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Glossary of Terms for Business Finance

2497 words (10 pages) Essay in Finance

08/02/20 Finance Reference this

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Balance Sheet

A balance sheet is a financial statement and is important to financial modelling and accounting. The balance sheet is used by accountant and business owners. The balance sheet shows the company’s entire assets and how these assets are financed. Assets are things that the company own. Assets allow creditors to see what the company owes and who owes the company as it shows the date specify in the heading, these are shown through debt or equity. The balance sheet is based on an equation: Assets = liabilities + equity (CFI Education Inc, 2018a). A balance sheet is put into two sections. The left side of the balance sheet shows the companies liabilities and shareholders equity, the right side, the key line item are confidential by liquidity. Balance sheets are useful for, current investors, potential investors, suppliers, competitors and government agencies. Balance sheets will have difference between organisations and industries. There are line items which are current assets, long-term assets, current liabilities, long-term liabilities and equity.

Break – even

Break –even shows the growth of your company and can show the difference between your success and failure. It’s important to conduct a break – even analysis. This will help you show a fixed cost and variable cost. So you are able to set your prices properly when your company is able to reach its profit. Break – even analysis looks at the fixed costs relative to the profit earned by each added unit produced and sold. The break even is useful to managers as it provides information that can be used to constructing vital decisions for example applying for loans and setting prices.

Break even analysis helps define the lowest amount of sales which contain variable and fixed cost, this smooth the progress of the managers with amount which can be used to assess the outlook demand. the manager can use this information to make vital decisions, he can chose whether to use the product  or progress in advertising strategies. are two formulas, one is based on number of unit of product sold and the other is based on point on sales in GBP. To calculate break-even point based on units:  Break- even point (units) = Fixed costs ÷ (Revenue per unit – variable cost per unit). ( Squareup international Ltd, 2018a)To calculate break-even point based on sales in GBP: Break-even point (sales in GBP) = Fixed Costs ÷ Contribution Margin. Contribution Margin = Price of Product – Variable Costs. (Squareup international Ltd, 2018b)


Budgeting is the procedure of producing a plan on how to spend your money. This is also use to estimate and plan future income and expenses. Budgeting is carried by companies to estimate whether the company will continue with income and expenses. A budget is useful to gather information for a business plan. Consisting of all the items the company may need and expenses essential for start up. It’s vital to know how much it cost you to start this company( myMoneyCoach, 2018) . A budget allows you to know how much you should spend each month and you should take out as a business salary. Also having a budget allows to know how much you will need to meet all the expenses. Budgeting for events management as it will help the company how much they will be gaining from the event and how much they need to put in the event.

Capacity Management

Capacity management is the management of the boundary of organisation resources. Such as its work force, manufacturing and office room technology and equipment, unprocessed materials and inventory. Capacity management deals with the capacity of an organisation processes.  The capacity of a business measures how much a company can make and manufacture or sell within a period. The capacity can vary because of seasonal requirement and economic events, upholding, it’s vital that companies need include a system that includes ability to meet expectations all the time. Companies that incorporate capacity management look for to make sure that sufficient capacity is obtainable at all times to meet existing and future needs of a business and its consumers in a cost-effective approach. (Investopedia,LLC,2018a)

Capacity Expenditure
capacity expenditure is money used by a company to gain, improve and uphold physical assets such as manufacturing building or equipment, in order to enlarge the capacity or effectiveness of a company. The expenditure amounts for an accounting period are usually stated in the cash flow statement. Capital expenditures normally have an effect on the short term and long term reputation of an organisation. It’s essential to make sensible decisions as of vital significance to the financial of the company. Many company on the whole try to uphold the levels of their capital expenditure to show investors that managers are investing properly in the business. There are two forms of capital expenditures, expenses for the upholding of levels of process present within the company and the expenses that will facilitate an enlarge in future growth.

Competitor Analysis

Competition analysis is a important part for a company marketing plan. With this assessment you will find out what makes the company service different, and will also help attract your target audience. You must put the competitors in tactical groups on how they compete for share for the customers. It’s important to list their service, its profitability, growth pattern, marketing objectives, current and past strategies and strengths & weaknesses, it’s vital in knowing where your rivalry may be exceeding as what advantages you have in excess of your rivalry, this will help you get better your marketing plan and finding ways to put into practice finding ways to implement features the company doesn’t offer that will attract customers.


