IGCSE Business Studies

Terms Glossary!

Dulwich College Suzhou - January 30, 2015

IGCSE BUSINESS STUDIES - GLOSSARY

Glossary: !
Economic Problems unlimited wants but limited resources to produce the goods and
services to satisfy those wants.!

Factors of Production are those resources needed to produce goods or services. These are
four factors of production and they are in limited supply.!

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Scarcity the lack of sufficient products to fulfill the total wants of the population.!
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Opportunity Costs is the next best alternative given up by choosing another item.!
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Division of Labour is when the production process is split up into different tasks and each
worker perform one of these tasks. It is also known as specialisation.!

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Business Objectives the aims or targets that a business works towards.!
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Value Added -the difference between the selling price of a product or service and the cost of
bought in materials and components.!

Stakeholders any person or group with a direct interest in the performance and activities of
a business.!

Primary sector an industry extracts and uses the natural resources of the earth.!
Secondary sector an industry manufactures goods using the war materials provided by the
primary sector.!

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Tertiary sector an industry provides services to consumers and the other sectors of industry.!
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De-industrialization it occurs when there is a decline in the importance of the
secondary,manufacturing sector of industry in a country.!

A free market economy No government control over factors of production. Also known as
Market economy.!

Monopoly is a business which controls all of the market for a product.!

A command economy it doesnt have a private sector as all resources are owned by the
state.!

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A mixed economy has both a private and public sectors.!
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IGCSE BUSINESS STUDIES - GLOSSARY

Capital the invested money.!

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Profit the surplus after total costs have been subtracted from sales revenue.!
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Internal growth- it occurs when a business expands its existing operations.!
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External growth when a business takes over or merges with another business,also known as
integration.!

Merger when the owners of two businesses agree to join their firms together to make one
business.!

Take over(Acquisition) when one business buys out the ownes of another business which
then becomes part of the predator buiness.!

Horizontal integration when one company merges with or takes over another one in the
same industry at same stage of production.!

Vertical integration when a company merges or takes over another one in the same industry
but at a different stage of production. It can be forward or backward.!

Conglomerate integration when a company merges with or takes over another one in the
different industry at a different stage of production. It is also known as Diversification.!

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Glossary 03 FORMS OF BUSINESS ORGANIZATION!
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*Sole Trader*: It is a business own and operated by one person, although they can employ
others, the owner is a sole proprietor.!

*Partnership*: Is a group or association of between 2 and 20 people who agrees to own and
run a business together.!

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*Partnership Deed Agreement*: Is a legal agreement between the business partners.!
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*Limited Liability Partnership* (LLP): It offers partners limited liability, but shares in such
business cant be bought or sold. This type of partnership is a separate legal entity which still
exists after a partner quits the business.!

*PTE Ltd (private limited): A company is an artificial person created by law having its own
perpetual succession and common seal.!

IGCSE BUSINESS STUDIES - GLOSSARY

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*Shareholders*: These are the owners of a limited company. They buy shares which represent
part ownership of a company. (Only friends and relatives are invited to buy the shares of a
private limited company). Also known as dividend.!

+Prospectus: It is a detailed doc issued by the directors of a company when they are
converting it to public limited company status. It is an invitation to the general public to buy
shares.!

*Co-operative*: Its a form of business which is run and controlled by the members of the
society. It is established for self help and generating revenue for the co-operative.!

*Close Co-operation*: Is a blend of partnership and private limited company. The maximum
numbers of members are 10 people, members are the shareholders, and however, he firm will
have a limited liability.!

*Franchisee*: Its lending the name of the business and its format to another business for
certain amount of royalty (rent).!

*Franchisor*: The business which borrows the name and the format of the business for the
royalty which it pays to the franchisee.!

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+Nationalized: Private company moves to the governments control.!
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*Public Corporations*: Business run and controlled by the government. Mostly nationalized
(industries are operated by the government).!

