A21 Flashcards
Mission Statement
A brief statement which describes the overall purpose of an
organisation and defines its existing scope and boundaries so
that it can remain focused. A mission statement answers the
question, “Why do we exist?”
Corporate Strategy
An overall plan with clearly defined objectives that provides a
clear sense of direction and assists decision making within an
organisation.
Strategic objectives
These are objectives set for the whole organisation by senior
management. They will have long-term implications and involve
major uses of resources.
Functional objectives
These are objectives designed to improve the efficiency of
business operations in areas such as production, marketing and
sales, human resources, finance, and research and development.
They can only be effective if there is co-operation between the
business functions.
SMART objectives
Objectives set by the businesses which are specific, measurable,
attainable, realistic and time-based. This will allow for
monitoring and evaluation of performance by management.
Stakeholders
Individuals or groups who have a genuine interest in a particular
business and will be affected by or can affect the activities
undertaken by that business. Stakeholders can be internal or
external to the business.
Stakeholder Objectives
These are the goals of people who have an interest in the
business.
Stakeholder Conflict
This can occur in business when stakeholder objectives are
different.
Profit Maximisation
Producing at a level of output which generates the most profit
for a business.
Profit satisfaction
Generating sufficient profit to satisfy owners and relevant
stakeholders such as management.
Growth
An objective chosen to allow the firm to become competitive, to
dominate the market, to diversify and reduce risks.
Survival
A possible objective for a business during early stages of
trading, during a recession or in response to a threat from a
takeover.
Corporate Image
An objective chosen to enhance the reputation of the business
in relation to ethics and social responsibility. It is the mental
picture that springs up at the mention of a firm’s name.
Environment
An objective chosen when the firm is pursuing policies to
reduce the negative impact of its activities on the environment.
Business Plan
A set of documents prepared by a firm’s management to
summarize its operational and financial objectives for the near
future and to show how they will be achieved.
SWOT
An analysis of internal strengths and weaknesses and the
external threats and opportunities facing a business.
PESTLE
An analysis of the political, economic, social, technological,
environmental and legislative impacts affecting a business.
Ansoff’s Matrix
A decision making model used by marketing managers to help
them adapt to changing situations and developing new strategies
for growth that consider new and existing products and new and
existing markets.
Boston Matrix
A decision making tool used by a business that has to manage a
product portfolio. It examines its products in relation to market
share and market growth.
Decision Tree
A Decision Tree is a graphical presentation of a decision-making
process within a business which aims to highlight the most cost-
effective decision.
Square
Squares represent points at which management decisions have to
be made. They are referred to as decision nodes.
Branches
Branches show the different alternatives.
Circles
Circles represent points at which one of a number of outcomes
may occur. These are referred to as chance nodes.
Probability
The branches coming from the circle show the likelihood of
the occurrence e.g. 0.6 shows there is a 60% chance of an occurrence happening.
Returns
The expected values/outcomes of each 60% chance of an
alternative.
Contingency Plan
A contingency plan of a business is designed to cope with any
problems that may arise from a crisis relating to finance, human
resources, corporate image, product or legal.
Income Statement
Summarises income/expenses and details the profit/losses made
by the business in the accounting period.
Sales Revenue
Income earned in the accounting period from trading activities
Opening Inventories
Inventories that the organisation has at the start of the trading
period, carried over from the previous trading period.
Purchases
Additional inventories bought by the business for re-sale.
Closing Inventories
The amount of unsold inventories left at the end of the trading
period.
Cost Of Sales
Opening Inventories + Purchases – Closing Inventories.
Gross Profit
Sales Revenue – Cost of Sales.
Net Profit
Gross Profit – Expenses.
Statement Of Financial position
Details in summary format, the financial position of the
business.
Assets
Items of value held by a business which is likely to generate
future income.
Non-Current Assets
Assets that the business expects to retain ownership of, for a
period of at least one year e.g. plant and machinery. These assets
are held to help with the day to day running of the organisation.
They are not usually acquired for profitable resale purposes.
Current Assets
Assets that the business expects to turn into cash within one
year e.g. inventories/trade receivables/cash/bank.
Trade Receivables
Money that is owed from customers to the business arising from
goods sold on credit.
