Chapter 4 Small Business - Evaluation

Question 1

Effectiveness

Answer 1

Effectiveness is the degree to which a business has achieved its objectives.

Question 2

Efficiency

Answer 2

Efficiency refers to ‘how well’ a business uses resources to achieve objectives.

Question 3

Performance indicators

Answer 3

They are measurable statements which businesses use to evaluate performance.

Question 4

Financial indicators

Answer 4

Financial indicators are found in the accounting records and are expressed in dollar terms.

Question 5

Non-financial indicators

Answer 5

Non-financial indicators are commonly expressed in real terms and often make use of qualitative data.

Question 6

Evaluation

Answer 6

Evaluation is the process of assessing whether the business has achieved stated objectives.

Question 7

Financial statements

Answer 7

Financial statements summarise the activities of a business over a period of time.

Question 8

Net profit

Answer 8

Net profit is the difference between revenue earned from the operations of the business and any expenses incurred in earning that revenue.

Question 9

Expenses

Answer 9

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

Question 10

Revenue

Answer 10

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

Question 11

Profitability

Answer 11

Profitability measures the earning performance of the business and indicates the business’s ability to maximise profits

Question 12

Cost of goods sold

Answer 12

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.

Question 13

Balance sheet

Answer 13

A balance sheet shows a business’s asset and liabilities at a point in time using the heading ‘as at’ to pinpoint when it was created.

Question 14

Assets

Answer 14

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

Question 15

Liabilities

Answer 15

Liabilities are items or debt that the business owes.

Question 16

Owner’s equity

Answer 16

Owner’s 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.

Question 17

Liquidity

Answer 17

Liquidity is the extent to which the business can meet it’s financial commitments in the short term(less than 12 months)

Question 18

Credit terms

Answer 18

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 19

Solvency

Answer 19

Solvency is the extent to which the business can meet its financial commitments in the longer term.

Question 20

Gross profit margin

Answer 20

Gross profit margin shows the amount of revenue that results in gross profit.

Question 21

Net profit margin

Answer 21

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

Question 22

Working capital ratio

Answer 22

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

Customer satisfaction is the degree to which the business’s perceived performance meets a customer’s expectations

Question 24

Benchmarking

Answer 24

Benchmarking compares the strengths and weakness 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

Market share is the share of the total market that a business has, expressed as a percentage.

Question 26

Triple bottom line

Answer 26

Triple bottom line refers to the economic, environmental and social performance of a business.

Question 27

Sustainability report

Answer 27

A Sustainability report publishes information about the financial, environmental and social performance of a business.

Question 28

Human resource management

Answer 28

Human resource management is defined as the effective management of the formal relationship between the employer and employees, and involves the recruitment, selection, training, development, appraisal and dismissal of staff.

Question 29

Employment cycle

Answer 29

The employment cycle covers all stages in the process of employing staff, from initial planning through recruitment, selection, induction, performance management, and eventual termination of employment.