3.5 : Assessing Competitiveness

A set of 25 vocabulary flashcards covering financial interpretation, ratio analysis, and human resource metrics for assessing business competitiveness.

Statement of Comprehensive Income

Also known as the profit and loss account, it shows the income and expenditure of a business over a period of time (usually a year) and calculates profit.

Statement of Financial Position

Also known as the balance sheet, it identifies a business's assets and liabilities and specifies the capital used to fund the business at a specific point in time.

Liquidity

The ability of a business to meet its short-term commitments, such as payments to creditors, with its available assets.

Gearing Ratio

A ratio that shows the balance of non-current liabilities to shareholder capital used to fund a business, calculated as $\frac{\text{Non Current Liabilities}}{\text{Capital Employed}} \times 100$.

Capital Employed

The total value of long-term funds used by a business, calculated by adding non-current liabilities to total equity.

Return on Capital Employed (RoCE)

Also known as the primary ratio, it measures how effectively a business uses its invested capital to generate profit, calculated as $\frac{\text{Operating Profit}}{\text{Capital Employed}} \times 100$.

Highly Geared Business

A business where more than $50\%$ of its capital employed is comprised of long-term loans.

Low-geared Business

A business where less than $50\%$ of its capital employed consists of long-term loans.

Window Dressing

The legal manipulation of financial accounts to present a particular financial picture, such as writing off bad debts or revaluing property.

Labour Productivity

A measure of output per employee for a specific time period, calculated as $\frac{\text{Total Output}}{\text{Average number of employees}}$. balance.

Labour Turnover

The proportion of employees leaving a business during a specific time period, calculated as $\frac{\text{Number of Staff Leaving}}{\text{Average Number of Staff}} \times 100$.

Labour Retention

The proportion of employees remaining with a business during a specific time period, calculated as $\frac{\text{Number of Staff Remaining}}{\text{Average Number of Staff}} \times 100$.

Absenteeism Rate

A measure of the proportion of staff who were absent from work during a specific period of time, calculated as $\frac{\text{Number of staff absent}}{\text{Number of staff employed}} \times 100$.

Consultation

The human resource strategy of managers obtaining the views of employees when making decisions to increase involvement and commitment.

Empowerment

Providing employees with autonomy and responsibility to make their own decisions, use their own knowledge, and develop their own solutions.

Assets

Resources owned by a business, categorized as current or non-current in the statement of financial position.

Liabilities

The financial obligations or debts of a business, categorized as current or long-term in the statement of financial position.

Dividend Payments

The portion of profits earned that is paid out to shareholders as a return on their investment.

Trade Credit

A credit arrangement where suppliers allow a business to pay for goods or services at a later date, often based on the firm's success and solvency.

Operating Profit

The profit generated from a business's core operations, used in the numerator for calculating Return on Capital Employed (RoCE).

Non-current Liabilities

The long-term financial structure of a business consisting of debts like long-term loans that are due after more than one year.

Solvency

The ability of a business to meet its long-term financial obligations, often determined by calculating working capital.

Current Assets

Liquid assets that a business expects to convert to cash within a year, such as inventory or trade receivables.

Human Resources

The employees of a business who must be managed to monitor performance metrics like productivity, turnover, and absenteeism.

Share Capital

The owner's investment in the business, which forms part of the capital structure along with borrowed funds.