304 terms in 3.5
Accounting Rate of Return (ARR)
An investment appraisal method that expresses the average annual profit from an investment as a percentage of the initia...
Making financial decisions: improving cash flow and profits
Acid Test Ratio
(Liquid Capital Ratio).
Setting financial objectives
Acquisition
Buying existing business/company to gain control.
Analysing financial performance
Alternative Strategies
Different strategic approaches to achieve objectives.
Appendices:
All 7 accounting ratios (with formulas), Quantitative skills, Transferable skills.
Appreciation (Currency)
Increase in currency value relative to another.
AQA Section 3.3/3.4 Global Terms:
Globalisation, FDI, MNCs, Trading blocs, Glocalisation, Offshoring, Outsourcing, Global marketing, Cultural adaptation, ...
AQA Section 3.3/3.5 Key Terms:
Ansoff's Matrix (4 strategies), Boston Matrix (4 quadrants), Porter's Five Forces (5 forces), Porter's Strategic Matrix,...
Barriers to Entrepreneurship
Obstacles preventing business creation: lack of capital, insufficient skills, risk aversion, family obligations, market ...
Barriers to Trade
Obstacles reducing international trade: tariffs (taxes), quotas (quantity limits), regulations, local content requiremen...
Batch Production
Manufacturing specified quantity of identical products in groups.
Benefit (Government)
Financial support provided to eligible individuals: unemployment benefits, disability support, family allowances.
Bottleneck
Process step limiting overall production capacity.
Break-Even Analysis
Technique determining minimum sales needed to cover all costs.
Break-Even Chart
Graph showing relationship between sales volume, costs, revenue, profit.
Break-Even Point
The exact number of sales needed to cover all costs — neither profit nor loss.
budget
Financial plan allocating resources for specific period (usually year).
Budgetary Control
Monitoring actual performance against budgets; taking corrective actions.
Budgeting
Process of creating budgets; planning financial resources.
Business Continuity
Plans/processes ensuring organization continues operating during disruptions.
Business Environment
External factors affecting business: market conditions, competition, regulations, technology, economics, society.
Business Failure
When a business is unable to continue trading, typically because it cannot pay its debts (insolvency) or because it is n...
Business Strategy
Long-term plan achieving business objectives.
Cash Budget
Financial plan showing anticipated cash inflows/outflows.
Cash Conversion Cycle
Time from cash outlay for materials to cash receipt from sales.
Cash Position
Actual amount of cash available to business.
Cash-Flow
Movement of money in/out of business.
Cash-Flow Forecast
Projection of future cash movements over period (monthly, quarterly).
Cash-Flow Forecast: Variables
Key factors changing cash-flow: sales volume, payment terms, seasonal variation, supplier payments, capital spending, lo...
Cash-Flow Problems
Insufficient cash to meet obligations despite profitability.
Cell Production
(Cellular Manufacturing).
Competition (as Barrier)
Intense market competition making startup success difficult.
Competition Policy
Government regulations promoting fair competition, preventing monopolies/unfair practices.
Competitive Environment
Overall market conditions and competitive pressures.
Competitive Position
Where business stands relative to competitors.
Competitor Actions (Demand Factor)
Competitor pricing, promotion, product, distribution affecting demand.
Consumer Prices Index (CPI)
Measure of average price changes for consumer goods/services.
Consumer Protection
Laws safeguarding consumers: product safety, honest information, rights to redress.
Consumer Spending
Total expenditure by households on goods/services.
Continuous Improvement
(Kaizen).
contribution
How much each unit sold contributes towards covering fixed costs (and then profit).
Contribution Margin
Contribution as percentage of sales price.
Corporate Aims
General, broad business direction; aspirational statements.
Corporate Culture
Values, beliefs, behaviors characteristic of organization.
Corporate Objectives
Specific, measurable targets business aims to achieve.
Corporate Social Responsibility (CSR)
Business responsibility to stakeholders beyond profit maximization.
Corporate Strategy
Overall long-term plan achieving corporate objectives.
Cost Behaviour
How costs change with activity levels.
Cost Categories
Classification of business costs.
Cost of Production
Expenses incurred making products: materials, direct labor, manufacturing overhead.
Cost-Benefit Analysis
Systematic evaluation comparing benefits and costs of decision/project.
