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Buss3 A2 Key Terms
Finance
| Question | Answer |
|---|---|
| A quantifiable statement of a business’s goals which should include measurable targets. | Corporate objectives |
| A quantifiable statement of a department’s goals which should enable it to contribute to the achievement of the business objective. | Functional objectives |
| The plan by which the department intends to achieve its functional objectives on a day-to-day basis. | Functional strategy |
| Specific Measurable Agreed Realistic Time-based | SMART targets |
| A financial objective focused on maintaining a healthy cash balance. | Cash-flow targets |
| The process by which businesses attempt to maximise profits by keeping costs low. | Cost minimisation |
| The minimum percentage return a business strives to achieve from the capital employed in business activities. | ROCE targets |
| The financial rewards to a shareholder in return for their investment; this can include dividends paid and increased share value. | Shareholders’ returns |
| Aiming to achieve a satisfactory level of profit. | Satisficing |
| 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. | Executive director |
| A member of the board of directors who does not work for the business on a day-to-day basis but sits on the board in an advisory or consultative role. | Non-executive director |
| A financial document that summarises a business’s trading activity and expenses to show whether it has made profit or a loss. | Income statement |
| Profit after cost of sales has been deducted. | Gross profit |
| Profit after all other expenses have been deducted, also referred to as net profit. | Operating profit |
| Gross profit expressed as a percentage of sales revenue. | Gross profit margin |
| Operating profit expressed as a percentage of sales revenue. | Operating profit margin |
| The sustainability of profit. | Profit quality |
| How profit is being used, i.e. whether it is being ploughed back into the business or distributed to shareholders. | Profit utilisation |
| A financial document that summarises the net worth of a business – it balances total assets with total equity and liabilities. | Balance sheet |
| The IFRS term for stocks. | Inventories |
| The total amount of money being utilised in the business from share capital and retained profit. | Total equity |
| Items of value owned by the business that are likely to be kept for more than one year. | Non-current assets (fixed assets) |
| Resources owned by the business whose value varies as a result of daily business activities, e.g. cash, inventories. | Current assets |
| Purchased items without physical form such as goodwill or brand names. | Intangible assets |
| Financial obligations of the business payable within 12 months. | Current liabilities |
| Debts that the business has more than one year to repay. | Non-current liabilities (long-term liabilities) |
| Current liabilities plus current assets [do not forget that current liabilities are a negative figure and shown in () on the balance sheet] | Net current liabilities |
| Total assets minus total liabilities [also obtained by non-current assets plus net current liabilities minus non-current liabilities]. | Net assets |
| A measure of a firm’s ability to meet day-to-day expenses. | Working capital |
| An accounting practice which allows the value of a fixed asset to be spread over its useful life. | Depreciations |
| Amounts owed by debtors to the business. | Trade receivables |
| Someone who owes the business money, i.e. a customer who has not yet paid. | Debtor |
| Amounts owed by the business to creditors. | Trade payables |
| Someone the business owes money to, i.e. a supplier who has not yet been paid. | Creditor |
| A business’s ability to meet short-term cash payments on time. | Liquidity |
| A measure of the ability of a business to meet short-term debts. | Current ratio |
| A measure of the ability of a business to meet short-term debts from liquid assets. | Acid test ratio |
| The relationship between business’s profits and sales revenues. | Profitability |
| A measure of how efficiently a business is using its capital to generate profits. | Return on capital employed(ROCE) |
| A measure of how effectively a business is using its assets to generate sales. | Asset turnover |
| Capital employed = total equity + non-current liabilities. It is the total capital invested in the business from long-term sales. | Capital employed |
| A measure of how many times per year a business turns over its stock through sales. | Inventory (or stock) turnover |
| A measure of the average number of days taken to pay suppliers. | Payables (creditor) days |
| A measure of the average number of days taken by the business to collect its debts from customers. | Receivables (debtor) days |
| The percentage of capital employed that comes from non-current liabilities. | Gearing ratio |
| Ratios that help measure the value of the return received by shareholders. | Shareholder ratios |
| The number of pence per share received by shareholders. | Dividends per share |
| A measure of the return received on an investment, expressed as a percentage of the current market price of the share. | Dividend yield |
| The long-term financial plan of action to achieve the financial objectives of the business. | Financial strategy |
| The range of options available to firms to fund business operations including banks, venture capitalists and share capital. | Sources of finance |
| A section of a business for which costs and revenues and therefore profit can be identified. | Profit centres |
| The purchase of assets that will remain in the business in the medium to long term, accounted for in the balance sheet. | Capital expenditure |
| The process of analysing the financial merits of a possible future investment. | Investment appraisal |
| Calculation of how long it will take to recoup the cost of an initial investment. | Payback |
| Average annual profit expressed as a percentage of initial investment. | Average rate of return (AVR) |
| The total net return of an investment stated in today’s monetary value. | Net present value (NPV) |
| The rate by which future cash flows are reduced (discounted) to reflect current interest rates. | Discount factor |
| Recognition of the fact that £1 today is worth more than £1 in the future due to a fall in its purchasing power. | Time value of money |
| A pre-determined target against which to judge an investment. | Investment criteria |
Created by:
carole appleton
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