Business Acumen Flashcards
Return on Investment (ROI)
measures how beneficial a new tool or practice has been compared to its initial investment;
net return on investment/cost of investment x 100 percent
used to determine effectiveness of training programs, recently implemented software, or supplementation to the workforce;
important to consider all associated costs
Return on Equity (ROE)
amount of money made compared to the average investment of each shareholder;
a for-profit org’s ROE is an indication of overall performance
Balance Sheets
conveys financial position and reports a company’s assets, liabilities, and equity over a specified period of time
Assets, Liabilities, and Equity
asset: any resource possessed by company as a result of previous actions and from which future gains are expected
liability: a current obligation as a result of previous actions expected to result in an outflow of resources
equity: assets - liabilities
Budget
involves collecting relevant or historical data and often stems from organizational vision and strategic plan
fixed costs, variable costs, and revenue estimates can be developed to establish budget
How should budget performance be monitored?
Monthly, quarterly, and annual basis
Some potential factors to consider when constructing HR budget:
number of employees, benefit cost projections, training needs, anticipated legal expenses
Methods for creating budgets (two of them)
bottom-up: department supervisors forecast departmental expenses and payroll costs for the coming period
top-down: estimating expenses and payroll costs for an entire organization and then allocating set amount to each department
Cash flow
amount of money made compared to amount of money spent during a given period;
combination of inflow (profits, credits, and loans) and outflow (expenses, purchases, or payments)
Cash flow statement
used to monitor business performance
profit is key; org can sustain itself with additional funds or reserved savings, but not for long
Profit and Loss Statement
reports a company’s income, expenses, and profits over a specified period of time
Income or Profits
increase from inflows, expansion of assets, or reducing liabilities which results in an increase of equity
Expenses
decreases from outflows, depletion of assets, or undertaking of liabilities which results in a decrease in equity
Business Case
document produced to explore solutions to a business problem which facilities decision-making for scenarios such as large purchases, choosing vendors, or implementing new initiatives
Elements of Business Case
problem statement: identifies the problem
background: helps readers understand the causes of the issue
objectives: lists how solving the issue will help the business
current status: describes how current solution will affect operations
requirements: defines the resources that the project will need to be successful (i.e., capital, staffing, time commitment).
alternatives: compares and contrasts several alternatives to the proposed solution
additional considerations: accounts for potential risks and anything else that may be affected by the project
action plan: describes specific steps that will be taken both in short-term and long-term
executive summary: high-level, one-page document showing how the information gathered culminates into a business solution