Cost-Plus Pricing
(covered in 1.3).
Costs (Types)
**Fixed costs:** unchanged by activity (rent, salaries, insurance). **Variable costs:** change with activity (materials,...
Critical Appraisal
Critical evaluation; identifying strengths and weaknesses.
Critical AQA 3.3/3.5 terms included:
- ✓ Ansoff's Matrix (all 4 strategies).
Crowdfunding
Raising capital through small contributions from many people, typically via online platforms.
Currency Exchange
Trading one currency for another at market rate.
Current Assets
Business assets convertible to cash within 12 months.
Current Liabilities
Business obligations due within 12 months.
Days Sales Outstanding (DSO)
Average time to collect payment from customers.
Debt Management
Strategies for managing business borrowing.
Decision
Choice between alternatives; selecting one option from options.
Decision Making
Process of choosing between alternatives.
Decision-Making Technique
Systematic method assisting decision-making.
Defensive Strategy
Strategy protecting existing position against threats.
Making financial decisions: sources of finance
Deflation
Sustained decrease in general price level.
Demand Changes (Forecasting)
Factors affecting demand forecasts: consumer trends, economic factors, competitor actions, seasonality, marketing.
Depreciation
Reduction in asset value over time due to use, wear, age, obsolescence.
Depreciation (Currency)
Decrease in currency value relative to another.
Differentiation Strategy
Competing through unique, valued product features.
Direction (Strategic)
Where business is heading; long-term path.
Discounted Cash Flow (DCF)
A technique that adjusts future cash flows to their present value by applying a discount rate, reflecting the principle ...
Distinctive Capability
Unique organizational strengths difficult for competitors to copy.
Diversification Benefits
Advantages of operating in multiple markets/products.
Divisional Structure
Organization divided into semi-autonomous divisions by: product, geography, market, customer type.
Dynamic Capability
Organization's ability to adapt, change, improve over time.
Earnings
Profit; bottom-line income after expenses.
Economic Uncertainty
Unpredictability in economic conditions; difficulty forecasting.
Economic Value Added (EVA)
Profit exceeding cost of capital; true economic profit.
Economic Variables (Demand Factor)
Macro-economic factors affecting demand: GDP growth, unemployment, inflation, interest rates, exchange rates.
Economics
Study of how societies manage scarce resources.
Elasticity (Economics)
Sensitivity of quantity demanded/supplied to price changes.
Employment Flexibility
(see Flexible workforce - 1.4).
Employment Level
Total number of people working in economy/sector.
Employment Protection
Laws protecting employee rights: minimum wage, working hours, discrimination protection, health/safety, dismissal proced...
Employment Rights
Protections employees have: fair treatment, safe conditions, minimum wage, non-discrimination, contractual protection.
Environmental Impact
Effects of business on natural environment: emissions, waste, resource use, pollution.
Environmental Protection
Laws/policies preventing environmental damage: pollution control, resource conservation, waste management, climate regul...
Environmental Scanning
Monitoring external environment for opportunities/threats.
Environmental Standards
Requirements for acceptable environmental performance: emissions limits, waste handling, energy efficiency.
Experience Curve
Concept that costs decrease as volume increases (learning effect).
external finance
Capital raised from outside sources: banks (loans), investors (equity), governments (grants), organizations (crowd fundi...
External Influences (Production)
Outside factors affecting production: supplier availability, energy prices, labor availability, regulations, technology ...
External Shock
Unexpected external event affecting economy/business: oil price spike, natural disaster, war, pandemic, financial crisis...
Failure Rate
Percentage of products/services failing to meet standards.
Financial Forecast
Projection of future financial performance.
Financial Hardship
Situation where business has insufficient funds to meet obligations.
Financial Leverage
Using debt financing to increase returns on equity.
Financial Objectives
Specific financial targets; profitability, growth, returns goals.
Financial Position
Overall financial health of business at point in time.
Financial Statements
Documents reporting financial position/performance: balance sheet, income statement, cash-flow statement.
Five Forces (Porter)
Framework analyzing competitive intensity.
Fixed Costs
Expenses unchanged by production/sales volume.
Fixed Exchange Rate
Official government set exchange rate (not market determined).
Floating Exchange Rate
Market-determined exchange rate; fluctuates based on supply/demand.
