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Management Consulting > Terms > Flashcards

Terms Flashcards

1
Q

4 Ps

A

Product, Placement, Price, Promotion

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2
Q

Accounting Equation

A

Assets = Liability + Owner’s Equity

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3
Q

Ansoff’s Matrix

A

2x2 for future growth. x-axis is existing vs new products. y-axis is existing vs new markets.

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4
Q

Backward Integration

A

Merging with a business that is further back in the process. Provides greater control of costs, quality and delivery times of material. It’s often expensive and hard to reverse.

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5
Q

Complementary Good

A

Technically “negative cross elasticity of demand” - in other words, if demand of one good increases, so will the demand of the other.

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6
Q

Contribution Margin Formula

A

Revenue/Unit - Variable Cost/Unit

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7
Q

Contribution Profit

A

Portion of sales not consumed by variable costs that can be used for fixed costs.

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8
Q

Cost Control

A

The practice of identifying opportunities for cost reduction and minimizing them to increase profits.

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9
Q

Cost of Goods Sold Formula

A

Beginning inventory value + Purchases of inventory – Ending inventory value

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10
Q

Cost of Revenue

A

Total cost of manufacturing and delivering a product. Designed to represent the direct costs.

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11
Q

Current Assets Formula

A

Cash + Accounts Receivable + Inventory + Prepaid Expenses

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12
Q

Differentiable Good

A

The opposite of a commodity. Can charge higher prices because product is unique in the marketplace.

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13
Q

Direct Competitor

A

Competitors that essentially create the same product.

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14
Q

Direct Costs

A

Costs that are easily directly attributable to a given product. Assigned on a cause and effect relationship.

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15
Q

Diversification

A

(Part of Ansoff’s matrix) New products in new markets.

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16
Q

Divestiture

A

The process of a full disposal of a business unit through sale, exchange, closure or bankruptcy. Usually because business unit is not part of core competency of business. May also be due to redundancy after an acquisition. Can also be done for need of cash.

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17
Q

Experience Curve

A

Y-axis: direct costs per unit X-axis: Cumulative volume of production. The more experience a firm has making something (or market share), the cheaper it will be able to make it. Don’t give up market leadership position and grab it when you can. Seems to impact high-volume items more than low-volume (semiconductors vs nuclear reactors).

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18
Q

Fixed Costs

A

Costs that are not dependent on the level of goods/services produced.

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19
Q

Fixed Costs (examples)

A

Monthly rent, phone line, salaries that aren’t based on production.

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20
Q

Gross Margin

A

Gross Profit divided by Revenue - A measure of how well a company produces revenue from the cost of products and services.

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21
Q

Gross Profit Formula

A

Net Sales - COGS

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22
Q

Horizontal Merger

A

Buying a competitor to gain market

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23
Q

Income From Operations Formula

A

Gross Margin – Operating Expenses

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24
Q

Indirect Competitor

A

Competitors that solve the same customer problem (horse, car, train)

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25
Q

Indirect Costs

A

Costs that are due to a product, but are difficult to directly attribute.

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26
Q

Market Development

A

A growth strategy that develops new market segments for current products. (Part of Ansoff’s matrix)

27
Q

Market Penetration

A

A measure of the amount of sales or adoption of a product compared to total theoretical market. Can also be growing with existing product to existing markets.

28
Q

Market Share

A

Companies sales over sales of the industry

29
Q

Net Income Formula

A

Income – Expenses

30
Q

Net Sales Formula

A

Gross Sales - Returns and allowances

31
Q

Operating Expenses

A

The money the business spends in order to turn inventory into throughput but not directly associated to production.

32
Q

Operating Expenses Formula

A

Sales and Marketing + Research and Development + General and Administrative

33
Q

Operating Income

A

Another word for EBIT (revenue - operating expenses)

34
Q

Operating Margin Formula

A

Operating Earnings / Revenue

35
Q

Overhead

A

Another word for fixed costs

36
Q

Population Pyramid

A

Age distribution of gender and age with youngest at the bottom.

37
Q

Porter’s Five Forces

A
  1. Industry Rivalry
  2. Bargaining Power of Suppliers
  3. Threat of New Entrants
  4. Threat of Substitutes
  5. Bargaining Power of Buyers
38
Q

Product Development

A

(Part of Ansoff’s matrix) New products to existing markets.

39
Q

Profit Margin Formula

A

Net Income / Revenue

40
Q

Profitability vs Profit

A

Profitability is a relative number (a percentage), profit is the absolute number (revenue minus expenses).

41
Q

Segmentation

A

Slicing a market into segments. Based on demographics, beliefs or occasion of use. Goal is to understand most attractive parts of existing or potential customer base by comparing size, growth and profitability. Allows more effective targeting of advertising. “Actionable segmentation” is rare.

42
Q

Unit Contribution Margins

A

The price of a good minus its variable cost. This portion can be used to cover the fixed costs.

43
Q

Value Chain

A

The set of activities that a firm takes to deliver a valuable product or service to the market.

44
Q

Variable Costs

A

Costs that change in proportion to the good or service that a business produces. Also the sum of all marginal costs of units produced.

45
Q

Variable Costs (examples)

A

Cloth for clothes, Labor for clothes, employee salary that changes with production, extra electricity for busy times (not taxation, not necessarily COGS)

46
Q

Vertical Integration

A

Merging of two businesses that are at different stages of production.

47
Q

CAPEX

A

Funds used to acquire, upgrade and maintain property, industrial buildings or equipment.

48
Q

Examples of capital-intensive industries

A

Oil exploration and production, telecommunications, manufacturing and utilities.

49
Q

Hurdle rate

A

The minimum acceptable rate of return on a project or investment required by a manager or investor.

50
Q

HHI

A

Herfindahl-Hirschman Index. A common measure of market concentration. The sum of the square of all competing firms. Used by the justice dept.

51
Q

Inventory Turnover

A

The rate at which inventory is turned over in a given period. COGS / Average Inventory. Sometimes Net Sales is used

52
Q

Du Pont Equation (ROE)

A

ROE = Profit Margin * Asset Turnover * Financial Leverage

53
Q

Asset Turnover

A

The amount of sales that can be generated per asset. Total Sales divided by Assets.

54
Q

Financial Leverage

A

Total Assets/Average Shareholder Equity

55
Q

Cannibalization

A

A reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.

56
Q

Opportunity cost

A

The loss of potential gain from other alternatives when one alternative is chosen.

57
Q

Economies of scope

A

A proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each separately.

58
Q

Economies of scale

A

The cost advantages that enterprises obtain due to their scale of operation (typically measured by amount of output produced), with cost per unit of output decreasing with increasing scale.

59
Q

Non-market Strategy

A

Non-market strategy helps groups gain soft power and influence and use them to their competitive advantage. It is developed towards government, press and influential groups. Tools for non-market strategies are: events, demonstrations, networking, sponsoring, research, publications, but also the consequences of law suits.

60
Q

Consolidation

A

In business, consolidation or amalgamation is the merger and acquisition of many smaller companies into a few much larger ones. Can provide new technologies, clients, geographies, cheaper financing, supplier/customer bargaining power.

61
Q

Competitive Response

A

Anticipate what firms will do in response to a changing strategy of their competitors.

62
Q

Same store sales

A

The difference in revenue generated by a retail chain’s existing outlets over a certain period.

63
Q

5Cs

A

Customer, Company, Competitors, Collaborators, Climate.

Management Consulting (2 decks)

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