Chapter 4: Small Business - Evaluation

Question 1

What is effectiveness?

Answer 1

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

Question 2

What is efficiency?

Answer 2

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

Question 3

What are performance indicators?

Answer 3

Performance indicators are measurable statements which businesses use to evaluate performance.

Question 4

What are financial indicators?

Answer 4

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

Question 5

What are non-financial indicators?

Answer 5

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

Question 6

What are financial statements?

Answer 6

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

Question 7

What is net profit?

Answer 7

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

Question 8

What are expenses?

Answer 8

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

Question 9

What is revenue?

Answer 9

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

Question 10

What is profitability?

Answer 10

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

Question 11

What is the cost of goods sold?

Answer 11

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 12

What is a balance sheet?

Answer 12

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.

Question 13

Wha are assets?

Answer 13

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

Question 14

What are liabilities?

Answer 14

Liabilities are items of debt that the business owes.

Question 15

What is owners equity?

Answer 15

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 16

What is liquidity?

Answer 16

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

Question 17

What are credit terms?

Answer 17

Credit terms are the payment requirements stated on an invoice. It is fairly common for sellers to offer early payment terms to their customers in order to accelerate the flow of inbound cash.

Question 18

What is solvency?

Answer 18

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

Question 19

What is gearing?

Answer 19

Gearing measures the percentage of the assets of the business which are funded by external sources.

Question 20

What is the gross profit ratio?

Answer 20

Shows the amount of revenue that results in gross profit.

Question 21

What is the net profit ratio?

Answer 21

It shows the amount of revenue that results in net profit.

Question 22

What is the 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

What is customer satisfaction?

Answer 23

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

Question 24

What is benchmarking?

Answer 24

Benchmarking compares the strengths those of other successful businesses, with the aim of reforming those processes that are not achieving the business’s objectives.

Question 25

What is market share?

Answer 25

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

Question 26

What is the triple bottom line?

Answer 26

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

Question 27

What is a sustainability report?

Answer 27

A sustainability report is an organizational report that gives information about economic, environmental, social and governance performance.

Question 28

What is evaluation?

Answer 28

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