Flow Production
(Continuous Production).
Forecasting (Production)
Predicting future production needs based on: demand forecasts, inventory levels, supplier lead times.
Forecasting (Sales)
Predicting future sales based on: historical data, market analysis, trends, competitor actions, planned marketing.
Foreign Exchange
Trading currencies; market where currencies exchange.
Forward Integration
Vertical integration moving toward customer; acquiring downstream business.
Functional Strategy
Plan for specific business function (HR, marketing, operations, finance).
Gap Analysis
Identifying difference between current position and desired position (goal).
Gearing Ratio
Measure of financial leverage; proportion of borrowing vs equity.
Global Strategy
Corporate strategy for international/global operations.
Goodwill
(Intangible Asset).
Government Spending
Expenditure by government on goods, services, wages, benefits, infrastructure.
Gross Domestic Product (GDP)
Total value of goods/services produced in country in period.
gross profit
Sales minus cost of goods sold (direct production costs).
Gross Profit Margin
Gross profit as percentage of revenue.
Growth
Increase in business size measured by: revenue, profit, market share, employee count, asset value.
Growth Vector
Direction of growth strategy; how business will expand.
Health and Safety
Protection of people from work-related harm.
Historical Budgeting
Setting budgets based on previous year's actual figures, adjusted for expected changes.
Human-Intensive
Business/process relying heavily on human labor.
Implementation
Putting strategy/plan into action; executing decisions.
Inorganic Growth
Growth through acquisition, merger, takeover.
Insolvency
Inability to pay debts when due.
Inspection
(Quality - already covered).
Integration
Combining organizations/functions; merger of entities.
Intended Strategy
Plan developed based on deliberate analysis and decision-making.
Interest Coverage Ratio
Ability to service debt from profits.
Interest Rate Change
Increase/decrease in borrowing costs.
Internal Analysis
Evaluation of organization's internal resources/capabilities.
Internal Communication
Sharing information/messages within organization.
internal finance
Capital raised from within organization: owner's capital, retained profits, asset sales.
International Trade
Exchange of goods/services between countries.
Investigative Marketing
Researching market/customers before major business decisions.
Job Production
Manufacturing custom products one at a time or in small quantities.
Jobbing
See Job Production.
Kaizen Events
Focused improvement activities over short period (days/weeks).
Labor-Intensive
(already covered - see 1.4).
Labour Market
Market where labor (employees) is traded for wages.
Language Barrier
Communication difficulty from using different languages.
Learning Organization
Organization systematically learning from experience, improving capability.
Legal Control
Government use of laws to regulate business behavior.
Legislation
Laws enacted by government regulating business/society.
Liquidity (Global)
Availability of cash/liquid assets; ability to meet obligations.
Liquidity Ratio
Financial ratio measuring ability to pay short-term debts.
Long-Term Objectives
Goals spanning multiple years (typically 3+ years).
Machine Maintenance
Regular servicing of equipment to prevent breakdown.
Man-Hours
Labor time measurement; employee hours worked.
Management Structure
Organizational hierarchy showing reporting relationships.
Manufacturing
Producing goods through processing/assembly.
margin of safety
How many extra sales you have above break-even — your cushion against disaster.
Market Diversification
Expanding into different geographic/customer markets.
Market Position
Where business stands in market relative to competitors.
Materials Handling
Moving/storing materials in production.
Maximum Stock Level
Highest inventory quantity before ordering more.
Minimum Stock Level
Lowest inventory quantity; triggers reordering.
Monopoly
Single supplier of product/service; no competition.
National Minimum Wage
Lowest legal wage employers must pay employees.
Natural Monopoly
Industry where single supplier most efficient (high infrastructure cost).
Negotiation
Process of discussing with others to reach agreement.
Net Cash-Flow
Money actually entering minus leaving business.
Net Present Value (NPV)
An investment appraisal method that discounts all future cash flows back to their present value using a discount rate, t...
net profit
(Profit for the Year).
Net Profit Margin
Net profit as percentage of revenue.
Non-Current Liabilities
Obligations due >12 months.
Objectives
Specific, measurable targets to be achieved.
Obsolescence
Products becoming out-of-date/unusable before sale.
Oligopoly
Market dominated by few large suppliers.
operating profit
Profit from normal business operations (excluding interest/tax).