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Glossary 04 GOVERNMENT AND ECONOMIC INFLUENCES ON BUSINESS!
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Inflation: is 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 countrys Gross Domestic Product increases more goods and
services are produced than the previous year.!

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The Balance of Payments: records the difference between a countrys exports and imports.!
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Real Income: is the value of income and falls when prices rise faster than money income.!
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IGCSE BUSINESS STUDIES - GLOSSARY

Gross Domestic Product (GDP): is the total value of output of goods and services in a country
in one year.!

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Exports: are goods and services sold from one country to other countries.!
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Imports: Are goods and services bought in by one country from other countries.!
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The Exchange Rate: is the price of one currency in terms of another, for example!
USD $1 : SGD $ 1.38!

Exchange Rate Appreciation: is the rise in the value of a currency compared to other
currencies.!

Exchange Rate Depreciation: is the fall in the value of a currency compared with other
currencies.!

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Fiscal Policy: is any change by the government in tax rates or public sector spending.!
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Direct Taxes: are paid directly from incomes for example, income tax or profits tax.!
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Indirect Taxes: are added to the prices of goods and taxpayers pay the tax as they purchase
the goods for example, VAT.!

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Disposable Income: is the level of income a taxpayer has after paying income tax.!
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Import Tariff: is a tax on an imported product.!
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Import Quota: is a physical limit to the quantity of a product that can be imported.!
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Monetary Policy: is a change in interest rates by the government or central bank, e.g. the
European Central Bank.!

Supply Side Policies: are used by the government to improve the efficient supply of goods
and services in their country!

Ethical Decision: is a decision taken by a manager because of the moral code observed in that
firm. This can include improving working conditions for staff beyond legal requirements, or
not producing dangerous or polluting goods even if these activities are not illegal!

IGCSE BUSINESS STUDIES - GLOSSARY

Planning Permission: is given by a government body to allow a business to build a factory or

office in a particular location.!

A Development Area: is a region of a country where businesses will receive financial support
to establish there. High unemployment is often a problem in these areas.!

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Glossary 05 OTHER EXTERNAL INFLUENCES ON BUSINESS!
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Constraint: limits or controls the its actions or decisions on a business.!
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Social Responsibility: when a business takes decisions that may benefit stakeholders other
than shareholders, e.g. a decision to reduce pollution of the local environment by using the
latest and least dirty production equipment.!

Pressure Groups: are formed by people who share a common interest and who will take
action to try to change government policy or business decisions.!

Cost-Benefit Analysis- the valuation by a government agency of all external and private costs
and benefits resulting from a business decision.!

External Costs- are the costs paid by the rest of society, other than the business, as a result of a
business decision.!

External Benefits- are the gains to the rest of society , other than business, resulting from a
business decision.!

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Private Costs- the addition of the private and external costs of a business decision.!
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Social Benefit- the addition of the private and external benefits of a business decision.!
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Glossary 06 BUSINESS COSTS AND REVENUE!
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Fixed costs these are costs that do not vary as the level of production varies. These include
such things as rent, business rates and security costs. Many of the design costs will fall into
this category.!

Variable costs these are costs that do vary as output varies and so will include things like
raw materials, labour costs, energy costs and so on.!

IGCSE BUSINESS STUDIES - GLOSSARY

REVENUE: it is the income of a business during a period of time from the sale of goods or
services.!

DIRECT COST: They can be directly related to or identified with a particular product or
department.!

INDIRECT COST: They cant be directly related to a particular product. They are often
termed OVERHEADS or OVERHEAD COSTS.!

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AVERAGE COST: It is the total cost of production divided by total output.!
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MARGINAL COSTS: They are the extra costs a business will incur by producing one unit of
output.!

ECONOMIES OF SCALE: They are the factors that lead to a reduction in average costs as a
business increase in size.!

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Budgets: They are plans for the future containing numerical or financial targets.!
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Forecasts: they are predictions of the future, for example, likely future changes in the size of
the market.!