Costing is any system for conveying costs to a constituent of a business. Costing is usually used to expand costs for any or all of the following which are customers, employees, products, processes, entire companies and distribution channels. Costing engage only assignment of erratic costs, which are costs that differ with some form of activity, for example the number of sales or the number of employees, this costing is called direct costing, costing can also include assignment of fixed costs, which are those costs that stay the same , this type of costing is called absorption costing. Costing has two purposes which internal reporting and external reporting. ( Accounting tools,2018)

Decisions making

Decision making is the procedure of selecting rational alternatives from the available options, gathering information and also assessing alternative resolutions , there is a step by step decision making process that the company will have to take that will help the company make considerate decisions,  the seven steps are, recognize the decision, collect important information, indentify the alternatives, weigh the evidence, decide among alternatives, take action  and re-evaluate your decisions & its outcome, these steps are crucial as it helps the company make wise decisions.

Fixed costs

Fixed cost is an expense or cost that does not alter with a boost in the number of supplies or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any business activity, fixed cost are normally used in the break-even analysis to decide pricing and the level of production and sales below which a company produce neither income nor loss. (Investopedia, LLCb, 2018)

Inventory control

Inventory control is when you control and exploit your company’s inventory; the aim of inventory control is to exploit profits with a small amount of inventory investment, without impacting customer fulfilment levels. Inventory control is also about knowing where all the stock is and making sure all is accounted for at any given time.

Operating costs

Operating costs are expenses connected with the upholding and management of a business on day-to-day basis. The operating cost is a part of operating profits and is usually replicating on a company’s profits declaration. While functioning costs normally do not contain capital outlay, this include operating a business such as, accounting and legal fees, bank charges, sales and marketing costs, salary and wage expenses and travel expenses. (Investopedia, LCCc, 2018)

Macro Environment

 Macro environment is the form that exists in the financial system as a whole, somewhat than in a particular division or area. The macro environment contains tendency in, inflation, employment and spending.( Investopedia, LLCe,2018) The company operates sway its performances and the quantity of the influence depends on how much the company’s business is dependent on the health of the whole financial system.

Micro Environment

Micro environment are factors close to a business that have a straight collision on its business process and success, before making a decision to corporate scheme, businesses should carry out a fully analysis of their micro environment. These factors contain competitors, customers, distribution channels, suppliers and general public.(Webfinance Inc, 2018)



PEST stands for political, economic, social and technological. PEST is used to get a enhanced understanding of the market expansion and turn down, the potential and the way of a business. This is used to assess the market for a business.

Profit and Loss statement

Profit and loss statement is a financial statement that sums up the revenues, costs and expenses in a specific period; this statement provides information about a company’s capability or incapability to have a decent profit by adding to revenue, decreasing costs or both.


Resources is a stock or a supply of money, materials, employees and other assets that can be on haggard by a individual or a organisation in order to function successfully.

Revenue management

Revenue management helps foresee consumer requirement to optimize inventory and price accessibility in order to exploit revenue expansion.


Return on investments weighs the increase or loss produced on an investment relative to the amount of money invested; ROI is usually made known as percentage and is used for private financial decisions, to contrast a company’s profitability or to contrast the competence of different investments.


Return of objective focuses on crucial and accomplishing precise assessable objectives, it is a essential management approach, this can be applied to each aspect of business and has been around for a very long time.

Supply chain

a supply chain is a network between a company and its dealer to manufacture and hand out a exact product, and the provide chain signify the steps it takes to obtain the product or service to the customer.


SWOT analysis is technique for looking at the business strength, weaknesses, opportunities and threats, this analysis will assist the business build up a good business plan, whether the

Company is starting up or it’s an existing company.

Variables cost

Variables cost is a company expense that changes in amount with output. Variable costs add to or reduce depending on a company’s, production volumes; they increase as manufacture enhances and fall as production decreases.


The compound annual growth is the rate of return that be needed for an investment to expand from its start balance to its finishing balance supposing the profits were reinvested at the end of each year of the investment’s lifetime.

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