Operating Profit Margin
Operating profit as percentage of revenue.
Operational Efficiency
Achieving goals with minimum resources; effectiveness of operations.
Operations
Day-to-day activities transforming inputs to outputs.
Operations Management
Directing resources to produce goods/services efficiently.
Opportunity
Favorable situation offering potential benefit/growth.
Optimization
Making something as effective/efficient as possible.
Organization Structure
Formal arrangement of positions, reporting relationships, authority.
Organizational Culture
(already covered - see 3.4).
overdraft
Arrangement allowing account to go negative to agreed limit.
Overhead
Indirect production costs not directly tied to product: factory rent, utilities, depreciation, supervision.
Overseas Market
Market in different country from home base.
payables
(Accounts Payable).
Performance Indicator
Measurable metric assessing business/individual performance.
Performance Measurement
Systematic assessment of business/individual performance.
Physical Resources
Tangible assets for business operations: buildings, equipment, vehicles, materials, technology.
Plan
Formal document outlining how to achieve objectives.
Planning
Process of deciding future actions to achieve objectives.
Porter's Strategic Matrix
(Generic Strategies).
Price Control
Government regulation of prices; setting maximum or minimum prices.
Price Fixing
Illegal practice where competitors agree on prices.
Price Regulation
Government control of prices; typically maximum/minimum.
Price Sensitivity
Degree to which demand changes with price.
Price Taker
Business with no control over price; must accept market price.
Profit and Loss Account
(see Income Statement).
Profit Maximisation
Business objective making highest possible profit.
Profit Reinvestment
Plowing back company profits into business rather than distributing to shareholders.
Profit Satisficing
Business objective earning sufficient profit while pursuing other goals.
Profit Share
Arrangement where employees receive portion of company profits.
Profit vs Cash
The distinction between profit (an accounting measure of revenue minus costs over a period) and cash (the actual money a...
profitability
Ability to generate profit; degree of profit earned.
Purchasing Power
Ability to buy goods/services; determined by income and price levels.
Quotas (Trade)
Limit on quantity of imports allowed.
Ratio Analysis
Examining financial statement ratios for insights.
receivables
Money owed to company by customers for goods/services delivered.
Recession
Economic contraction; negative growth, rising unemployment, falling demand.
Recycle/Recycling
(see Waste Minimisation).
Regulated Industry
Business sector with government price/conduct regulation.
Regulation
Government rules controlling business behavior.
Regulatory Body
Government agency enforcing regulations.
Regulatory Compliance
Meeting regulatory requirements; following rules/standards set by government.
Reorder Level
Inventory quantity triggering new order placement.
Reorder Quantity
(Economic Order Quantity).
Resource Allocation
Distributing limited resources (budget, equipment, labor, time) across activities/projects.
Resource Efficiency
Using resources (materials, energy, labor, capital) productively with minimum waste.
Resource Management
Planning/controlling business resources to achieve objectives.
Retained Earnings/Profit
Profits kept in business rather than distributed to shareholders.
Retrenchment Strategy
Strategy reducing business scope/operations; cutting back.
Return on Capital Employed (ROCE)
Profitability relative to capital invested.
Return on Equity (ROE)
Profitability relative to shareholder investment.
Returns
Profit/gains realized from investment/capital employed.
Risk Assessment
Systematic process identifying and evaluating risks.
Risk Management
Systematic approach minimizing negative impact of risks.
Safety (Workplace - already covered)
Protecting employees from harm.
Safety Standards
Requirements ensuring workplace safety: equipment standards, procedures, training, protective equipment.
Sales Forecast
Prediction of future sales volume/value.
Sales Revenue
Income from product/service sales.
Satisficing
Making satisfactory decision rather than optimal.
Scarcity
Limited availability of resources relative to demand.
Scenario Planning
Developing alternative future scenarios and responses.
Scheduling
Planning when tasks/production occurs.
Semi-Fixed Costs
Costs with both fixed and variable components.
Semi-Variable Cost
(see Semi-Fixed Costs - 2.2).
Sensitivity Analysis
Examining how changes in key variables affect outcomes/decisions.
Setup Costs
(Changeover Costs).
share capital
Equity finance from investors purchasing company shares.
short-term finance
Borrowing for immediate needs, repaid <1 year.
