'Chap 4' - Small Business Evaluation Flashcards
Evaluation
Evaluation is the process of assessing whether the business has achieved stated objectives.
Effectiveness
Effectiveness is the degree to which a business has achieved its objectives.
Efficiency
Efficiency refers to ‘how well’ a business uses resources to achieve objectives.
Performance Indicators
Performance Indicators are measurable statements which businesses use to evaluate performance.
Financial Indicators
Financial Indicators are found in the accounting records and are expresses in dollar terms.
Non-Financial Indicators
Non-Financial Indicators are commonly expressed in real terns and often make use of qualitative data.
Financial Statements
Financial statements summarise the activities of a business over a period of time.
Net Profit
Net profit is the difference between revenue earned from the operations the business and any expenses incurred in earning that revenue.
Expenses
Expenses are what it has cost the business to provide its services or sell its products.
Revenue
Revenue is what the business received in the normal course of trading or operating, including sales, fees, interest, dividends, royalties and rent.
Profitability
Profitability measures the earning performance of the business and indicates the business’s ability to maximise profits.
Cost of Goods sold
The cost of goods sold includes the cost of materials used to produce the goods and any direct labour costs involved in producing the goods. It does not include indirect costs such as sales staff wages or distribution costs.
Balance Sheet
A balance sheet shows a business’s assets and liabilities at a point in time using the heading ‘as at’ to pinpoint when it was created/
Assets
Assets are items of value owned or controlled by the business and that can be given a monetary value.
Liabilities
Liabilities are items of debt that the business owes.
Owner’s equity
Owner’s equity refers to money given to the business by the owner for the purchase or resources and for undertaking operations. An owner’s equity in a successful business will increase in value over time.
Liquidity
Liquidity is the extent to which the business can meet its financial commitments in the short term (less then 12 months).
Credit Terms
Credit terms in business are the terms and conditions of sale between a customer and a business, including the amount of time provided for making final payment.
Solvency
Solvency is then extent to which he business can meet its financial commitments in the longer term (more than 12 months).
Gearing
Gearing measures the percentage of the assets of the business which are funded by external sources.
Gross Profit Margin
The gross profit margin shows the amount of revenue that results in gross profit.
Net Profit Margin
The net profit margin shows the amount of revenue that results in net profit
Working Capital Ratio
The working capital ratio measures the level of current assets available to meet a business’s current liabilities - that is, the ability of the business to meet its short-term debts.
Customer Satisfaction
Customer satisfaction is the degree to which the business’s perceived performance meets a customer’s expectations.
