Business Studies Definition List

Section 1

Chapter 1

 Need – good or service essential for living.

 Want – good or service which people would like to have, but not essential for living. People’s wants are
unlimited.
 The economic problem – there exists unlimited wants but limited resources to produce the foods and
services to satisfy those wants. This creates scarcity.
 Factors of production – the resources needed to produce goods or services, they are limited in supply.
 Land: natural resources provided by nature
 Labour: number of people available to make products
 Capital: the finance, machinery and equipment needed for the manufacture of goods
 Enterprise: this is the skill and risk-taking ability of the person who brings together the other factors of
production together to produce a good or service; called entrepreneurs.
 Scarcity – the lack of sufficient products to fulfill the total wants of the population.
 Opportunity cost – the next best alternative given up by choosing another item.
 Specialisation – when people and businesses concentrate on what they are best at.
 Division of labour – when the production process is split up into different tasks and each worker performs
one of these tasks. It is a form of specialisation.
 Purpose of business activity is to combine factors of production to make products which satisfy people’s
wants.
 Added value – difference between the selling price of a product and the cost of the bought-in materials and
components.

Chapter 2

 Primary sector of industry extracts and uses the natural resources of Earth to produce raw materials used by
other businesses.
 Secondary sector of industry manufactures goods (and constructs structures) using raw materials provided
by the primary sector.
 Tertiary sector of industry provides services to consumers and the other sectors of industry.
 De-industrialisation occurs when there is a decline in the importance of the secondary, manufacture sector
of industry in a country.
 A mixed economy has both a private sector and a public (state) sector.
 Private sector – businesses not owned by the government; businesses owned by private individuals
 Public sector – government (or state) owned and controlled businesses and organisations.

Chapter 3

 Entrepreneur – a person who organises, operates and takes risk for a new business venture.
 Business plan – a document containing the business objectives and important details about the operations,
finance and owners of the new business.
 Internal growth – when a business expands its existing operations.
 External growth – when a business takes over or merges with another business; also called integration.
 Takeover (acquisition) – one business buys out the owners of another business to make it part of the
predator business.
 Merger – the owners of two businesses agree to join their businesses to make one business.
 Horizontal integration – a business merges with or takes over another in the same industry at the same stage
of production.
 Vertical integration – a business merges with or takes over another one in the same industry but at a
different stage of production (can be forward or backward).
  Conglomerate integration – a business merges with or takes over a business in a completely different
industry; aka diversification.

Chapter 4

 Sole trader – a business owned by one person.

 Limited liability – the liability of shareholders in a company is limited to only the amount they invested.
 Unlimited liability – the owners of the business can be held responsible for the debts of the business they
own; liability not limited to investment made in the business.
 Partnership – a form of business in which two or more people agree to jointly own a business.
 Partnership agreement – written and legal agreement between business partners; not essential but
recommended.
 Unincorporated business – a business that does not have a separate legal identity; sole traders and
partnerships.
 Incorporated business – companies that have a separate legal status from their owners.
 Shareholders – owners of a limited liability company; they buy shares which represent part-ownership of the
company.
 Private limited company – a business owned by shareholders but they cannot sell shares to the public.

The following documents must be submitted to Registrar of Companies to get a Certificate of Incorporation
and start trading:
 Articles of Association – document containing rules under which the company will be managed; rules for
electing of directors, rules for official meetings, procedure for issuing of shares.
 Memorandum of Association – document containing important information about company and directors;
name and address of company’s offices, objectives of company, number of shares bought by each director.

 Public limited companies – businesses owned by shareholders but they can sell shares to the public; shares
tradable on the Stock Exchange.
 Annual General Meeting – shareholders may attend this and vote on who they want to be on the Board of
Directors for the coming year; legal requirement for all companies.
 Dividends – payments made to shareholders from the profits (after tax) of a company; return on investment
for shareholders.
 Franchise – business based on use of existing successful business’ brand name, logos and trading methods;
franchisee buys license to operate franchise from franchisor.
 Joint venture – two or more businesses start a new project together; shared capital, risks and profits.
 Public corporation – business in the public sector, owned and controlled by the state/govt.

Chapter 5

 Business objectives – aims or targets that business works towards.

