BUSINESS COMPONENT 2

Histogram

A graph of vertical bars representing the frequency distribution of a set of data.

Pie Chart

A circular chart divided into triangular areas proportional to the percentages of the whole

Sales Forecast

A prediction of future sales over a specific period of time

Index Number

An index number is a figure reflecting price or quantity compared with a base value. The base value always has an index number of 100.

3 Point Moving Average

3 period found by-

Adding up every 3 pieces of Data, and dividing it by 3 to find the moving average

Scatter Graph

A graph that shows the relationship between two related sets of data

Correlation

A measure of the relationship between two variables

Line of Best Fit

A line drawn in a scatter plot to fit most of the dots and shows the relationship between the two sets of data

Time-Series Analysis

A forecasting method that uses historical sales data to discover patterns in the firm's sales over time and generally involves trend, cycle, seasonal, and random factor analyses

Positive Correlation

A correlation where as one variable increases, the other also increases, or as one decreases so does the other. Both variables move in the same direction.

Negative Correlation

The relationship between two variables in which one variable increases as the other variable decreases

Outlier

A value that "lies outside" (is much smaller or larger than) most of the other values in a set of data.

Qualitative Forecast

Forecasts that incorporate such factors as the decision maker's intuition, emotions, personal experiences, and value system

Brainstorming

Coming up with as many solutions to a problem as possible in a short period of time with no censoring of ideas

Delphi Technique

A decision-making technique in which group members do not meet face-to-face but respond in writing to questions posed by the group leader.

Intuition

A gut feeling not necessarily supported by research

No Correlation

There does not appear to be a relationship between two sets of data

Extrapolation

A forecasting technique used to identify the trend by using past data and extending this trend to predict future sales.

Variance Analysis

A technique for determining the cause and degree of difference between the budgeted and actual values.

Favourable Variance

When costs are lower than expected or revenue is higher than expected

Adverse Variance

When costs are higher than expected or revenue is lower than expected

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

Working Capital

The money required for the day to day operations of a business. It is calculated as current assets - current liabilities

Asset

Anything of value that is owned

Fixed Asset

asset with long-term use (over 12 months) or value, such as land, buildings, and equipment

Current Asset

An asset that is expected to be converted to cash, sold, or consumed during the next 12 months.

Long-Term Liabilities

Liabilities owed for more than a year e.g. mortgage or long-term loan.

Current Liabilities

Liabilities due within a short time, usually within a year e.g. bank overdraft

Owner's Equity

The amount of the business that belongs to the owners minus any liabilities owed by the business

Capital Employed

The total value of all long-term finance invested in the business calculated as total equity + non-current liabilities

Return on capital employed (ROCE)

The profit of a business as a percentage of the total amount of money used to generate it.

Current Ratio

current assets - current liabilities

Acid Test Ratio

Current Assets - Stock / Current Liabilities

Gearing

A long-term liquidity ratio that measures the percentage of a firm's capital employed that comes from long-term liabilities, such as debentures and mortgages. Firms that have at least 50% gearing are said to be highly geared.

Gearing Ratio

non-current liabilities/capital employed x 100

Depreciation

A decrease or loss in value of a fixed asset through wear and tear or obsolescence

Straight Line Depreciation

(cost-residual value)/useful life

Window Dressing

Measures taken by management specifically intended to make a business look as strong as possible in its balance sheet, income statement, and statement of cash flows

Inflation

The general tendency for prices to rise.

Customer Attitudes and Expectations Surveys

Does the product meet customer expectations? Attitudes formed about the product and/or company. Improve ads, customer conversion, commitment and loyalty

Non-financial performance measures

Statistics and data that are not financial in nature but can be used to assess an organisations performance such as the non-financial measures used in a balanced scorecard

Triple Bottom Line

Recognition of the need for organisations to improve the state of people, the planet, and profit simultaneously if they are to achieve sustainable, long-term growth

Vision Statement

Establishes the scope and purpose of a company and reflects its values and beliefs. It specifically considers what a business wants to be in the future.

Mission Statement

A short, specific written statement of the reason a business exists and what it wants to achieve in the present.

SMART Objectives

Targets that are specific, measurable, agreed, realistic and time constrained.

Business Objective

A clearly defined target for a business to achieve over a certain period of time

Business Aim

A stated target for the future (E.g. to survive its first year of trading)

Corporate Strategy

A strategy that determines the means for utilising resources in the various functional areas to reach the organization's goals

Strategic Direction

Sets out which markets a business will compete in and what products it will offer

Divisional Strategy

A plan that focuses on how the different departments of the organisation comply with the company's vision

Functional Strategy

The strategies used by an organization's various functional departments to support the corporate strategy

Corporate Plan

A strategy detailing how a firm's aims and objectives will be achieved, comprising both medium- and long-term actions.