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TREND: it is an underlying movement of data over time.!
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LINE OF BEST FIT: It is drawn through a series of points. Which best shows the trend of that
data. It can be used to forecast results in the future.!

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BUDGETS: They are plans for the future containing numerical or financial targets.!
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GLOSSARY 07 BUSINESS ACCOUNTING!
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Accounts: The financial records of a firms transactions!
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Accountants: People who are professionally qualified to handle and keep accounts of a firm
accurately and up to date, along with producing the final financial accounts.!

Final accounts: They are produced at the end of the financial year of a company and give
details of the profit or loss made over the year and the worth of the business.!

Users of the final accounts of a business are. . .!

IGCSE BUSINESS STUDIES - GLOSSARY

Shareholders: They would want to see the value of the business, and if they are getting a
good offer for investing in the business.!
Creditors: These are other businesses, including banks, which have lent money to the
company; they would want to know the profit or loss made by the company, and would want
to know if the company can pay the, back or not.!

Government: The government and the tax offices would want to know how well or badly
the company is doing; if the company is in profit, then the government would want to
check on the profits tax being paid. !
Other Companies: They would want to know how well their competitors are doing, and
might be thinking about a merger or even a takeover.!

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Trading account: Shows the Gross Profit of a business and how it is calculated.!
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Cost of Goods Sold: This is the cost of producing or buying the goods actually sold by the
business.!

Sales Revenue: The income to a business during a period of time, by the sales of goods or
services.!

Gross Profit: The raw profit of a business; it is made when the sales revenue is higher than the
cost of goods sold.!

Gross Profit Formula:!

Gross Profit = Sales revenue Cost of goods sold!

Net Profit: The final profit made by a business. It is calculated by subtracting all overhead
costs from the gross profit.!

Profit and Loss Account: Shows how the Net profit and the Retained profit of a business are
calculated.!

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Depreciation: The fall in the value of a fixed asset over time.!
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Appropriation Account: That part of the profit and loss account which shows how the profit
after tax is distributed either as dividends or kept in the company as retained profits.!

Retained Profit: The profit reinvested into the company after tax and payments to owners is
deducted.!

IGCSE BUSINESS STUDIES - GLOSSARY

Retained Profit Formula:!

Retained Profit = (((Sales revenue Cost of Goods Sold) Expenses) (Tax + Dividends))!

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Balance Sheet: Shows the value of a businesss assets and liabilities at a particular time.!
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Assets: Items of value which the business owns. They can be Long term (fixed) or short term
(current)!
Liabilities: They are items owed by the business to others. They too can be long term (fixed)
or short term (current).!

Working Capital Formula:!

Working Capital = Current assets Current liabilities!

Net Assets Formula:!

Net Assets = Fixed Assets + Working Capital!

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Liquidity: The ability of a business to pay back its short-term debts.!
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Return on Capital Employed (R.O.C.E) Formula:!
R.O.C.E (%) = (Operating Profit / Capital Employed) x 100!

Gross Profit Margin (G.P.M) Formula:!

G.P.M (%) = (Gross Profit / Sales Turnover) x 100!

Net Profit Margin (N.P.M) Formula:!

N.P.M (%) = (Net Profit Before Tax / Sales Turnover) x 100!

Liquidity Ratios: They measure the ability of a business to pay back its short-term debts. Two
common ratios are the Current Ratio and the Acid test or Liquid Ratio.!

Current Ratio Formula:!

Current Ratio = Current Assets / Current Liabilities!

Acid Test Ratio Formula:!

Acid Test Ratio = (Current Assets Stocks) / Current Liabilities!
Disadvantages of Ratio Analysis:!
Based upon past results, and dont tell the future of the companys performance!
Accounting over the years might be affected by inflation, and comparisons between years
might be misleading!

IGCSE BUSINESS STUDIES - GLOSSARY

Different companies might use slightly different accounting methods, and the results
might differ, making the comparison harder.!

