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 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

the earning performance of the business and indicates its capacity to use its resources to maximise profits.

Question 11

What is evaluation

Answer 11

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

Question 12

What is costs 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

What is a balance sheet

Answer 13

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 14

What are assets

Answer 14

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

Question 15

What are liabilities

Answer 15

Liabilities are items of debt that the business owes.

Question 16

What is owners 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

What is liquidity

Answer 17

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

Question 18

What are credit terms

Answer 18

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 19

What is solvency

Answer 19

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

Question 20

What is gearing

Answer 20

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

Question 21

What is a gross profit margin

Answer 21

The gross profit ratio shows the amount of revenue that results in gross profit.

Question 22

What is a net profit margin

Answer 22

The net profit ratio shows the amount of revenue that results in net profit.

Question 23

What is working capital ratio

Answer 23

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 24

What is customer satisfaction

Answer 24

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

Question 25

What is bench marking

Answer 25

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.

Question 26

What is market share

Answer 26

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

Question 27

What is triple bottom line

Answer 27

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

Question 28

What is a sustainability report

Answer 28

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