ICAB CL Business & Finance key terms

The value of the best alternative given up when a resource is committed to one use rather than another. It underpins decisions about pricing, production and investment.

A measure of how strongly the quantity demanded responds to a change in price, calculated as the percentage change in quantity divided by the percentage change in price.

The additional cost incurred by producing one more unit of output. Comparing it with marginal revenue shows the output level at which profit is greatest.

The features of a market that shape how firms compete, including the number of sellers, product differentiation, barriers to entry and the availability of information.

Charging different customers different prices for essentially the same product for reasons unrelated to differences in cost, typically where markets can be separated and resale prevented.

A business owned and run by one individual with no separate legal personality, so the owner is personally liable for all business debts and obligations.

A business formed by two or more people who share ownership, profits and decision-making under an agreed arrangement, usually with personal liability for partnership debts unless a limited liability form is used.

A legal protection meaning owners can lose only the capital they have invested, not their personal assets, because the business is a separate legal person.

A position in which the owner is personally responsible for all business debts, so personal assets may be used to settle claims if the business cannot pay.

The systems, rules and processes by which a company is directed and controlled, including the division of responsibilities among shareholders, directors and auditors.

A conflict of interest arising when managers acting for owners pursue their own goals rather than the owners' interests, addressed through incentives, monitoring and disclosure.

Any individual or group affected by or able to affect an organisation's decisions, such as employees, customers, suppliers, lenders, communities and shareholders.

A structured scan of the political, economic, social, technological, legal and environmental forces surrounding a business, used to identify opportunities and threats in its environment.

A summary of an organisation's internal strengths and weaknesses alongside external opportunities and threats, often used to connect internal capability with environmental conditions.

A capability that is difficult for rivals to copy, contributes significantly to customer value and can be applied across several products or markets.

The sequence of activities through which a business creates and delivers a product, from inbound inputs to after-sales support, each activity being a potential source of cost or differentiation advantage.

Contracting an activity previously performed internally to an external provider, usually to reduce cost, gain specialist skills or increase flexibility, while accepting loss of direct control.

Coordinating the flow of materials, information and payments from suppliers through production to final customers so that cost, quality and delivery promises are balanced.

Calculating the sales volume or revenue at which total contribution exactly covers fixed costs, so the business makes neither profit nor loss.

Sales revenue minus variable costs. It measures how much each sale adds towards covering fixed costs and then generating profit.

The funds tied up in day-to-day operations, commonly measured as current assets less current liabilities, and needed to pay for stock, wages and other short-term obligations.

The period between paying suppliers for inputs and collecting cash from customers, calculated by adding inventory and receivable days and subtracting payable days.

A projection of expected cash receipts and payments over future periods, used to anticipate funding gaps and plan borrowing or surplus investment.

The ability of a business or asset to meet short-term obligations or be converted into cash quickly without significant loss of value.

The sum of a project's future cash flows discounted to present value at a required rate of return, less the initial investment. A positive result suggests the project adds value.

The time taken for cumulative cash inflows from a project to equal the original investment, a simple measure of risk and liquidity recovery.

The rate used to convert future cash flows into present value, reflecting the time value of money and the risk of the cash flows concerned.

The weighted average return a company must offer to its lenders and shareholders to attract funds, used as the minimum hurdle rate for investment appraisal.

The proportion of a company's capital that is financed by debt rather than equity, indicating financial risk because interest and repayment obligations are fixed.

Profits kept in the business rather than distributed to owners, forming an internal source of finance that avoids issue costs and does not dilute existing ownership.

Money raised by issuing shares or admitting new owners, which brings permanent capital without compulsory repayment but dilutes control and claims on profit.

The part of the capital market where newly issued securities are sold by companies or governments to investors, raising fresh funds for the issuer.

A market where existing securities are traded between investors, providing liquidity and price discovery but raising no new money for the issuing company.

A national monetary authority that issues currency, sets or influences interest rates, supervises parts of the financial system and acts as lender of last resort.

A future, incremental cash cost that differs between alternatives and should therefore influence a decision; past costs and apportioned overheads are usually excluded.

A business's voluntary commitment to act in ways that consider social, environmental and ethical impacts on stakeholders, beyond minimum legal requirements.

The policies and procedures a business uses to safeguard assets, keep records accurate and ensure compliance with laws and management instructions.

The process of identifying, assessing and responding to uncertainties that could affect objectives, through avoidance, reduction, transfer or acceptance of risk.