Formula Flashcards
Pay-back period
(last year with negative cash flow) + (Absolute value of NCF in that year / Total cash flow in the following year)
Net present value
∑(net cash flow of year * discount rate) + initial investment
elasticity of demand
The responsiveness of demand to a change in price or incomes
Working capital
The amount of money that a business has available to conduct its day-to-day activities
Cost leadership
A business strategy concerned with aiming to be the lowest-cost producer in an industry. Usually requires exploitation of economies of scale
Functional objectives
Set for each major business function – designed to ensure that the corporate objectives are met
Acid test ratio
A liquidity ratio that looks at whether a business can pay for current liabilities out of cash and near-cash assets (it ignores the value of stocks)
Asset turnover
A ratio that calculates the relationship between revenues and the total assets employed in a business
Capital expenditure
Expenditure on assets which are intended to be kept in the business (e.g. IT systems, machinery) rather than sold or turned into products
Current ratio
A simple and popular measure of liquidity that assess the ability of current assets (e.g. cash, stocks) to finance current liabilities (e.g. trade creditors)
Debentures
A long-term source of finance – a debenture is a form of bond or long-term loan issued by a company
Good will
An intangible asset that can be included in a balance sheet = the difference between the net assets of a business acquired and the price paid for the business
Income statement
A financial statement that summarises the trading results of a business over a specific period – usually one year
Balance sheet
The financial statement that provides a snapshot of the assets and liabilities of a business at a particular date
Operating profit
The profit earned by a business from its entire trading operations – stated before financing (e.g. interest) and tax
profit centres
A separately-identifiable part of a business for which it is possible to identify revenues and costs and calculate a relevant profit
Share capital
The amount invested into a company by shareholders
Customer relationship management (CRM)
The process of building a long-term, profitable relationship between a business and its customers
Extrapolation
The use of trends established by historical data to make predictions about future values
Diversification
The relatively risky strategy of trying to enter new markets with new products (from Ansoff matrix)
Market development
A growth strategy where the business seeks to sell its existing products into new markets - e.g. exporting (from Ansoff matrix)
Market penetration
A relatively low-risk growth strategy where a business focuses on selling existing products into existing markets (from Ansoff matrix)
Product development
A growth strategy where a business aims to introduce new products into existing markets (from Ansoff matrix)
Product positioning
The way in which the marketing function tries to create an image or identity in the minds of the target market
Industrial inertia
Where a business decides to stay in its existing location despite potentially better locations being available to it
Economies of scale
Cost advantages that a business can exploit as a result of expanding its scale of production. Economies of scale reduce the average (unit) cost of production
Diseconomies of scale
Factors which result in higher unit costs as production output reaches too high a level
Just-in-time
Method of lean production where production resources arrive at the moment they are required rather than being held in stock
Kaizen
A cultural approach to lean production and quality assurance. Involves encouraging employees to constantly seek and implement small incremental changes to production in order to improve quality and efficiency
Labour intensity
The extent to which production or operations depend on investment in and use of labour – i.e. people, training
Lean production
An approach to management that focuses on cutting out waste whilst still ensuring quality.
Lead-time
The period of time between an order being placed and being received
Marketing economies
Where marketing costs per unit sold can be lowered by spreading marketing costs over larger output
Offshoring
Where a business has work done for it overseas
Outsourcing
Where a business has work done for it by someone else
Arbitration
An alternative to a court of law in determining legal and employment disputes. Involves a specialist outsider being asked to make a decision on a dispute
Centralisation
An organisational structure where authority rests with senior management at the centre of the business
Conciliation
A way of mediating industrial disputes to gain agreement without going to arbitration
Decentralisation
An organisational structure where authority is delegated further down the hierarchy, away from the centre
Downsizing
The reduction in the scale and resources of a business, usually involving job losses and/or the sale or closure of business units
Hard HRM
An approach to HRM based on treating employees as resources in the same way as any other business resource
Works council
A formal meeting of employer and employees to consider issues affecting the business and workplace – mandatory for larger businesses in the EU