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Glossary 08 CASH FLOW PLANNING!
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cash flow The CASH FLOW of a business is the cash inflows and outflows over a period of
time.!

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Cash inflows are the sums of money received by a business during a period of time.!
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Cash outflows are the sums of money paid out by a business during a period of time.!
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Cash flow cycle shows the stages between paying out cash of labour, materials, etc. and
receiving cash from the sale of goods.!

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Profit is the surplus after total costs have been subtracted from sales revenue.!
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Cash flow forecast is an estimate of future cash inflows and outflows of a business, usually
on a month by month basis. This will then show the expected cash balance at the end of each
month.!

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Opening cash balance is the amount of cash held by the business at the start of the month.!
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Net cash flow is the difference, each month, between inflows and outflows.!
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Closing cash balance is the amount of cash held by the business at the end of each month.
This becomes next months opening cash balance.!

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Glossary 09 FINANCING BUSINESS ACTIVITY!
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Start-up Capital is the finance needed by a new business to pay for!

essential fixed and current assets before it can begin trading.!

Capital Expenditure is the money spent on fixed assets which will last for!
more than one year.!

Revenue Expenditure is the money spent on day-to-day expenses which do not!

involve the purchase of a long term asset, for example wages or rent.!

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IGCSE BUSINESS STUDIES - GLOSSARY

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Glossary 10 ORGANIZATIONAL STRUCTURE!

Organizational structure refers to the levels of management and division of responsibility

within an organization.!

Delegation means giving a subordinate the authority to perform particular tasks. It is very
important to remember that it is the authority to perform a task but in the end the
subordinate does not have the responsibility.!

Chain of command is the structure in an organization which allows instructions to be passed

down from the senior management to the lower part of management.!

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Span of control is the number of subordinates working directly under a manager.!
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Line manager have direct authority over subordinates in their department. They are able to
take decisions in their specific area.!

Staff manager are specialist advisers who provide support to line managers and to the Board
Of Directors.!

Decentralized management structure means that many decisions are not taken in the centre
of the organization but are delegated to the lower levels of management.!

Centralized management structure means that most decisions are taken at the centre, or the
higher levels of management.!

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GLOSSARY 11 MANAGING A BUSINESS!
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*Planning: A detailed proposal for doing something.!
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*Organizing: Arranged into a structured.!
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*Co-ordinating: Brining different elements of a complex activity together.!
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*Commanding: Authoritative order!
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*Strategic Decisions: A decision relating to a long term overall aim and/or interest.!
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*Tactical Decisions: A militaristic constituting action that is carefully planned.!
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IGCSE BUSINESS STUDIES - GLOSSARY

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*Operational Decisions: Ready for usage in functional matters.!

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*Human Resources: The people who actually work there.!
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*Marketing: A gathering of customers to be purchased!
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*Financing: The management of large amounts of money of companies.!
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*Production: the action of making something!
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*Subordinate: someone who is lesser ranked than the boss.!
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Glossary 12 COMMUNICATION IN BUSINESS!
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COMMUNICATION: it is the transferring of a MESSAGE from the sender to the receiver
who understands the message.!

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MESSAGE: it is the information/ instructions being passed by the sender to the receiver.!
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TRANSMITTER or SENDER: it is the person starting off the process by sending the message.!
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MEDIUM OF COMMUNICATION: it is the method used to send a message, e.g. a letter is a
method of written communication and a meeting is a method of verbal communication.!

FEEDBACK: it is the reply from the receiver which shows whether the message has arrived,
been understood, and if necessary, acted upon.!

INTERNAL COMMUNICATION: When messages are sent between people working in the
same organisation.!

EXTERNAL COMMUNICATION:When messages are sent between organisations or outside

individuals.!

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CHAPTER GLOSSARY 13 MOTIVATION AT WORK!
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Motivation: What urges an employee to work hard, effectively and efficiently for a company.!
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The Theory of Scientific Management: This was created by Frederick W. Taylor and said the
following about the way people work, and how they can get motivated:!

