AQA A Level Business Unit 7 Key Terms

Mission

An organisation's aims or long-term intentions, its ultimate purpose.

Corporate objectives

Goals of an organisation as a whole rather than the different functional elements of the organisation.

Strategy

The medium to long term plan in which an organisation aims to achieve its objectives.

Tactics

The way a strategy is carried out.

Functional decision making

Decision making that is meant for the short to medium term and applies to a specific functional area.

Strategic decision making

Decision making that applies to the whole overall policy of an organisation.

SWOT analysis

A technique that enables an organisation to assess its position by using an internal audit to assess its strengths and weaknesses and another external audit to assess its opportunities and threats.

Balance sheet

A financial statement that summarises a company's assets, liabilities and shareholder's equity at a particular point in time.

Income statement

An account showing the income and expenditure of a company over a period of time.

Management accounting

The creation of financial information for use by internal users in a business to overlook the financial performance of a business.

Assets

Items that are owned by an organisation.

Non current assets

Resources that can be used repeatedly in the production process.

Current assets

Assets that can be expected to be turned into cash in one year.

Financial accounting

The supply of financial information to show external users the financial performance of the business.

Liabilities

Debts owed by an organisation to suppliers, shareholders, investors or customers who have paid in advance.

Total equity (or total shareholders' equity -capital-)

Funds provided by shareholders to set up the business, fund expansion and purchase fixed assets.

Gross profit

Revenue minus cost of sales. The gross profit shows how efficiently a business is converting its raw materials or stock into finished products.

Operating profit

the revenue earned from everyday trading activities minus the costs involved in carrying out those activities. It is also gross profit minus expenses.

Ratio analysis

A method o assessing a firm's financial situation by comparing two sets of linked data.

Profitability ratios

Measure the efficiency with which a business makes profit, in relation to its size.

Return on capital employed

measures the profitability of a business by calculating its operating profit as a percentage of the capital that a business has at its disposal - that is, its capital employed.

Liquidity ratio

Measures the ability of a business to stay solvent (pay its liabilities) in the short term.

Current ratio

Measures liquidity by expressing current assets as a ratio to current liabilities.

Solvency

A measure of a firm's ability to pay its debt on time.

Performance metrics

Measure a business's activities and performance. These measures would be suited to the needs of the stakeholders as a whole, rather than focus on the needs of the shareholders and managers.

Core competences

The unique abilities or ability of a business that enables it to achieve a competitive advantage.

Short-termism

A tendency for businesses to prioritise current performance rather than the long-term sustainability of the business.

Kaplan and Norton's Balanced Scorecard Model

A strategic planning and management system used to ensure that a business's activities are linked to its vision statement.

The triple bottom line

Describes a means of assessing business performance that considers three different factors: financial returns (profit), social responsibility (people) and environmental values (planet).

Enterprise

The process by which businesses are formed and new goods and services created and brought to the market.

Infrastructure

The physical assets underpinning the UK's network for transports, energy generation and distribution, electronic communication, solid waste management, water distribution and waste water treatment.

Gross domestic product

A measure of economic activity; the total value of a country's output over a given period of time.

Exchange rates

The price of one country's currency in terms of other currencies.

Inflation

An increase in the general level of prices within an economy.

Fiscal policy

The use of taxation and government expenditure to influence the economy.

Monetary policy

Controlling the money supply and the rate of interest in order to influence the level of spending and demand in the economy.

Protection (or protectionism)

The extent to which a government uses controls to restrict the amount of imports entering the country.

Globalisation

The increased integration and interdependence of national economies. It includes increased international trade.

Emerging economies

Developing countries that have the potential to grow and develop in terms of productive capacity and market opportunities.

Urbanisation

The increase in the proportion of people living in towns and cities.

Migration

The permanent move of people from one region to another; migration can be internal, that is within a country and for which urbanisation is an example, or international that is between countries.

Corporate social responsibility

The duties of an organisation towards employees, customers, society and the environment.

Caroll's CSR Pyramid

A pyramid illustrating the four tiers; economic responsibilities, legal responsibilities, ethical responsibilities, and philanthropic responsibilities.

Technological change

Adapting new applications of practical or mechanical sciences to industry and commerce, it includes information and communication technology (ICT).

Barriers to entry

Factors that obstruct or restrict the entry of new firms into an industry or market.

Investment decisions

The process of deciding whether or not to undertake capital investment (the purchase of non-current assets) or major business projects.

Investment appraisal

A scientific approach to investment decision making, which investigates the expected financial consequences of an investment, in order to assist the company in its choices.

Payback period

The length of time that it takes for investment to pay for itself from the net returns provided by that particular investment.

Average rate of return

Total net returns divided by the expected lifetime of the investment (usually a number of years), expressed as a percentage of the initial cost of the investment.

Net present value

The net return on an investment when all revenues and costs have been converted to their current worth.

Investment criteria

The ways in which a business will judge whether an investment should be undertaken.

Risk and uncertainty

the probability of unforeseen circumstances that may harm the success of a business decision.

Sensitivity analysis

A technique used to examine the impact of possible changes in certain variables on the outcome of a project or investment.

Gearing formula

Non-current liabilities/capital employed * 100

Current ratio formula

current assets/current liabilities

Return on Capital Employed (ROCE) formula

Operating Profit/Capital Employed * 100

Payables (creditors) Days formula

Payables/Cost of sales * 365

Receivables (debtors) Days formula

Receivables/Sales revenue * 365

Inventory Turnover formula

Cost of Sales/Inventories

Capital Employed formula

Total equity + non-current liabilites