Chapter Four-Small Business Evaluation Flashcards
Evaluation
Evaluation is the process of assessing whether the business has achieved stated objectives
Effectiveness
Effectiveness is the degree to which a business has achieved its objectives
Efficiency
Efficiency refers to ‘how well’ a business uses resources to achieve objectives
Performance indicators
Performance indicators are measurable statements which businesses use to evaluate performance
Financial indicators
Financial indicators are found in the accounting record and are expressed in dollar terms
Non-financial indicators
Non-financial indicators are commonly expressed in real terms and often make use of qualitative data
Financial statements
Financial statements summarise the activities of a business over a period of time
Net profit
Net profit is the difference between revenue earned from the operations of the business and any expenses incurred in earning that revenue
Expenses
Expenses are what it has cost the business to provide its service or sell its products
Revenue
Revenue is what the business receives in the normal course of trading or operating, including sales, fees, interest, dividends, royalties and rent
Profitability
Profitability measures the earning performance of the business and indicates the business’s ability to maximise profits
Cost of goods sold
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
Balance sheet
A balance sheet shows a business’s assets and liabilities at a point in time using the headline ‘as at’ to pinpoint when it was created
Assets
Assets are items of value owned or controlled by the business and that can be given a monetary value
Liabilities
Liabilities are items of debt that the business owes
Owner’s equity
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
Liquidity
Liquidity is the extant to which the business can meet its financial commitments in the short term (less than 12 months)
Credit terms
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 payments
Solvency
Solvency is the extant to which the business can meet its financial commitments in the longer term (more than 12 months)
Gearing
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 profit
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
Customer satisfaction is the degree to which the business’s perceived performance meets a customer’s expectations
Benchmarking
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
Market share
Market share is the share of the total market that a business has, expressed as a percentage
Triple bottom line
Triple bottom line refers to the economic, environmental and social performance of a business
Sustainability report
A sustainability report publishes information about the financial, environmental and social performance of a business
