BUSINESS KEY TERMS
Functional objectives and strategies
A quantifiable statement of a business’s goals which should include measurable targets.
A quantifiable statement of a department’s goals which should enable it to contribute to the achievement of the business objective.
The plan by which the department intends to achieve its functional objectives on a day-to-day basis.
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.
Time-based – so that progress towards achievement can be measured.
Financial strategies and accounts
Acid test ratio
A measure of the ability of the business to meet short term debts from liquid assets.
A measure of how effectively a business is using its assets to generate sales.
Average rate of return
Average annual profit expressed as a percentage of the initial investment.
A financial document that summarises the net worth of a business – it balances total assets with total equity and liabilities
Capital employed = total equity + non-current liabilities. It is the total capital invested in the business from long-term sales.
The purchase of assets that will remain in the business in the medium to long term, accounted for in the balance sheet.
A financial objective focused on maintaining a healthy cash balance.
The process by which businesses attempt to maximise profits by keeping costs low.
Someone the business owes money to i.e. a supplier who has not yet been paid.
Resources owned by the business whose value varies as a result of daily business activities e.g. cash, inventories
Financial obligations of the business payable within 12 months
A measure of the ability of the business to meet short term debts.
Someone who owes the business money i.e. a customer that has not yet paid.
An accounting practice which allows the value of a fixed asset to be spread over its useful life.
The rate by which future cash flows are reduced to reflect current interest rates.
A measure of the return received on an investment, expressed as a percentage of the current market price of the share.
Dividends per share
The number of pence per share received by shareholders.
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.
The long-term financial plan of action to achieve the financial objectives of the business.
The percentage of capital employed that comes from non-current liabilities.
Profit after cost of sales has been deducted.
Gross profit margins
Gross profit expressed…