Unit 3 Keywords Flashcards
Market analysis
The process of collecting information about the market the business is operating in, in order to create effective objectives to ensure success.
Price elasticity of demand (PED)
Measures the responsiveness of demand after a change in price
Income elasticity of demand
Measures the responsiveness of demand after a change in customer income
Normal goods
These have a positive income elasticity of demand and there is a shift to the left in the demand curve. This means as incomes rise, so does the demand at each price (e.g clothing, household appliances)
Recession
A fall in real GDP for two consecutive periods of 6 months. There is a large decline in economic activity across an economy (e.g. real income goes down as does retail sales and industrial output)
Income tax
A percentage of their earnings a person pays to the government to fund public service such as education.
Sales forecast
A prediction of sales revenue based on the historical number of sales made and current market research and trends
Sales forecasting
The process of predicting what a business’s future sales will be.
Budget
An estimate of income and expenditure for a business covering a set period of time
Moving average
One of a succession of averages of data, where each average is calculated by successfully shifting the interval by the same period of time
Line of best fit
A line that goes roughly through the middle of all the scatter points on a scatter graph. The closer the points are to the line of best fit, the stronger the correlation.
Time-series analysis
A method that allows a business to predict future levels of sales from past figures.
Budget
An estimate of income and expenditure for a business covering a set period of time.
Variances
The difference between the budgeted amount and the actual amount for each item in a budget.
Current assets
Cash or other assets that can be converted into cash within 12 months.
Working capital
The cash needed to pay for the day to day operation of the business.
Current liabilities
The amounts due to be paid out within 12 months
Working capital cycle
The period of time between the point at which cash is first spent on the production of a product and the collection of cash from the customer.
Capital employed
Money that is invested into the business e.g. the share capital, retained earnings and long term borrowings of a business.
Depreciation
An amount deducted from the original cost of and asset to take into account the wear and tear in it’s use over time
Liquidity
A measure of the extent to which a business has cash to meet it’s immediate and short term obligations, or assets that can be quickly converted into cash to do this
Return on capital employed (ROCE)
A financial ratio measuring what returns (profits) the business has made on the resources available to it
Operating profit
How much profit in total the business has made from its trading activities before any account is taken of how the business is financed.
Capital employed = ( For Companies with Shareholders )
Shareholder funds + long-term liabilities.
It is the amount of share capital and dept that a company has and uses.
Shareholder funds = share capital + reserves
Non-current liabilities
Depts payable by a business after 12 months, such as a mortgage or a bank loan.
Gearing
The proportion of finance that is provided by dept relative to all the long term finance within the business (share capital)
Business objective
A goal set by a business, usually in the medium to long term.
Functional objective
A target for an individual department such as marketing, so that all staff can ensure that the corporate objective is achieved.
Vision statement
Sets out what the business desires in the long term and the key activities that will achieve this.
Mission statement
A short statement of a business’s vision and values which helps to set its aims and objectives.
Aim
A generalised statement of what the business plans to achieve in the longer term
Corporate strategy
Defines the overall purpose and scope of the business to meet stakeholder expectations.
Tactics
The smaller steps and shorter term goals that help achieve the strategy of the business.
SWOT analysis
A method for analysing a businesses, its resources and its environment. It is used to identify a businesses internal strengths and weaknesses and its external opportunities and threats.
Porter’s five forces framework
A model for analysing the nature of competition within an industry or market. It considers the threat of new entrants to a market , the bargaining power of suppliers and buyers, the threat of substitute products or services and the rivalry among existing competitors.
Barrier to entry
A cost related to a business wanting to enter a market which is not incurred currently by those businesses already in the market
Ansoff’s matrix
A strategic marketing planning tool that links a businesses marketing strategy to its general strategic direction.
Organic growth
The growth in revenues and profits that arises when a business expands its existing operations rather than completing a merger or takeover.
External growth
Where the business attempts to grow by completing a merger or takeover
Merger
The combination of two separate businesses into a new business.
Takeover
Where one business acquires a controlling interest in another business.
Horizontal integration
Where two businesses operating in the same industry and at the same stage in the supply chain become one business.
Vertical integration
Where a business acquires another business in the same market but at a different stage in the supply chain.
Rationalisation
When a business reorganises its production in order to increase its productivity and efficiency.
Outsourcing
A business gets another business to do its work for it, in the same or different country
Decision tree
A mathematical model that uses estimates and probabilities to calculate likely outcomes in order to help a business decide weather a net gain from a decision is worthwhile.
Critical path analysis (CPA)
A technique that is used to find the cheapest or fastest way to complete a task.
Float time
The amount of time in a CPA network that a task can be delayed without causing a delay to the following tasks, i.e. it is spare time.
Cost benefit analysis (CBA)
A method for measuring the financial feasibility of a project by quantifying costs and benefits including external costs and benefits.
Payback
The amount of time it takes for a business to recover the initial amount invested
Average rate of return (ARR)
The average annual return on an investment for a project expressed as a percentage.
Discounted cash flow (DCF)
The process of calculating the present value of an investment’s future cash flows in order to arrive at the current value of the investment, known as the net present value.
Net present value (NPV)
The present value of all the money coming in from a project in the future set against the money invested today.
Special order
A one-off order requested specially by a customer.
Contribution
The difference between the selling price and the variable costs of production.
Data analysis
The process of transforming raw data into usable information, in order to present, interpret and analyse a business situation
Franchise
The legal right to use the brand name, products and business style of an existing business.
