Formula

Question 1

Pay-back period

Answer 1

(last year with negative cash flow) + (Absolute value of NCF in that year / Total cash flow in the following year)

Question 2

Net present value

Answer 2

∑(net cash flow of year * discount rate) + initial investment

Question 3

elasticity of demand

Answer 3

The responsiveness of demand to a change in price or incomes

Question 4

Working capital

Answer 4

The amount of money that a business has available to conduct its day-to-day activities

Question 5

Cost leadership

Answer 5

A business strategy concerned with aiming to be the lowest-cost producer in an industry. Usually requires exploitation of economies of scale

Question 6

Functional objectives

Answer 6

Set for each major business function – designed to ensure that the corporate objectives are met

Question 7

Acid test ratio

Answer 7

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)

Question 8

Asset turnover

Answer 8

A ratio that calculates the relationship between revenues and the total assets employed in a business

Question 9

Capital expenditure

Answer 9

Expenditure on assets which are intended to be kept in the business (e.g. IT systems, machinery) rather than sold or turned into products

Question 10

Current ratio

Answer 10

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)

Question 11

Debentures

Answer 11

A long-term source of finance – a debenture is a form of bond or long-term loan issued by a company

Question 12

Good will

Answer 12

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

Question 13

Income statement

Answer 13

A financial statement that summarises the trading results of a business over a specific period – usually one year

Question 14

Balance sheet

Answer 14

The financial statement that provides a snapshot of the assets and liabilities of a business at a particular date

Question 15

Operating profit

Answer 15

The profit earned by a business from its entire trading operations – stated before financing (e.g. interest) and tax

Question 16

profit centres

Answer 16

A separately-identifiable part of a business for which it is possible to identify revenues and costs and calculate a relevant profit

Question 17

Share capital

Answer 17

The amount invested into a company by shareholders

Question 18

Customer relationship management (CRM)

Answer 18

The process of building a long-term, profitable relationship between a business and its customers

Question 19

Extrapolation

Answer 19

The use of trends established by historical data to make predictions about future values

Question 20

Diversification

Answer 20

The relatively risky strategy of trying to enter new markets with new products (from Ansoff matrix)

Question 21

Market development

Answer 21

A growth strategy where the business seeks to sell its existing products into new markets - e.g. exporting (from Ansoff matrix)

Question 22

Market penetration

Answer 22

A relatively low-risk growth strategy where a business focuses on selling existing products into existing markets (from Ansoff matrix)

Question 23

Product development

Answer 23

A growth strategy where a business aims to introduce new products into existing markets (from Ansoff matrix)

Question 24

Product positioning

Answer 24

The way in which the marketing function tries to create an image or identity in the minds of the target market

Question 25

Industrial inertia

Answer 25

Where a business decides to stay in its existing location despite potentially better locations being available to it

Question 26

Economies of scale

Answer 26

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

Question 27

Diseconomies of scale

Answer 27

Factors which result in higher unit costs as production output reaches too high a level

Question 28

Just-in-time

Answer 28

Method of lean production where production resources arrive at the moment they are required rather than being held in stock

Question 29

Kaizen

Answer 29

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

Question 30

Labour intensity

Answer 30

The extent to which production or operations depend on investment in and use of labour – i.e. people, training

Question 31

Lean production

Answer 31

An approach to management that focuses on cutting out waste whilst still ensuring quality.

Question 32

Lead-time

Answer 32

The period of time between an order being placed and being received

Question 33

Marketing economies

Answer 33

Where marketing costs per unit sold can be lowered by spreading marketing costs over larger output

Question 34

Offshoring

Answer 34

Where a business has work done for it overseas

Question 35

Outsourcing

Answer 35

Where a business has work done for it by someone else

Question 36

Arbitration

Answer 36

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

Question 37

Centralisation

Answer 37

An organisational structure where authority rests with senior management at the centre of the business

Question 38

Conciliation

Answer 38

A way of mediating industrial disputes to gain agreement without going to arbitration

Question 39

Decentralisation

Answer 39

An organisational structure where authority is delegated further down the hierarchy, away from the centre

Question 40

Downsizing

Answer 40

The reduction in the scale and resources of a business, usually involving job losses and/or the sale or closure of business units

Question 41

Hard HRM

Answer 41

An approach to HRM based on treating employees as resources in the same way as any other business resource

Question 42

Works council

Answer 42

A formal meeting of employer and employees to consider issues affecting the business and workplace – mandatory for larger businesses in the EU