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Edexcel A Level Business – Managing Business Activities Theme 2

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Edexcel A Level Business – Managing Business Activities Theme 2 Margin of safety Actual output - Break even output. This shows how many sales the business was above the break even point. Budget A financial plan for the future concerning the revenues and costs of a business Historical budgeting Using last year's figures as the basis for the next year's budget Zero budgeting Setting budgets at £0 and people will have to put proposals forwards for sales and costs Revenue / income budget A budget showing expected revenues and sales Cost / expenditure budget A budget showing expected costs based on sales Profit budget A budget based on both the sales and cost budgets Variance Looking at the difference between a forecast budget and an actual budget Favorable variance Actual figure - Budgeted figure WHEN spending is less than budgeted, or revenue is more than budget Adverse variance Actual figure - Budgeted figure WHEN spending is more than budgeted, or revenue is less than budget Gross profit Revenue - Cost of sales Operating profit Gross profit - Fixed overheads OR Revenue - Cost of sales - Fixed Overheads Net profit Operating profit - Financing costs and tax OR Revenue - Cost of sales - Fixed overheads - Financing costs and tax Profitability The extent to which a business is able to make a profit Liquidity The extent to which a business is able to use cash to meet debts as they are due Statement of comprehensive income (Income statement) Measures the performance of a business over a given time period, comparing the income of the business against the cost of goods or services and expenses Statement of financial position (Balance sheet) A snapshot of a business' assets (what it owns) and liabilities (what it owes) Current assets What a business owns and will be able to turn into cash in the next 12 months (i.e. stock, money in the bank) Assets What a business owns Fixed assets What a business owns that will last for over a year (i.e. a building, machinery) Liabilities What a business owes Long term liabilities What a business owes over a longer term than the next 12 months (i.e. mortgages, long term loans) Current liabilities What a business owes within the next 12 months (i.e. suppliers debt, overdrafts, short term loans) Credit control The management of accounts owed on credit by the customers of a business Debt factoring Selling the rights to collect amounts owed by customers in order to release cash flow Business failure When a business fails and goes out of existence. Management control The systems and process enabling a business to be managed effectively, such as decision making, management authority and financial planning External shock A change in the external business environment that significantly impacts a business Production The amount of output

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