made. The point at which Total Revenue equals Total Costs.

Business Plan

A formal document that sets out the details of the business and acts as a planning aid for the business itself and as a means of attracting potential investors or providers of finance. It will also usually include a marketing plan and financial plans including a Profit and Loss Account and a Cash Flow Forecast.

Cash Flow

The movement of cash into (cash inflow) and out of (cash outflow) a business. They both need to balance and require careful management to avoid running out of cash at crucial times.

Cash Flow Forecast

A spreadsheet that projects expected flows of cash income and cash expenditure over a period of time. It will help to identify times when cash may be short and allow the business to make plans to deal with it.

Competitive Advantage

Any feature of a business that enables it to compete effectively. It may be based on price, quality, service, reputation or innovation.

Debenture

A form of external finance for a business that takes the form of a long term loan often secured on the company's property.

Demand

The amount of a good or service that consumers are willing and able to buy, at a given price and at given time.

Democratic Management

A style of management where decisions are made by a manager after consulting with colleagues and listening to differing points of view.

Entrepreneur

A person who takes the risk of organising and operating a new business venture. Usually carries the connotation of being creative, self-motivated, and visionary.

Equilibrium Price

The price at which quantity demanded is the same as quantity supplied, sometimes called the market clearing price.

Exchange Rate

The price of one currency expressed in terms of another. E.g. the exchange rate of the pound in terms of the dollar might be $1.92c

Fixed Costs

Those costs of expenses incurred by a business that do not change with the level of output. Examples include rent, interest payments, manager's salaries and rates.

Government Spending

The money spent in the economy over a period of time on a range of goods and services such as education, healthcare and social security. In 2008 it totalled £ . Mostly financed by taxation.

Gross Profit

What is left after the cost of sales has been subtracted from turnover. Overheads, interest and tax have not yet been taken into account.

Gross Profit Margin

Gross Profit shown as a percentage of turnover - Gross Profit x 100
Turnover

Inflation

A sustained rise in the general price level or a fall in the value of money. Expressed as a percentage figure it was 4.7% in September 2008.

Leasing

A long term rental agreement that allows businesses to use assets without having to pay for them, thereby freeing up funds for other uses. Often used for vehicles, machinery, photocopiers etc.

Limited Liability

In the event of financial problems and the closure of a business the responsibility for any outstanding debts is limited to the original investment.

Loan

The use of someone else's money for a period of time. Usually involves regular repayments and the additional payment of interest.

Ltd

Signifies a Private Limited Company. This is a form of company organisation with limited liability but whose shares are not available to the public and are not quoted on the stock exchange.

Market

Any medium in which buyers and sellers interact and agree to trade at a price.

Market Growth

An expansion of the market usually measured in increases in sales.

Market Mapping

The plotting onto a grid of features that characterise a market, such as price and consumer age. When individual brands or businesses are added to the grid it can show potential niches or gaps in the market. It also helps place products in relation to each other.

Market Orientation

Where the needs of the customer are the overriding priority in the production and marketing of products and services.

Market Positioning

How individual products or brands are seen in relation to their competition by the consumers. Businesses may well attempt to re-position their products in an attempt to boost sales.

Market Segmentation

The splitting up of the market into groups of consumers with similar characteristics. Common groupings include

age

gender, income, interests, location etc. This enables products and services to be more effectively produced and targeted for a particular segment.

Marketing Plan

The setting out of a range of strategies that will be used to promote and sell the product or service. This may well include details on price, promotion and distribution.

Operating Profit

The profit made on a business' ordinary trading activities. It is calculated by subtracting all admin and selling expenses from Gross Profit.

Operating Profit Margin

Operating Profit shown as percentage of turnover
Operating Profit x 100
Turnover

Opportunity Cost

Is the cost of the next best alternative that has been sacrificed. The opportunity cost of a business buying a new delivery van may be the new computer system that they have had to forego.