IGCSE BUSINESS STUDIES - GLOSSARY

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Man is a rational economic animal concerned with maximizing his economic gain!
People respond as individuals!
People can be treated in a standardized fashion like machines!

So effectively, Taylor said that a managers job is to tell employees what to do, and that the
main form of motivation is high wages linked to high output. He also said that a workers job
is to do what they are told and that they should get paid accordingly.!

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This theory worked, but it had some flaws:!
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It completely ignores the many differences between people, and there is no guarantee
that a best way will suit everyone!

While money is a good motivator for some people, it is not necessary for others. Taylor
overlooked the fact that some people work for other reasons that money.!

Maslows Hierarchy of Needs: It was created by Abraham Maslow, and was presented in the
form of a pyramid, with the more basic needs at the bottom:!

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However, there are a few flaws in Maslows Hierarchy too:!
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Individual behaviour seems to respond to several needs not just one.!
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The same need (e.g. Interaction at work) might cause quite different individuals.!
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There is a problem in deciding when level is actually satisfied.!
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The model often ignores the often-observed behaviour of individuals who tolerate lowpay for the promise of future benefits.!

There is little evidence to support the model, and some critics suggest that Maslows
model is only really relevant to understand the middle-class workers in the UK and the USA.!

The Hygiene and Maintenance Theory: Created by Frederick Herzberg, this theory suggests
different types of hygiene and maintenance factors, and different types of motivation for
those factors:!

IGCSE BUSINESS STUDIES - GLOSSARY

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Herzbergs theory emphasizes that the moment the motivation factors are taken off the
working environment, the productivity level drops.!

Theory X and Theory Y: This theory was created by Douglas Mcgregor, and said that there
are two types of people in the working environment:!

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Wage: It is payment for work, usually paid weekly!
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Time Wage: A type of wage payed according to the amount of time that the worker spends
doing the job!

Piece Wage: A type of wage payed according to the number of items that the worker
produces!

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Salary: Payment for work, usually payed monthly!
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Commission: This is payment relating to the number of sales made!
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Profit Sharing: This is a system whereby a proportion of the companys profits is paid out to
employees!

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Bonus: Is an additional amount of payment above basic pay as a reward for good work.!
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Performance-related Pay: Is pay which is related to the effectiveness of the employee!
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Appraisal: It is a method of assessing the effectiveness of an employee!
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Fringe Benefits: They are non-financial rewards given to employees!
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Job Satisfaction: It is the enjoyment derived from feeling that you have done a good job!
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Job Rotation: Involves rotating workers and making them do each specific task for only a
limited time before rotating jobs again.!

Job Enlargement: Is where extra tasks of a similar level of work are added to a workers job
description.!

Job Enrichment: It involves looking at jobs and adding tasks that require more skill and/or
responsibility!

IGCSE BUSINESS STUDIES - GLOSSARY

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Leadership Styles: They are the different ways of dealing with people in the workplace when
in position of authority; there are three main types of leaders: Autocratic, Democratic and
Laissez-faire.!

Autocratic Leadership: It is when the leader is the only person making decisions, and the
employees have to listen to the leader. It is a very strict type of leading style, and there is only
one-way communication, which is from the manager to the employees.!

Democratic Leadership: This style of leadership is more lenient and in this case, the manager
asks the employees about their opinions on a pending decision. There is two-way
communication, and it is from the manager to the employees, and vice versa.!

Laissez-faire Leadership: In this case, the manager is very laid-back about the decision
making, and leaves it in the hands of the employees. There is one-way communication,
however, there is not a strict atmosphere, and the workers are free to do as they feel right.!

Formal Groups in Business: It is a group designated to carry out specific tasks within a
business!

Informal Groups in Business: It is a group of people who form independently of any official
groups set up within the business and who have similar interests or something else in
common.!

IGCSE BUSINESS STUDIES - GLOSSARY

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