 Profit – total income of a business (revenue) less total costs.
 Market share – the percentage of total market sales held by one brand or business.
 Social enterprise – it has social objectives as well as an aim to make a profit to reinvest back into the
business.
 Stakeholder – any person or group with direct interest in the performance and activities of a business.
 Internal stakeholder – a stakeholder who owns or works for the business.
 External stakeholder – a stakeholder who is outside of the business.

Section 2
Chapter 6

 Motivation – it is the reason why employees want to work hard and work effectively for the business.
  Labour turnover – cost of recruiting replacements for workers who leave; (low labour turnover means loyal
workforce).
 Wage – payment for work, usually paid weekly.
 Time rate – amount paid to an employee for one hour of work.
 Piece rate – an amount paid for each unit of output.
 Salary – payment for work, usually paid monthly.
 Bonus – additional amount of payment above basic pay as a reward for good work.
 Commission – payment relating to the number of sales made; paid to sales staff in addition to basic wage or
salary.
 Profit sharing – a system where a proportion of the company’s profits is paid out to employees; paid in
addition to basic wage or salary. (It is often calculated as a percentage increase of a worker’s existing salary,
high salaried staff get higher amount from profit sharing than low salaried staff.)
 Fringe benefits – non-financial rewards that have a monetary value given to employees.
 Job satisfaction – enjoyment derived from feeling that you have done a good job.
 Job rotation – it involves workers swapping around and doing each specific task only for a limited time and
then changing around again.
 Job enrichment – it involves looking at jobs and adding tasks that require more skill and/or responsibility.
 Teamworking – it involves using groups of workers and allocating specific tasks and responsibilities to them.
 Training – the process of improving a worker’s skills.
 Promotion – the advancement of an employee in an organisation to a higher job/managerial level.

Chapter 7

 Organisational structure – refers to the levels of management and division of responsibilities within an
organisation.
 Organisational chart – refers to a diagram that outlines the internal management structure.
 Hierarchy – refers to the levels of management in any organisation, from the highest to the lowest.
 Level of hierarchy – refers to managers/supervisors/other employees who are given a similar level of
responsibility in an organisation.
 Chain of command – it is the structure in an organisation which allows instructions to be passed down from
senior management to lower levels of management.
 Span of control – the number of subordinates working directly under a manager.
 Tall organisational structure – many hierarchical levels, long chains of command and narrow spans of
control.
 Short organisational structure – few hierarchical levels, short chains of command and wide spans of control.
 Directors – senior managers who lead a department or division of a business.
 Line managers – have direct responsibility for people below them in the hierarchy of an organisation.
 Supervisors – are junior managers who have direct control over the employees below them in the
organisational structure.
 Staff managers – specialists who provide support, information and assistance to directors and line managers.

Role and functions of management (POCCC):

 Planning – planning for the future of the organisation by setting measurable aims or targets and the
resources that will be required to achieve them.
 Organising – making sure that tasks are delegated; the right people are available at the right time and place
with the right resources; avoids duplication of tasks.
 Coordinating – making sure all departments are working together.
 Commanding – guiding, leading and supervising workers – involves giving instructions and making sure
targets and deadlines are met.
 Controlling – finding reasons for poor performance and taking corrective action to make sure targets are met
in the future.

 Delegation – giving a subordinate the authority to perform particular tasks. (Only authority delegated, final
responsibility is of the manager’s only)
 Leadership styles – are the different approaches to dealing with people and making decisions when in a
position of authority – autocratic, democratic and laissez-faire.
  Autocratic leadership – the manager expects to be in charge of the business and to have their orders
followed.
 Democratic leadership – the managers gets the other employees involved in the decision-making process.
 Laissez faire leadership – the manager makes the broad objectives of the business known to employees, but
then they are left to make their own decisions and organize their own work.
 Trade union – a group of employees who have joined together to ensure their interests are protected.
 Closed shop – when all employees must be a member of the same trade union.

Chapter 8

 Recruitment – the process from identifying that the business needs to employ someone up to the point at
which applications have arrived at the business.
 Employee selection – the process of evaluating candidates for a specific job and selecting and individual for
employment based on the needs of the organisation.