Ordinary Share Capital

The money raised by the selling of ordinary shares in plc businesses. These are stakes in the business and the shareholders will receive a dividend (if the business is profitable!).

Overdraft

A facility that allows a business (or an individual) to borrow up to an agreed limit. A flexible and useful form of finance that is particularly suited to cashflow problems. Interest is only paid on the amount borrowed and the time it is used.

Paternalistic

A leadership style that is based on a 'fatherly' approach. Closely linked to an autocratic approach. Decisions are usually based on what is best for the workforce but close consultation or delegation is unlikely.

Plc

Stands for Public Limited Company. This is a form of company organisation with limited liability but whose shares are available to the public and are quoted on the stock exchange.

Pricing Strategy

The decision made by a business as to what its price will be. Many factors influence this decision such as the costs of production, the level of competition, the desirability of the product, the need to break into a market and external economic factors.

Primary Research

The gathering of original information about the market from first hand sources. Sometimes called Field Research.

Product Trial

The launching of a product or service to assess likely demand levels, this may involve heavy promotion particularly where there are already many existing similar brands.

Production Plan

The details of how a product or a service is to be developed and produced for consumption.

Profit

The difference between Total Revenue and Total Costs.

Profit and Loss Account

A financial document that shows the amount of profit (or loss) that a firm has made over a period of time.

Qualitative Research

Market research term. It involves finding out about the motivation of consumers e.g. why consumers might prefer a blue car to a red car.

Quantitative Research

Market research term. It involves measuring numbers e.g. how many consumers might prefer a blue car to a red car.

Retained Profit

An important source of finance to businesses. It is all the money that is left after all deductions have been taken away from total sales revenue including any dividends paid to shareholders. It can then be re-invested into the business.

Secondary Research

The use of information that already exists about the market from other sources. Sometimes called Desk Research.

Sole Trader

,
The simplest form of business organisation that is owned and operated by an individual. It has unlimited liability.

Stakeholder

Any individual or group with an interest in the actions of a business. Stakeholders include: employees, owners & shareholders, customers, suppliers, the local community and competitors.

Supply

The amount of a good or service that producers are willing and able to provide, at a given price and at a given time.

Taxation

Payments made to the Government by a wide range of people that makes up the revenue needed to finance Government spending. The level of taxation can be varied to influence the economy. Common forms include: income tax, VAT, corporation tax and excise duty.

Theory X

A managerial approach described by McGregor. Theory X managers believe that workers are inherently lazy and dislike work, they need to be directed and coerced and they will avoid responsibility. It does not describe the workers themselves but the manager's attitude towards them.

Theory Y

A managerial approach described by McGregor. Theory Y managers believe that workers are inherently trustworthy and respond to responsibility, in fact, the opposite viewpoint to Theory X. It does not describe the workers themselves but the manager's attitude towards them.

Trade Credit

The period of time allowed by a business before payment is due, after supplying a customer. Commonly 30 days. It helps the customer's cash flow at the expense of the business'.

Trade-Off

A situation where having more of one thing leads to less of another, it is often thought that more unemployment means less inflation and vice versa. Linked to the concept of Opportunity Cost.

Turnover

The total income generated by a business' sales of its goods and services over a period of time.

Unemployment

The problem of people (or resources) that are not working. This means that the economy is not producing as much as it could. The level of unemployment is measured as a percentage of the workforce. There are several different ways of measuring this and care must be taken when making comparisons.

Unlimited Liability

The owner(s) of a business is (are) responsible for all the debts of a business should it fail. Usually associated with sole traders or partnerships.

Variable Costs

Costs of production that vary with the level of output e.g. raw materials and distribution costs.

Venture Capital

A form of business finance, unsecured funding provided by specialist firms in return for a proportion of the company's shares. Venture capital investments are seen as relatively high risk because they are unsecured. They also involve a higher rate of interest to compensate for the risk involved.

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