BUSINESS KEY TERMS

BUSS 3

Functional objectives and strategies

Key term

Definition

Corporate objectives

A quantifiable statement of a business’s goals which should include measurable targets.

Functional objectives

A quantifiable statement of a department’s goals which should enable it to contribute to the achievement of the business objective.

Functional Strategy

The plan by which the department intends to achieve its functional objectives on a day-to-day 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.

Time-based – 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 assets.

Asset turnover

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.

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 + non-current liabilities. It is the total capital invested in the business from long-term 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.

Cash-flow 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 paid.

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 paid.

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 rates.

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 share

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 long-term financial plan of action to achieve the financial objectives of the business.

Gearing ratio

The percentage of capital employed that comes from non-current liabilities.

Gross profit

Profit after cost of sales has been deducted.

Gross profit margins

Gross profit expressed…