BUSS3 Key Term Glossary Financial Strategies and Accounts

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BUSS3 Key Term Glossary Financial Strategies and Accounts
2014-05-01 16:08:38
business term
Business Key Terms
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  1. Acid-test ratio
    A liquidity ratio that   looks at whether a business can pay for current liabilities out of cash and   near-cash assets (it ignores the value of stocks)
  2. Asset turnover
    A ratio that calculates the   relationship between revenues and the total assets employed in a business
  3. Assets
    Amounts owned by, or owed   to a business
  4. Average rate of return
    A measure of the total   accounting return from an investment project
  5. Balance sheet
    The financial statement   that provides a snapshot of the assets and liabilities of a business at a   particular date
  6. Capital expenditure
    Expenditure on assets which   are intended to be kept in the business (e.g. IT systems, machinery) rather   than sold or turned into products
  7. Cash flow targets
    Specific objectives set by   a business for cash-flow generated by a business
  8. Corporation tax
    The tax levied on the   profits of companies.  The percentage   varies depending on the size of the profits earned; typically 20-30%
  9. Cost minimisation
    A strategy of achieving the   most cost-effective way of delivering goods and services to the required   level of quality
  10. Creditor days
    A ratio that estimates the   average period (in days) taken to settle amounts owed by a business to   suppliers
  11. Current ratio
    A simple and popular   measure of liquidity that assess the ability of current assets (e.g. cash,  stocks) to finance current liabilities (e.g. trade creditors)
  12. Debentures
    A long-term source of   finance – a debenture is a form of bond or long-term loan issued by a company
  13. Debtor days
    A ratio that focuses on the   average time it takes for trade debtors to settle their accounts.  Usually measured in days
  14. Depreciation
    An accounting estimate of   the fall in value of a fixed asset over time
  15. Discount factor
    The multiplication factor   that converts a projected cost or benefit in a future year into its present   value
  16. Dividend
    Amounts paid to   shareholders out of the profits earned by a company.
  17. Dividend yield
    A measure of shareholder   return – calculated by comparing the dividend per share by the share price
  18. Fixed assets
    Assets such as property,  equipment and vehicles that are intended to be retained and used in a   business for more than one year
  19. Gearing
    A ratio that focuses on the   long-term financial stability and capital structure of a business. The   gearing ratio measures the proportion of assets in a business that are   financed by borrowing
  20. Going concern
    A business that is viable   and able to continue in business for the foreseeable future
  21. Goodwill
    An intangible asset that   can be included in a balance sheet = the difference between the net assets of   a business acquired and the price paid for the business
  22. Income statement
    A financial statement that   summarises the trading results of a business over a specific period – usually   one year
  23. Investment appraisal
    Analytical techniques to   help management evaluate the returns from potential investments, and to help   choose between competing investments
  24. Liabilities
    Amounts owed by a business   to others
  25. Liquidity
    The ability of a business   to finance required payments to creditors
  26. Net present value
    The present value of a   series of future net cash flows that will result from an investment, minus   the amount of the original investment
  27. Operating profit
    The profit earned by a   business from its entire trading operations – stated before financing (e.g.  interest) and tax
  28. Overtrading
    Where a business suffers   financial difficulties from expanding too quickly – usually suffering set-up   losses and increased working capital
  29. Payback period
    The time it takes for a   project to repay its initial investment
  30. Profit centres
    A separately-identifiable   part of a business for which it is possible to identify revenues and costs   and calculate a relevant profit
  31. Profit quality
    The sustainability of   profit from one period to the next.   Higher quality profit is profit that is likely to be repeated rather   than affected by one-off items
  32. Profitability
    The amount of profit earned   in a period (absolutely measure) or rate of profit earned compared with   revenue (relatively measure)
  33. Provisions
    Amounts set aside to cover   future costs or liabilities (e.g. redundancies, business closures, legal   disputes)
  34. Ratio analysis
    Interpretation of financial   performance by calculating and interpreting ratios
  35. Retained earnings
    Profits earned by a   business that are kept in the business rather than distributed as dividends
  36. Revenue expenditure
    Spending on day-to-day   operation of the business – e.g. paying for materials, staff costs,  management salaries, advertising
  37. Rights issue
    The issue of new shares to   existing shareholders in order to raise new finance.  The new shares are usually offered at a   significant discount to the existing share price to encourage take-up
  38. ROCE
    A measure of the percentage   return that a business earns from the capital employed in the business.  Often referred to as the “primary ratio”
  39. Share capital
    The amount invested into a   company by shareholders
  40. Shareholder returns
    The rewards earned by   shareholders = dividends paid to them + any increase in the value of their   shares
  41. Stock turnover
    A liquidity ratio that   looks at how often a business rotates its stock during a year
  42. Trade creditors
    Amounts that a business   owes to its suppliers
  43. Trade debtors
    Amounts that are owed to a   business from its customers
  44. Working capital
    The net amount invested by   a business to finance day-to-day trading: usually calculated as current   assets less current liabilities