 Job analysis – identifies and records the responsibilities and tasks relating to a job.
 Job description – outlines the duties and responsibilities to be carried out by someone employed to do a job.
 Job specification – document outlining the (desirable and essential) requirements, qualifications, expertise,
physical characteristics, etc. for a job.
 Internal recruitment – when a vacancy is filled by someone who is an existing employee of the business.
 External recruitment – when a vacancy is filled by someone who is not an existing employee and will be new
to the business.
 Part-time – often referring to employment that is between 1 and 30-35 hours per week.
 Full-time – often referring to employment that is 35 hours or more per week.
 Induction training – an introduction given to a new employee, explaining the business’s activities, customs
and procedures and introducing them to their fellow workers.
 On-the-job training – occurs by watching a more experienced worker doing the job.
 Off-the-job training – involves being trained away from the workplace, usually by specialist trainers.
 Workforce planning – establishing the workforce needed by the business for the foreseeable future in terms
of the number and skills of employees required.
 Dismissal – when employment is ended against the will of the employee, usually for not working in
accordance with the employment contract.
 Redundancy – when an employee is no longer needed and so loses their job; not due to any aspect of their
work being unsatisfactory.
 Retire– workers leave their job if they are getting older and/or want to stop working.
 Resign – workers leave usually because they have found another job.
 Contract of employment – legal agreement between an employer and employee, listing the rights and
responsibilities of workers.
 Industrial tribunal – a type of law court (or in some countries a legal meeting) that makes judgments on
disagreements between companies and their employees; for example, on claims of unfair dismissal or
discrimination at work.
 Ethical decision – a decision taken by a manager or company because of the moral code observed by the
firm.

Chapter 9

 Communication – transferring of a message from the sender to the receiver, who understands the message.
 Message – information or instructions being passed by the sender to the receiver.
 Internal communication – is between members of the same organisation.
 External communication – is between the organisation and other organisations or individuals.
 Transmitter or sender – the person starting off the (communication) process by sending the message.
 Medium of communication – the method used to send a message.
 Receiver – the person who receives the message.
 Feedback – the reply from the receiver which shows whether the message has arrived, been understood and
acted upon.
 One-way-communication – involves a message which does not call for or require a response.
  Two-way-communication – when the receiver gives a response to the message and there is a discussion
about it.
 Formal communication – when messages are sent through established channels, using professional
language.
 Informal language – when information is sent and received casually using everyday language; grapevine.
 Communication barriers – factors that stop effective communication of messages.

Section 3

Chapter 10

 Marketing – identifying customer wants and satisfying them profitably.

 Customer – a person, business or other organization which buys goods or services from a business.
 Customer loyalty – when existing customers continually buy products from the same business.
 Customer relationships – communicating with customers to encourage them to become loyal to the business
and its products.
 Market share – the percentage of total market sales held by one brand or business.
 Consumer – they buy goods or services for personal use – not to re-sell (or use in production of other good
or service).
 Market – total number of customers and potential customers, as well as sellers, for that particular good or
service.
 Mass market – where there is a large number of sales of a product.
 Niche market – small, usually specialized, segment of a much larger market.
 Market segment – an identifiable sub-group of a whole market in which consumers have similar
characteristics or preferences.

Chapter 11

 Market research – the process of gathering, analyzing and interpreting information about a market.
 Product-oriented – business whose main aim is on the product itself.
 Market-oriented – business which carries out market research to find customer wants before a product is
developed and produced.

 Quantitative information – data which answers questions about the quantity of something.
 Qualitative information – data which answers questions where an opinion or judgement is necessary.

 Marketing budget – financial plan for the marketing of a product or product range for some specified period
of time.
 Primary research – collection and collation of original data via direct contact with potential or existing
customers; aka field research.
 Secondary research – uses information that has already been collected and is available for use by others; aka
desk research.
 Questionnaire – set of questions to be answered as a means of collecting data for market research.
 Online surveys – require target sample to answer a series of questions over the internet.
 Interviews - require target sample to answer a series of questions, often face-to-face or over the phone.
 Focus group – a group of people who are representative of the target market.
 Sample – group of people who are selected to respond to a market research exercise, such as a
questionnaire.
 Random sample – when people are selected at random as a source of information for market research.
 Quota sample – when people are selected on the basis of certain characteristics as a source of information
for market research; such as age, income or gender.
Chapter 12

 Marketing mix – term used to describe all the activities which go into marketing a product or service; 4 Ps of
marketing.
 USP – this is the special feature of a product that differentiates it from the products of competitors.
 Brand name – unique name of a product that distinguishes it from other brands.
 Brand loyalty – when consumers keep buying the same brand again and again instead of choosing a
competitor’s brand.
 Brand image – identity given to a product which gives it a personality of its own and distinguishes it from its
competitors’ brands.
 Packaging – the physical container or wrapping for a product; also used for promotion and appeal.

