A2 Business Key Terms

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  • Created on: 24-10-13 09:48
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Functional objectives and strategies
Key term Definition
Corporate A quantifiable statement of a business's goals which should include
objectives measurable targets.
Functional A quantifiable statement of a department's goals which should enable it to
objectives contribute to the achievement of the business objective.
Functional Strategy The plan by which the department intends to achieve its functional objectives
on a daytoday basis.
SMART Targets Specific ­ no confusion about what is required.
Measurable ­ a quantifiable goal is clear.
Agreed ­ the result of a consultation with those involved with their delivery.
Realistic ­ an impossible goal is likely to demotivate employees at any level
of the hierarchy in the organisation.
Timebased ­ so that progress towards achievement can be measured.
Financial strategies and accounts
Key term Definition
Acid test ratio A measure of the ability of the business to meet short term debts from liquid
Asset turnover A measure of how effectively a business is using its assets to generate
Average rate of Average annual profit expressed as a percentage of the initial investment.
Balance sheet A financial document that summarises the net worth of a business ­ it
balances total assets with total equity and liabilities
Capital employed Capital employed = total equity + noncurrent liabilities. It is the total capital
invested in the business from longterm sales.
Capital expenditure The purchase of assets that will remain in the business in the medium to
long term, accounted for in the balance sheet.
Cashflow targets A financial objective focused on maintaining a healthy cash balance.
Cost minimisation The process by which businesses attempt to maximise profits by keeping
costs low.
Creditor Someone the business owes money to i.e. a supplier who has not yet been
Current assets Resources owned by the business whose value varies as a result of daily
business activities e.g. cash, inventories
Current liabilities Financial obligations of the business payable within 12 months
Current ratio A measure of the ability of the business to meet short term debts.
Debtor Someone who owes the business money i.e. a customer that has not yet
Depreciation An accounting practice which allows the value of a fixed asset to be spread
over its useful life.
Discount factor The rate by which future cash flows are reduced to reflect current interest

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Dividend yield A measure of the return received on an investment, expressed as a
percentage of the current market price of the share.
Dividends per The number of pence per share received by shareholders.
Executive directors A member of the board of directors who also holds a position of
responsibility in the business on a day to day basis, for example marketing
director, finance director.
Financial strategy The longterm financial plan of action to achieve the financial objectives of
the business.…read more

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Satisficing Aiming to achieve a satisfactory level of profit.
Shareholder ratios Ratios that help measure the value of the return received by shareholders.
Shareholders' The financial rewards to a shareholder in return for their investment this can
returns include dividends paid and increase share value.
Sources of finance The range of options available to firms to fund business operations
including banks, venture capitalists and share capital.…read more

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Operational strategies
Key term Definition
Average cost Total cost divided by the number of units produced to give cost per item.
Benchmarking A management tool which aims to increase performance by identifying,
investigating and adopting aspects of best practice from other firms.
Business analysis The process of investigating the economic and practical viability of an idea.
Capital intensive Businesses that rely more heavily upon capital equipment, e.g. machinery
and computers rather than labour.…read more

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Multisite locations A business that operates from more than one location.
Noncritical Those activities with float time, i.e. if it takes four weeks to complete, there
activities may be six weeks between the EST and LFT.
Offshoring The relocation of a business process done in one country to the same or
another company in another country.
Operational Targets set in relation to the production process or provision of a service
objectives within a given financial year.…read more

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Core workers Fulltime, permanent employees, with businessspecific skills and
knowledge, performing tasks key to the success of the business, often
rewarded with high salaries and excellent working conditions.
Decentralisation Where the authority for decisionmaking is delegated to subordinates in the
organisational structure.
Delayering Removing levels in the organisational structure.
Employee groups Forums made up of employee representatives from selected areas of the
business and representatives of the employers.…read more

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Corporate aims and objectives
Key Term Definition
Corporate aims Longterm targets that will enable the business to fulfil its mission.
Corporate strategy A plan based on the corporate aims and objectives which defines the overall
scope and direction of the business by identifying its choice of business,
markets and activities.
Mission statement A declaration of the organisation's purpose, principle business aims identity,
policies and values.…read more

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Exchange rate A fall in the value of a country's currency in terms of other currencies. This
depreciation raises prices of imports but may allow an exporter to reduce prices.
Expansion fiscal Increases in government spending greater than increases in taxes, e.g.
policy budget deficit. This increases total demand in the economy.
Fiscal policy The use by the government of changes in tax rates or government spending
to manage the economy.…read more

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Technological Changes in the range, applications and efficiency of technology available.
Unemployment The number of people willing and able to work but unable to find
VoIP Voice over Internet Protocol ­ making telephone calls via the internet.
Managing change
Key term Definition
Autocratic Leaders take decisions on their own with no discussion.
Backward vertical Merger with a supplier business.
Bureaucratic Leaders use rigid and complex rules and procedures to direct and lead the
leadership organisation.…read more

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Merger An agreement by shareholders and managers of two businesses to bring
both firms together under a common board of directors with shareholders in
both businesses owning shares in the newly merged business.
Organisational The values, attitudes and beliefs of the people working in an organisation
culture that control the way they interact with each other and with external
stakeholder groups.
Paternalistic Leaders will listen, explain issues ad consult with the workforce but will not
leadership allow them to take the final decision.…read more


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