Short-Term Objective
Goal achieving within 1 year; operational/tactical targets.
Simple Payback
An investment appraisal method that calculates how long it takes for the cumulative cash inflows from an investment to r...
Single Process
Manufacturing step producing product start-to-finish.
Situation Analysis
Comprehensive assessment of current business position.
Solvency
Long-term ability to meet all financial obligations.
Stability
Maintaining current position; not growing or shrinking.
Statement of Comprehensive Income
Statement of Financial Position
(see Balance Sheet).
Stock Turnover
(Inventory Turnover - already covered).
Stock Valuation
(Inventory Valuation).
Strategic Choice
Selecting strategy from alternatives.
Strategic Decision
Long-term, major-impact decision affecting business direction.
Strategic Group
Competitors with similar strategies and target markets.
Strategic Intent
Long-term direction and aspiration; where business wants to be.
Strategic Management
Process of developing, implementing, evaluating strategy.
Strategic Objective
Long-term (3+ year) goal driving business direction.
Strategic Planning
Process of developing long-term strategy.
Strategic Position
Where business stands strategically relative to objectives and competition.
Strategic Response
Business reaction to external changes/opportunities/threats.
Strength (Internal)
(see Strengths - SWOT).
Strengths
(SWOT).
Subsidy
Government payment supporting producers/consumers.
Substitutes
(Porter's Five Forces).
Supplier Relationship Management
Building/maintaining effective supplier partnerships.
Surplus
Excess supply relative to demand at current price.
Sustainable Production
Manufacturing minimizing environmental/social impact.
Tactical Decision
Short-term, operational-level decision.
Tactical Objective
Medium-term (1-3 year) goal supporting strategic objectives.
Taper Integration
Operating at multiple supply chain levels but not fully controlling all.
Targeted Growth
Growth focused on specific segments/markets/products.
Tariff
Tax on imports, making foreign goods more expensive.
Tax
Mandatory payment to government by individuals/businesses.
Tax Relief
Reduction in taxes; temporary or permanent.
Tax Revenue
Money paid by businesses and individuals to governments through various taxes (corporation tax, income tax, VAT, etc.), ...
Technology (Production)
Tools, equipment, processes used in production.
Technology Innovation
Using technology advances to create competitive advantage.
Technology Transfer
Sharing technology knowledge/capabilities between countries/organizations.
Threat
Threat of New Entrants
Time-Series Analysis
Statistical method analyzing data over time to identify trends/patterns.
Trade
Exchange of goods/services between parties/countries.
Trade Barriers
Obstacles to international trade: tariffs, quotas, regulations, transport costs.
trade credit
Arrangement to purchase goods/services on credit; payment due later (typically 30-90 days).
Trading Bloc
Group of countries with reduced trade barriers among themselves.
Turnaround Strategy
Plan to restore business from poor performance to viability.
Uncontrollable Factors
External factors business cannot influence: economic conditions, competitor actions, natural disasters, regulation, tech...
Underutilisation
(Under-utilization).
Unemployment
Percentage of labor force without work/actively seeking.
Unique Selling Proposition (USP)
(already covered - see 1.3).
Variable Costs
Expenses changing with production/sales volume.
variance analysis
The process of comparing actual financial results with budgeted (planned) figures to identify variances, understand thei...
venture capital
Investment in early-stage businesses with growth potential.
Vision
(Strategic).
Warrant
Security giving right (not obligation) to buy company shares at set price within period.
Waste
Discarded materials, inefficiency, rework, excess capacity.
Waste Minimisation
Reducing waste in production/operations.
Weakness
Win-Win Strategy
Approach benefiting multiple stakeholders; mutually beneficial.
Work Study
Analyzing work methods to improve efficiency.
Workforce Flexibility
(see Flexible Workforce - 1.4).
working capital
Current assets minus current liabilities; funds for day-to-day operations.
Working Capital Management
Strategies optimizing current assets/liabilities for operational efficiency.
World Economy
Global economic system; interconnected markets, trade, finance.
Write-Off
Removing asset from books when deemed worthless.
Zero-Based Budgeting
Building budgets from zero; justifying each expense without reference to previous budgets.
Zero-Sum
Situation where gain for one equals loss for another.