Stages of product life cycle:

 Development – market research; prototype; no sales.
 Introduction/Launch – sales grow slowly; lack of awareness; informative advertising; can use price skimming;
no profits.
 Growth – sales grow faster; persuasive advertising; competitive pricing; start making profits.
 Maturity – sales increase only slowly; lot of advertising; competitive or promotional pricing; profits at
highest.
 Saturation – sales at highest; competitive pricing; high and stable advertising; profits fall.
 Decline – lost appeal so falling sales; very low and promotional pricing; reduced and stopped advertising;
unprofitable

 Product life cycle – describes the stages a product will pass through from its introduction, through its growth
until it is mature, and then finally its decline.
 Extension strategy – a way of keeping the product at the maturity stage of the life cycl and extending the
cycle.

Chapter 13

 Cost-plus pricing – the cost of manufacturing the product plus a profit mark-up.
 Competitive pricing – when the product is priced in line with or just below competitor’s prices to try to
capture more of the market.
 Penetration pricing – when the price is set lower than the competitor’s prices in order to be able to enter a
new market.
 Price skimming – where a high price is set for a new product on the market.
 Promotional pricing – when a product is sold at a very low price for a short period of time.
 Dynamic pricing – when businesses change product prices, usually when selling online, depending on the
level of demand.
 Price elastic demand – where consumers are very sensitive to changes in price.
 Price inelastic demand – where consumers are not sensitive to changes in price.

Chapter 14

 Distribution channel – the means by which a product is passed from the place of production to the customer.
 Agent – an independent person or business that is appointed to deal with the sales and distribution of a
product or range of products.

Chapter 15
  Promotion – is where marketing activities aim to raise customer awareness of a product or brand, generating
sales and helping to create brand loyalty.
 Advertisements – aka above-the-line promotion; paid for communication with potential customers about a
product to encourage them to buy it.
 Informative advertising – is where the emphasis of advertising or sales promotion is to give full information
about the product.
 Persuasive advertising – advertising or promotion which is trying to persuade the consumer that they really
need the product and should buy it.
 Target audience – refers to the people who are potential buyers of a product or service.
 Marketing budget – it is a financial plan for the marketing of a product or a product range for a specified
period of time.

Chapter 16

 Social media marketing – internet marketing that involves creating and sharing content on social media
networks to achieve marketing and branding goals; includes posting text or image updates, videos to engage
audience, as well as paid social media advertising.
 Viral marketing – when consumers are encouraged to share information online about the products of a
business.
 E-commerce – the online buying and selling of goods and services using computer systems linked to the
internet and apps on mobile phones.
 Dynamic pricing - when businesses change product prices, usually when selling online, depending on the
level of demand.

Chapter 17

 Marketing strategy – a plan to combine the right combination of the four elements of the marketing mix for
a product or service to achieve a particular marketing objective(s).

Section 4

Chapter 18

 Productivity – the output measured against the inputs used to create it.
 Buffer inventory level – level of inventory held to deal with uncertainty in customer demand and delivery of
supplies.
 Lean production – techniques used by businesses to cut down on waste and therefore increase efficiency, by
reducing the time it takes for a product to be developed and become available for sale.
(Essentially, Lean production tries to reduce all things which don’t add value to the product)

There are 7 types of waste that can occur in production that lean production aims to reduce:

1. Overproduction : producing goods before they are ordered; storage costs, product damage
2. Waiting: goods are not moving or being processed
3. Transportation: moving goods unnecessarily; may cause damage; no value added
4. Unnecessary inventory – takes up extra space, gets in way of production, costs money.
5. Motion – any unnecessary actions that waste time; may also be health and safety risk
6. Over-processing – if complex machinery is being used to perform simple tasks
7. Defects – require goods to be fixed; also time wasted on inspection