Tactics

The short-term methods that firms can use to achieve their objectives

SWOT Analysis

Identifying internal strengths (S) and weaknesses (W) and also examining external opportunities (O) and threats (T)

Porter's Five Forces Model

A model for analysing the competitive forces within the environment in which a company operates, to assess the potential for profitability in an industry.

Ansoff's Matrix

A model used to show the degree of risk associated with the four growth strategies of market penetration, market development, product development and diversification

Market Penetration

A marketing strategy that tries to increase market share among existing customers

Diversification

A strategy of increasing sales by introducing new products into new markets. This carries the highest level of risk of any strategy.

Market Development

Trying to increase sales by selling present products in new markets

Product Development

A marketing strategy that entails the creation of new products for existing markets that a company already competes in.

Horizontal Integration

When one firm merges with or takes over another one in the same industry at the same stage of production.

Backwards Vertical Integration

When a business merges with or takes over its raw material suppliers

Forwards vertical integration

Involves a firm joining one in the next stage of production. Example: A grain farmer buying a bakery.

Conglomerate integration

The coming together of firms operating in unrelated markets.

Organic Growth

When a business grows through expanding its own operations with no use of mergers or takeovers.

External Growth

When a business takes over or merges with another business

Takeover

An act of taking control of a company by buying most of its shares

Merger

When two or more companies combine to form a single, larger company

Competition and Markets Authority (CMA)

The body responsible for strengthening business competition and preventing and reducing anti-competitive activities.

Franchising

A contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a business using a name and format developed and supported by the franchisor.

Franchise

A business established or operated under an authorisation to sell or distribute a company's goods or services in a particular area

Franchisee

An individual or business that is granted the right to sell another party's product

Franchisor

A company that develops a product concept and sells others the rights to make and sell the products.

Royalties

The share of earnings given by a franchisee as payment to the franchiser

Licensing

Selling the right to use some process, trademark, patent, or other right for a fee or royalty

Rationalisation

Reducing the number of resources, particularly labour and capital, put into the production process, usually undertaken because a business has excess capacity

Downsizing

A planned reduction in the number of employees needed in a firm in order to reduce costs and make the business more efficient

Outsourcing

A decision by a corporation to turn over much of the responsibility for production to independent suppliers.

Decision Tree Analysis

A type of analysis that determines which decision is the best. The decision tree assists in calculating the value of the decision and determining which decision costs the least.

Expected Monetary Value (EMV)

The product of a risk event probability and the risk event's monetary value

Decision Node

A square which represents points in a decision tree when decisions need to be made

Chance Node

A circle that shows the sum of the probabilities. A chance node must equal one.

Scientific Decision Making

Based on data and uses a logical, rational approach to decision making

Intuitive Decision Making

Making decisions on the basis of experience, feelings, and accumulated judgment.

Critical path analysis (CPA)

The process of planning the sequence of activities in a project in order to discover the most efficient and quickest way of completing it

Float Time

The amount of time the early start of a task may be delayed without delaying the finish date of the project. Also known as slack time.

The Critical Path

The sequence of activities in a project that is expected to take the longest to complete

Earliest Start Time

How soon a task in a project can begin. It is influences by the length of time taken by tasks which must be completed before it can begin.

Latest Finish Time

The latest time an activity may be completed without increasing the project completion time.

Critical Activities

Activities with zero slack and on the critical path

Cost-Benefit Analysis (CBA)

A tool for policy analysis that attempts to monetize all the costs and benefits of a proposed action to determine the net benefit

Net Benefit

The difference between all benefits and all costs

Investment Appraisal

Financial decision-making tool that helps managers to assess whether certain investment projects should be undertaken based mainly on quantitative techniques

Net Present Value (NPV)

The sum of the present values of expected future cash flows from an investment, minus the cost of that investment

Payback Period

The amount of time required for an investment to generate cash flows sufficient to recover its initial cost

Payback Method

measures the time it will take to recoup, in the form of expected future cash flows, the net initial investment in a project

Average Rate of Return (ARR)

Calculates the average annual profit of an investment project, expressed as a percentage of the initial sum of money invested

Discounted Cash Flow (DCF)

A method of investment appraisal that takes time into account by calculating the present value of future income

Special Order Decisions

Focus on whether a specially priced order should be accepted or rejected