Non-Current liabilities
Debts that the business is required to meet in a future
accounting period i.e. beyond one year e.g. bank loan or
debenture.
Current Liabilities
Liabilities that the business expects to pay within a one-year
accounting period e.g. tax owed, proposed dividend/overdraft.
Trade Payables
Money that is owed from the business to a supplier who
provided goods/services on credit.
Equity
The value of funds within the business which can be attributed
to the owner/s.
Tangible Assets
These include property/ premises,
plant/machinery/equipment/vehicles: items that may be
physically viewed.
Intangible Assets
Intellectual rights/property/goodwill/programming
rights/music rights: items which are not physical in nature.
Disclosure
Groups of assets are presented within the Statement of Financial
Position according to the length of time a business expects to
retain ownership of the asset.
Dividend
A proportion of a company’s profits paid to the owners of
shares in a particular company.
Share Capital
Money introduced into the business through the sale of shares
Reserves
These are shareholder’s funds built up over the years, e.g. share
premiums, revaluations and retained profit.
Ratio Analysis
This is a numerical process of investigating accounts by
comparing two related figures.
ROCE
Return on Capital employed i.e. the profit of a business
expressed as a percentage of the total amount of money used to
generate it.
(Profit before tax + finance costs + preference dividends) x 100% = x%
(Total assets – current liabilities)
Gross Profit Margin
Gross profit is expressed as a percentage of sales revenue.
Gross Profit Sales Revenues
x 100% = x %
Net Profit Margin
Net profit before tax and interest is expressed as a percentage of
sales revenue.
Net Profit x 100% = x%
Sales Revenues
Current Ratio
This assesses the firm’s liquidity by dividing current liabilities
into current assets.
Current Assets = x:1
Current Liabilities
Acid Test Ration
This assesses the firm’s liquidity by removing closing inventories
from the equation.
(Current Assets – Closing Inventories) = x:1
Current Liabilities
Gearing
This examines the capital structure of the business and compares
the proportion of capital raised from a borrowed source and
equity.
Non-current liabilities (Debt Capital) x 100% = x%
(Equity Capital + Reserves + Debt Capital)
Earnings per share
This refers to the amount each ordinary share earns.
Profit for the year = x pence
Number of Ordinary Shares in Issue
Return On Equity
This measures the return on shareholder’s investment by
expressing the profit earned by ordinary shares as a percentage
of total equity.
Net Profit for the year – preference dividend x 100% = x %
Ordinary Share Capital + Reserves
Investment Appraisal
The evaluation of an investment project to determine whether or
not it is likely to be worthwhile.
Payback
A method of investment appraisal that shows the amount of
time it takes to recover the cost of an investment project.
ARR
Average Rate of Return – a method of investment appraisal
which measures the net return per annum as a percentage of
initial spending.
DCF/NPV
Discounted Cash Flow/Net Present Value – is a method of
investment appraisal which calculates the present value of future
incomes from an investment project less the initial cost.
Macro-economics
The study of how the whole economy works.
Mixed Economy
An economic system that allows both the state and market
mechanism to allocate resources, e.g. the UK has a mixed
economy.
Business Cycle
A measure of the regular fluctuations in the level of economic
activity.
Boom
The stage when an economy is at the peak of activity.
Recession
Income and output begin to fall and business confidence is
reduced.
Slump
The lowest point in the trade cycle – production is low, businesses close and unemployment is high
Recovery
At this stage income will start to rise and business output will
increase, firms will invest more, consumers will start to increase
spending and businesses will start to recruit new workers.
Fiscal Policy
A policy designed to manage the level of aggregate demand in
the economy by changing the level of government spending or
taxation.
Direct Taxes
These are levied directly on individuals or businesses In the general sense, a direct tax is one paid directly to the government by the persons on whom it is imposed. Examples include
income taxes and corporate taxes.
Indirect Taxes
These are levied on spending on goods and services. E.g. VAT.
Monetary Policy
A policy designed to control the supply of money in the
economy.
Economic Growth
An indication of the change in output or income within the
economy.
Gross Domestic Product
Gross Domestic Product - a measure of economic activity but it
does not include net property income from abroad.