(Benefits of lean production: lower costs(less storage costs, cut out waste production processes); improved health
and safety; better cash flow (less money tied up in inventories))
  Kaizen – Japanese term meaning ‘continuous improvement’ through elimination of waste.
 Just-in-time inventory control – a production method that involves reducing or virtually eliminating the need
to hold inventories of raw materials or unsold inventories of the finished product.
 Cell production – production line divided into separate, self-contained units, each working on an identifiable
part of the finished product.
 Job production –

Section 5

Chapter 22

 Start-up capital – is the finance needed by a new business to pay for essential non-current (fixed) and
current assets before it can begin trading.
 Working capital – the finance needed by a business to pay its day-to-day costs.
 Capital expenditure – money spent on non-current (fixed) assets which will last more than one year.
 Revenue expenditure – money spent on day-to-day expenses which do not involve the purchase of a long-
term asset.
 Internal finance – finance obtained from within the business itself.
 External finance – finance obtained from sources outside of and separate from the business.
 Microfinance – providing financial services – including small loans – to poor people not served by traditional
banks.
 Crowdfunding – funding a project or venture by raising money from a large number of people who each
contribute a relatively small amount, typically via the internet.

Chapter 23

 Cash flow – cash inflows and outflows over a period of time.

 Cash inflows – the sums of money received by a business during a period of time.
 Cash outflows – the sums of money paid out by a business during a period of time.
 Cash flow cycle – the stages between paying out cash for labor, materials, and so on, and receiving cash from
the sale of goods.
 Profit – the surplus after total costs have been subtracted from revenue.
 A cash flow forecast – an estimate of future cash inflows and cash outflows of a business, usually on a
month-by-month basis. This then shows the expected cash balance at the end of each month.
 Net cash flow – the difference, each month, between inflows and outflows.
 Closing cash (/bank) balance – the amount of cash held by the business at the end of each month. This
becomes next month’s opening cash balance.
 Opening cash (/bank) balance – the amount of cash held by the business at the start of the month.
 Working capital – the capital available to a business in the short term to pay for day-to-day expenses.
 Accounts – they are the financial record of a firm’s transactions.
 Accountants – professionally qualified people who have responsibility for keeping accurate accounts and for
producing the final accounts.
 Final accounts – they are produced at the end of the financial year and give details of the profit or loss made
over and the worth of the business.
 Income statement – a financial statement that records the income of a business and all costs incurred to
earn that income over a period of time. It is also known as profit and loss account.
 Revenue – the income to a business during a period of time from the sale of goods or services.
 Cost of sales – the cost of producing or buying in the goods actually sold by the business during a time
period.
 Gross profit – this is the profit made when revenue is greater than the cost of sales.
  Trading account – this shows how gross profit of a business is calculated.
 Net profit – this is the profit made by a business after all costs have been deducted from revenue. It is
calculated by subtracting overhead costs from gross profit.
 Depreciation is the fall in value of a fixed asset over time.
 Retained profit – the net profit reinvested back into a company, after deducting tax and payments to
owners, such as dividends.

Chapter 25

 Statement of financial position – this shows the value of a business’s assets and liabilities at a particular time
 Assets – those items of value which are owned by a business. They may be non-current (fixed) or current.
 Liabilities – debts owned by the business. They may be non-current (fixed) or current.
 Non-current assets – items owned by the business for more than one year
 Current assets – items owned by a business and used within a year
 Non-current liabilities – long-term debts owed by the business, repaid over more than one year
 Current liabilities – short-term debts owed by the business, repaid in less than one year

Chapter 26

 Capital employed – shareholders’ equity plus non-current liabilities and is the total long-term permanent
capital invested in a business
 Liquidity – the ability of a business to pay back its short-term debts
 Profitability – measurement of the profit made relative to either the value of sales achieved or the capital
invested in the business
 Illiquid – means that assets are not easily convertible into cash

Finance Specific notes:

