Theme 3 - Business Decisions And Strategy Flashcards
Average rate of return or accounting rate of return (ARR)
A method of investment appraisal that measures the net return per annum as a percentage of the initial spending.
Capital cost
The amount of money spent when setting up a new venture.
Discounted cash flow (DCF)
A method of investment appraisal that takes interest rates into account by calculating the present value of future income.
Investment
The purchase of capital goods.
Investment appraisal
The evaluation of an investment project to determine whether or not it is likely to be worthwhile.
Net cash flow
Cash inflows minus cash outflows.
Net present value (NPV)
The present value of future income from an investment project, minus the cost.
Payback period
The amount of time it takes to recover the cost of an investment project.
Present value
The value today of a sum of money available in the future.
Corporate objectives
The objectives of a medium to large-sized business as a whole.
Departmental and functional objectives
The objectives of a department within a business.
Mission statement
A brief statement, written by the business, describing its purpose and objectives, designed to encapsulate its present operations.
Objective (or goal)
A target of outcome for a business that allows it to achieve its aims.
SMART
Acronym for the attributes of a good objectives: specific, measurable, agreed, realistic and time specific.
Corporate strategy
The plans and policies developed to meet a company’s objectives. It is concerned with what range of activities the business needs to undertake in order to achieve its goals. It is also concerned with whether the size of the business organisation makes it capable of achieving the objectives set.
Distinctive capability
A form of competitive advantage that is sustainable because it cannot easily be replicated by a competitor.
Diversification
Developing new products in new markets.
Market development
The marketing of existing products in new markets.
Penetration
Using tactics such as the marketing mix to increase the growth of existing products in an existing market.
Portfolio analysis
A method of a firm (its portfolio) to decide where each fits within the strategic plans.
Product development
Marketing new or modified products in existing markets.
External audit
An audit of the external environment in which a business finds itself, such as the market within which it operates or government restrictions on its operations.
Internal audit
An analysis of the business itself and how it operates.
SWOT analysis
An analysis of the internal strengths and weaknesses of the business and the opportunities and threats presented by its external environment.