Chapter 4 Flashcards
Effectiveness
Is the degree to which a business has achieved its objectives
Efficiency
Refers to ‘how well’ a business uses resources to achieve objectives
Performance indicators
Are measurable statements which businesses use to evaluate performance
Financial indicators
Are found in the accounting records and are expressed in dollar terms
Non-financial indicators
Are commonly expressed in real terms and often make use of qualitative data
Financial statements
Summarise the activities of a business over a period of time
Net profit
Is the difference between revenue earned from the operations of the business and any expenses incurred in earning that revenue
Expenses
Are what it has cost the business to provide its services or sell its products
Revenue
Is what the business receives in the normal course of trading or operating, including sales, fees, interest, dividends, royalties and rent
Profitability
Measures the earning performance of the business and indicates the business’s ability to maximise profit
Cost of goods sold
The cost of good sold includes the cost of materials used to produce the goods and any direct labour costs involved in producing the goods. If does not include indirect costs such as sales staff wages or distributions costs
Balance sheets
Shows a business’s assets and liabilities at a point in time using the heading ‘as at’ to pinpoint when it was created
Assets
Are items of value owned or controlled by the business and that can be given a monetary value
Liabilities
Are items of debt that the business owes
Owners equity
Refers to money given to the business by the owner for the purchase of resources and for undertaking operations. An owner’s equity in a successful business will increase in value over time
Liquidity
Is the extent to which the business can meet its financial commitments in the short term (less than 12 months)
Credit term
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
Is the extent to which the business can meet its financial commitments in the longer term (more than 12 months)
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 profits
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
Is the degree to which the business’s perceived performance meets a customer’s expectations
Benchmarking
Compares the strengths and weaknesses of a business against those of other successful businesses, with the aim of reforming those processes that are not achieving the business’s objectives