GNP
Gross National Product – a measure of the amount of income
generated as a result of a country’s economic activity.
Sustainable Growth
Growth which continues year on year.
Exchange Rate
The price of one currency in relation to another.
Unemployment
The number of people who are of working age but not in a job.
Seasonal Unemployment
Refers to people who work during a particular season e.g. the
Christmas period and then they are paid off once the season is
over.
Cyclical Unemployment
Refers to unemployment that fluctuates with the business cycle.
Frictional Unemployment
This is caused by people moving from one job to another.
Structural Unemployment
This is caused by changes in the structure of the economy e.g.
decline of heavy industries in N.I.
Inflation
A continuing tendency for prices to rise.
Cost-Push inflation
This inflation occurs when production costs rise and businesses
pass this onto consumers in the form of higher prices.
Demand Pull Inflation
This inflation occurs when there is excessive spending in the
economy.
Balance Of Payments
An accounting record of all monetary transactions between a
country and the rest of the world
Current Balance
The difference between the value of money entering and leaving a country as a result of trade in goods services and transfers.
Imports
Goods and services purchased from abroad for use in a
particular country.
Exports
Goods and services sold by a particular country to another
country.
Globalisation
Refers to the growing integration of the world’s economy.
Multi-Nationals
A company which owns or controls production or service
facilities outside the country in which it is based.
Trade Barriers
The use of controls to prevent free movement of goods between
countries.
Tariff
A tax levied upon imports.
Quota
A limit placed on the number of particular categories of goods allowed to enter countries.
Excise Duties
Taxes levied on fuel, alcohol, tobacco and betting.
SEM
Single European Market – an agreement by EU countries to
remove all trade barriers.
Euro Zone
Member countries of the EU who have adopted the Euro as
their currency.
Emerging Markets
Emerging markets are nations with social or business activity in
the process of rapid growth and industrialisation. E.g. India
Business Ethics
This is the influence of values and beliefs upon the conduct and
operation of business activities e.g. Fair Trade, Animal Welfare.
CSR
Corporate Social Responsibility. The willingness of a business to
accept responsibility for its actions and their impact on
stakeholders.
Social Audit
The process used by a business to assess the impact of its
activities on stakeholders.
Corporate Culture
The values, beliefs and norms that are shared by people and
groups in any organisation.
Organisational Culture
This is the way a business does things and the way that people in
the business expect things to be done. It shapes staff behaviour
and attitude and how they make decisions.
Power Culture
Refers to organisations where decision making is limited to
one/or a small number of people.
Role Culture
Refers to bureaucratic firms where authority is defined by job
title.
Person Culture
Refers to a loose organisation of individual workers e.g. professional partnerships such as accountants or solicitors.
Task Culture
This places an emphasis on tasks and getting things done.
Group Think
This occurs when a group makes faulty decisions because group
pressure leads to a deterioration of “mental efficiency, reality,
testing and moral judgement”.
External Environment
The factors outside a business that may influence its
decisions.
Pressure Groups
Groups of people without direct political power who seek to
influence decisions makers in business and society.
Demography
The study of population in relation to its size, structure and
distribution
Primary Sector
Businesses engaged in the extraction of raw materials from
land and sea.
Secondary Sector
Businesses engaged in manufacturing and construction who
transform raw materials into finished goods.
Tertiary Sector
Businesses engaged in the providing commercial and personal
services.
Waste Managements
The way in which businesses deal with the problems of waste
materials.
Organic Growth
Growth achieved through the expansion of current business
activity.
Merger
The joining together of two businesses.
Takeover/Acquisition
The purchase of one business by another.
Horizontal Integration
The merging of firms that are in the same line of business and
at the same stage
Backward Vertical Integration
Merging with a firm who is engaged in the previous stage of
production.
Forward Vertical
Integration
Merging with a firm who is engaged in the next stage of
production.
Lateral Integration
The merging of firms involved in the production of similar
goods but who are not in competition with each other.
Conglomerate/ Diversification Merger
The merging of firms involved in completely different
business activities.
Joint Venture
Two firms who share the cost, responsibility and profits of a
business activity.
Management/Employee
Buyout
The sale of a business to existing managing team/employees