 Financial Documents:
- Cash flow (forecast)
- Income statement or Profit-and-Loss Account
o Deducts depreciation
o Trading account: revenue, cost of sales, gross profit
- Statement of financial position or Balance Sheet
o Assets
o Liabilities
 Tidbits:
- expanding too quickly and keeping a high inventory level means that cash is used to pay for high
inventory levels - this is called "overtrading"
- Cost of goods sold is the variable costs incurred only for the units sold by the business (and not the
unsold units), it doesn't consider fixed costs.
- labour costs and production costs incurred in manufacturing businesses is included in cost of goods sold,
and not in retailing businesses
- Capital employed is total long-term and permanent capital of the business which has been used to pay
for the assets of the business
 Formulas:
- Gearing = non-current liabilities / capital employed (x100) OR debt/equity (x100)
- Net Cash flow = cash inflows - cash outflows
- Profit = total revenue - total costs
- Working capital = current assets - current liabilities
- Gross profit = revenue - cost of goods sold
- Net Profit = Gross profit - Expenses
- Shareholder's Fund = Total Assets - Total Liabilities
 - Capital employed = Shareholder's Fund + Non-current liabilities
 Ratios:
- Profitability ratios:
o ROCE = Net profit / Capital employed (x100)
o GPM = Gross Profit / Revenue (x100)
o NPM = Net Profit / Revenue (x100)
- Liquidity ratios:
o Current ratio = Current assets / Current liabilities (x100)
o Acid Test Ratio = (Current assets - Inventories) / Current liabilities (x100)
 Break-even level of output = Total fixed costs / Contribution or Total fixed costs / (Price - variable Cost)

Section 6
Chapter 27
 Gross Domestic Product (GDP) – the total value of output of goods and services in a country in one year.
 Recession – when there is a period of falling GDP
 Inflation – the increase in the average price level of goods and services over time.
 Unemployment – exists when people who are willing and able to work cannot find a job.
 Economic growth – is when a country’s GDP increases – more goods and services are produced than in the
previous year.
 Balance of payments – records the difference between a country’s exports and imports.
 Real income – is the value of the income, and it falls when prices rise faster than money income.
 Exports – are goods and services sold from one country to other countries.
 Imports – are goods and services bought-in by one country from other countries.
 Exchange rate – is the price of one currency in terms of another.
 Exchange rate depreciation – is the fall in the value of a currency compared with other currencies.
 Exchange rate appreciation – the rise in value of a currency compared with other currencies.
 Direct taxes – are paid directly from incomes.
 Indirect taxes – are added to the prices of goods and taxpayers pay the tax as they purchase the goods.
 Disposable income – the level of income a taxpayer has after paying income tax.
 Import tariff – a tax on an imported product.
 Import quota – physical limit on the quantity of a product that can be imported.
 Fiscal policy – is any change by the government in tax rates or public sector spending.
 Monetary policy – change in interest rates by the government or central bank.
 Supply-side policies – try to increase the competitiveness of a industries in an economy against those from
other countries. Policies to make the economy more efficient.
Chapter 28
 Social responsibility – when a business decision benefits stakeholders other than shareholders.
 Environment – out natural world including, for example, pure air, clean water and undeveloped countryside.
 Global warming – is a gradual increase in the overall temperature of the Earth’s atmosphere, generally
thought to be caused by increased levels of carbon dioxide, CFCs, and other pollutants in the atmosphere.
 Pressure group – groups of people who act together to try to force businesses or governments to adopt
certain policies.
 Private costs – of an activity are the costs paid for by a business or the consumer of the product.
 Private benefits – on an activity are the gains to a business or the consumer of the product.
 External costs – are costs paid for by the rest of the society, other than the business, as a result of business
activity.
 External benefits – are the gains to the rest of the society, other than the business, as a result of business
activity.
 Social costs = External costs + Private costs
 Social benefits = External benefits + Private benefits
 Sustainable development – development which does not put at risk the living standards of future
generations.
 Consumer boycott – is when consumers decide not to buy products from businesses that do not act in a
socially responsible way.
 Ethical decision – are based on a ‘moral code’, sometimes referred to as ‘doing the right thing’.
Chapter 29
 Globalisation – term now widely used to describe increases in worldwide trade and movement of people and
capital between countries.
 Free trade agreements – exists when countries agree to trade imports/exports with no barriers such as
tariffs and quotas.
 Import tariff – tax placed on imported goods when they arrive into the country
 Import quote – restriction on the quantity of a product that can be imported.
 Protectionism – is when governments protect domestic businesses from foreign competition using tariffs
and quotas.
 Multinational businesses or transnational businesses – are those with factories, production or service
operations in more than one country.