Business Equations and Definitions
Content
Unit 1 equations and definitions
Sales revenue: income generated by the sales of goods or services over a set period.
Variable costs: costs that change with output e.g. wages, raw materials.
Fixed costs: costs that do not change in direct proportion to output e.g. electricity and heating.
Total costs: all costs plus production.
Profit: money gained after subtracting all expenses.
Opportunity costs: the cost of an activity expressed in terms of the next best alternative e.g. putting
money into your business or the bank.
Capital expenditure: money used to purchase items that will be used frequently over a period of time.
Depreciation: loss in value of items over time e.g. cars
Break even level of output: the level of output or the number of customers that earns enough revenue to
cover total costs of production.
Added value: an increase in the attractiveness to customers of a product or a service achieved by adding
something to it
Break even output = Fixed costs
Contribution per unit
Contribution = selling price – variable costs
Total contribution = contribution per unit x no. of unit sold
Cash flow forecasts: are estimates of a firm’s future cash inflows and outflows
Margin of safety: is the amount by which the existing level of output is greater than the break even
point.
Loan: A loan is a sum of money lent for a fixed period of time, repaid over an agreed schedule.
Venture capitalists: (professional investors interested in high growth, high risk businesses, who will
invest an amount into a business in return for shares and an expectation for a high return.
Business angels: – a wealthy entrepreneur individual willing to invest in a small, high risk business who
expects a high return.
Market research: a range of research functions that link retailers to consumers by supplying essential
information to identify customer need, solve marketing problems and help with marketing decisions.
Primary market research: data collected by the entrepreneur, or paid to be collected, which does not
already exist.
Secondary market research (desk research): data already in existence that has not been collected
specifically for the purposes of the entrepreneur.
E-commerce: using the internet and associated technologies for trading purposes.
Sole trader: – is its owner and the business are one and the same.
Partnership – is a company owned by two or more people (up to 20 people).
A limited company – is a company whose owners only have to pay part of the
money they owe if the company falls financially.
Franchise: a franchise is only one of a number of types of business structure.
Patent: an exclusive right to use a process or produce a product, usually for a
fixed period of time, up to 20 years.
Trademark: a word, image, sound or smell that enables a business to differentiate
itself from its competitors.
Input: something that contributes to the production of a product or service.
Output: something that occurs as a result of the transformation of business inputs.
Primary industry: is the extraction of raw materials from natural resources e.g.
coal, farming and oil.
Secondary industry: is producing a finished product from or using raw materials
e.g. using cotton to make clothes.
Tertiary industry: is the transformation of resources to provide a service e.g.
shops, health services, education.
Quaternary industry: transformation of information e.g. research, IT, computers.
Random sample: one in which each potential member of a group has an equal
chance of being in the sample.
Quota sample: this is not random as not everyone has an equal chance of being in
it and the results cannot be used to predict the behaviour of everyone.
Stratified sample: popular with researchers as it has the benefits of being random
thus reducing bias and is not as expensive or as difficult as a full random sample.
Local markets: customers are only a short distance away.
National market: a geographically dispersed market where customers are spread
over a large area.
Electronic market: does not have a physical presence but exists in terms of a
virtual presence via the internet.
Market segmentation: the technique where the market is broken down into smaller
sections with similar characteristics.
Mass market: everybody!
Niche market: a small segment of a larger market
Market share: the proportion of a total market accounted for by one product or
company.
Market share calculation: business’ sales
Total sales
Market growth: the measurement of the change in market size, usually expressed
as a percentage of its original size.
Market growth calculation: how much the value has changed X 100
The original value
Market size: the measurement of the size of total sales for a whole market either
in terms of value of sales (currency) or the volume of sales (in units).
Stakeholder: an individual or group with an interest in a business.
Temporary employee: one who is employed for a fixed period or periods of time.
Consultants: businesses or individuals who provide professional advice or services
for a fee.
Sales revenue: income generated by the sales of goods or services over a set period.
Variable costs: costs that change with output e.g. wages, raw materials.
Fixed costs: costs that do not change in direct proportion to output e.g. electricity and heating.
Total costs: all costs plus production.
Profit: money gained after subtracting all expenses.
Opportunity costs: the cost of an activity expressed in terms of the next best alternative e.g. putting
money into your business or the bank.
Capital expenditure: money used to purchase items that will be used frequently over a period of time.
Depreciation: loss in value of items over time e.g. cars
Break even level of output: the level of output or the number of customers that earns enough revenue to
cover total costs of production.
Added value: an increase in the attractiveness to customers of a product or a service achieved by adding
something to it
Break even output = Fixed costs
Contribution per unit
Contribution = selling price – variable costs
Total contribution = contribution per unit x no. of unit sold
Cash flow forecasts: are estimates of a firm’s future cash inflows and outflows
Margin of safety: is the amount by which the existing level of output is greater than the break even
point.
Loan: A loan is a sum of money lent for a fixed period of time, repaid over an agreed schedule.
Venture capitalists: (professional investors interested in high growth, high risk businesses, who will
invest an amount into a business in return for shares and an expectation for a high return.
Business angels: – a wealthy entrepreneur individual willing to invest in a small, high risk business who
expects a high return.
Market research: a range of research functions that link retailers to consumers by supplying essential
information to identify customer need, solve marketing problems and help with marketing decisions.
Primary market research: data collected by the entrepreneur, or paid to be collected, which does not
already exist.
Secondary market research (desk research): data already in existence that has not been collected
specifically for the purposes of the entrepreneur.
E-commerce: using the internet and associated technologies for trading purposes.
Sole trader: – is its owner and the business are one and the same.
Partnership – is a company owned by two or more people (up to 20 people).
A limited company – is a company whose owners only have to pay part of the
money they owe if the company falls financially.
Franchise: a franchise is only one of a number of types of business structure.
Patent: an exclusive right to use a process or produce a product, usually for a
fixed period of time, up to 20 years.
Trademark: a word, image, sound or smell that enables a business to differentiate
itself from its competitors.
Input: something that contributes to the production of a product or service.
Output: something that occurs as a result of the transformation of business inputs.
Primary industry: is the extraction of raw materials from natural resources e.g.
coal, farming and oil.
Secondary industry: is producing a finished product from or using raw materials
e.g. using cotton to make clothes.
Tertiary industry: is the transformation of resources to provide a service e.g.
shops, health services, education.
Quaternary industry: transformation of information e.g. research, IT, computers.
Random sample: one in which each potential member of a group has an equal
chance of being in the sample.
Quota sample: this is not random as not everyone has an equal chance of being in
it and the results cannot be used to predict the behaviour of everyone.
Stratified sample: popular with researchers as it has the benefits of being random
thus reducing bias and is not as expensive or as difficult as a full random sample.
Local markets: customers are only a short distance away.
National market: a geographically dispersed market where customers are spread
over a large area.
Electronic market: does not have a physical presence but exists in terms of a
virtual presence via the internet.
Market segmentation: the technique where the market is broken down into smaller
sections with similar characteristics.
Mass market: everybody!
Niche market: a small segment of a larger market
Market share: the proportion of a total market accounted for by one product or
company.
Market share calculation: business’ sales
Total sales
Market growth: the measurement of the change in market size, usually expressed
as a percentage of its original size.
Market growth calculation: how much the value has changed X 100
The original value
Market size: the measurement of the size of total sales for a whole market either
in terms of value of sales (currency) or the volume of sales (in units).
Stakeholder: an individual or group with an interest in a business.
Temporary employee: one who is employed for a fixed period or periods of time.
Consultants: businesses or individuals who provide professional advice or services
for a fee.
