BUSS3 Definitions Flashcards
Business unit strategy
How a business attempts to compete successfully in a particular market.
Aims/Goals
General statements of what a business intends to achieve. Precise details of those intentions are set out in objectives.
Corporate objectives
Objectives that relate to the business as a whole. Usually set by top management.
Corporate strategy
Concerned with the overall purpose and scope of the business activities. Used to achieve corporate objectives.
Cost leadership
A business strategy concerned with aiming to be the lowest-cost producer in an industry. Usually requires exploitation of economies of scale.
Functional objectives
Set for each major business department and designed to ensure that the corporate objectives are met.
Mission statement
A written description of the overall objectives and purposes of the business.
Shareholder value
Where shareholders earn a return from their investment which is greater than their required rate of return.
SMART objectives
Objectives that are more likely to be achieved because they are specific, measurable, achievable, realistic, and timed.
Social responsibility
The way in which a business meets its responsibilities to society as a key external stakeholder.
SWOT analysis
Assessment of the internal strengths and weaknesses, and the external opportunities and threats that the business needs to consider.
Targets
Similar to objectives. Targets are often set at an individual or team level.
Acid test ratio
Compares current assets, excluding stock, to current liabilities. Shows how much of what a business owes in the short term is covered by assets.
Asset turnover
A ratio that compares the sales revenue a business makes to the value of its total assets.
Assets
Amounts owned by, or owed to a business.
Average rate of return
A measure of the total accounting return from an investment project.
Balance sheet
The financial statement that provides a snapshot of the assets and liabilities of a business at a particular date.
Capital expenditure
Expenditure on assets which are intended to be kept in the business rather than sold or turned into products.
Cash flow targets
Specific objectives set by a business for cash flow generated by a business.
Corporation tax
The tax levied on the profits of companies. The percentage varies depending on the size of the profits earned. Typically 20-30%.
Cost minimisation
A strategy of achieving the most cost-effective way of delivering goods and services to the required level of quality.
Creditor/Payable days
A ratio that estimates the average period (in days) taken to settle amounts owed by a business to suppliers.
Current ratio
Compares current assets, including stock, to current liabilities.
Debentures
A long-term source of finance that has fixed interest rates and payback days.
Receivable days
Compares the average amount owed to a business by its debtors to the value of the total sales that it gives buyers credit for.
Depreciation
An accounting estimate of the fall in value of a fixed asset over time.
Discount factor
The multiplication factor that converts a projected cost or benefit in a future year into its present value.
Dividend
Amounts paid to shareholders out of the profits earned by a company.
Dividend yield
A measure of shareholder return. Calculated by comparing the dividend per share by the share price.
Fixed assets
Assets such as property, equipment and vehicles that are intended to be retained and used in a business for more than one year.
Gearing
The gearing ratio measures the proportion of assets in a business that are financed by borrowing.
Going concern
A business that is viable and able to continue in business for the foreseeable future.
Goodwill
An intangible asset that can be included in a balance sheet, it is the difference between the net assets of a business acquired and the price paid for the business.
Income statement
A financial statement that summarises the trading results of a business over a specific period. Usually one year.
Investment appraisal
Analytical techniques to help management evaluate the returns from potential investments, and to help choose between competing investments.
Liabilities
Amounts owed by a business to others.
Liquidity
The ability of a business to finance required payments to creditors.
Net present value
The present value of a series of future net cash flows that will result from an investment, minus the amount of the original investment.
Operating profit
The profit earned by a business from its entire trading operations. Stated before financing and tax.
Overtrading
Where a business suffers financial difficulties from expanding too quickly. Usually suffering set-up losses and increased working capital.
Payback period
The time it takes for a project to repay its initial investment.
Profit centres
A separately identifiable part of a business for which it is possible to identify revenues and costs and calculate a relevant profit.
Profit quality
The sustainability of profit from one period to the next. Higher quality profit is profit that is likely to be repeated rather than affected by one-off items.
Profitability
The amount of profit earned in a period or rate of profit earned compared with revenue.
Provisions
Amounts set aside to cover future costs or liabilities.
Ratio analysis
Interpretation of financial performance by calculating and interpreting ratios.
Retained earnings
Profits earned by a business that are kept in the business rather than distributed as dividends.
Revenue expenditure
Spending on day-to-day operation of the business. For example paying for materials.