Chapter 4

Question 1

Effectiveness

Answer 1

Is the degree to which a business has achieved its objectives

Question 2

Efficiency

Answer 2

Refers to ‘how well’ a business uses resources to achieve objectives

Question 3

Performance indicators

Answer 3

Are measurable statements which businesses use to evaluate performance

Question 4

Financial indicators

Answer 4

Are found in the accounting records and are expressed in dollar terms

Question 5

Non-financial indicators

Answer 5

Are commonly expressed in real terms and often make use of qualitative data

Question 6

Financial statements

Answer 6

Summarise the activities of a business over a period of time

Question 7

Net profit

Answer 7

Is the difference between revenue earned from the operations of the business and any expenses incurred in earning that revenue

Question 8

Expenses

Answer 8

Are what it has cost the business to provide its services or sell its products

Question 9

Revenue

Answer 9

Is what the business receives in the normal course of trading or operating, including sales, fees, interest, dividends, royalties and rent

Question 10

Profitability

Answer 10

Measures the earning performance of the business and indicates the business’s ability to maximise profit

Question 11

Cost of goods sold

Answer 11

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

Question 12

Balance sheets

Answer 12

Shows a business’s assets and liabilities at a point in time using the heading ‘as at’ to pinpoint when it was created

Question 13

Assets

Answer 13

Are items of value owned or controlled by the business and that can be given a monetary value

Question 14

Liabilities

Answer 14

Are items of debt that the business owes

Question 15

Owners equity

Answer 15

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

Question 16

Liquidity

Answer 16

Is the extent to which the business can meet its financial commitments in the short term (less than 12 months)

Question 17

Credit term

Answer 17

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

Question 18

Solvency

Answer 18

Is the extent to which the business can meet its financial commitments in the longer term (more than 12 months)

Question 19

Gearing

Answer 19

Measures the percentage of the assets of the business which are funded by external sources

Question 20

Gross profit margin

Answer 20

The gross profit margin shows the amount of revenue that results in gross profits

Question 21

Net profit margin

Answer 21

The net profit margin shows the amount of revenue that results in net profit

Question 22

Working capital ratio

Answer 22

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

Question 23

Customer satisfaction

Answer 23

Is the degree to which the business’s perceived performance meets a customer’s expectations

Question 24

Benchmarking

Answer 24

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

Question 25

Market share

Answer 25

Is the share of the total market that a business has, expressed as a percentage

Question 26

Triple bottom line

Answer 26

Refers to the economic, environmental and social performance of a business

Question 27

Sustainability report

Answer 27

Publishes information about the financial, environmental and social performance of a business

Question 28

Evaluation

Answer 28

Is the process of assessing whether the business has achieved stated objectives