Glossary of Terms for Business A Level Key terms that you need to understand to be able to explain and use correctly. Highlight each term as we cover it. Adding value The process of increasing the worth of resources by modifying them / those resources in production so that customers perceive the product to be worth more than the cost of the inputs Added value = Sales revenue minus cost of bought-in materials Adverse variance A difference between actual and budgeted amounts which is bad news e.g. higher than budgeted costs Advertising Paid-for communication, aimed at informing or persuading Adviser An external contact of a business that provides support and advice, sometimes for free Aims / goals General statements of what a business intends to achieve. Precise details of those intentions are set out in objectives Ansoff s Matrix A strategic model for helping a business analyse the relationship between general strategic direction and suitable marketing strategies; market penetration, market development, product development and diversification Arbitration Alternative to a court of law in determining legal and employment disputes. Involves a specialist outsider being asked to make a decision on a dispute Assessment centres Where a recruiting firm runs a series of extended selection procedures, lasting one day or sometimes longer Assets Amounts owned by, or owed to a business Asset turnover A ratio that calculates the relationship between revenues and the total assets employed in a business Autocratic Leadership A style of leadership that keeps decision making at the centre of the organisation, without team discussion. Automation The replacement of workers with machines to perform task in production Average A term for various measures of central tendency, including the mean, mode and median Average rate of return Measures of the total accounting return from an investment project ARR% = net cash flow pa x 100 Initial capital cost 1
Balance sheet The financial statement that provides a snapshot of the assets and liabilities of a business at a particular date Balanced Scorecard A management planning tool used to match a business s activities to its vision Bank loan A fixed amount loan from a bank which is generally used to finance long-term assets OR Sum of money provided to a firm/person by a bank for an agreed purpose, on which interest is charged. Bank overdraft Where a bank allows an individual or organisation to overspend on their current account up to an agreed limit provide short term / temporary finance. Bankruptcy Where an individual becomes insolvent i.e. they cannot pay what they owe. Boston Matrix A marketing model which analyses the product portfolio of a business into four categories (stars, cash cows, problem children and dogs) Branding The use of a trade name, symbol, logo or other device to differentiate a product or service Breakeven output (or point) The point at which the total sales of a business equal total costs -i.e. the business is making neither a profit nor a loss Budget A detailed plan of income and expenses expected over a certain period of time Bureaucracy The formal structure of processes, procedures, methods of communication and hierarchy in an organisation linked to the issue of decision-making Business angel A particular type of investor, usually a successful entrepreneur, who is willing to invest in high-risk, high-growth firms at a very early stage Business cycle Pattern of increases and decreases in economic growth (measured by % changes in GDP) over the long-term Business ethics The system of acceptable business behaviours and principles that are applied in the commercial world Business plan Written document/report which details how a firm intends to achieve its future objectives i.e. a detailed description of a new or existing business, including strategy, aims and objectives, marketing & financial plan. Business to business B2B, business-to-business involves the selling or products and services by one business directly to another. 2
Capacity utilisation The proportion of total capacity that is used (expressed as a percentage) OR capacity utilisation measures the extent to which a business output matches the maximum of which it is capable 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 Capital intensity Extent to which production or operations depend on investment in and use of capital e.g. machinery, IT etc. Cash flow The movements of cash into ( inflows ) and out of ( outflows ) a business Cash flow forecast A cash flow forecast shows the inflows and outflows of money) either that are expected / predicted in a business or over a given period of time. Projection is usually by week or month. Centralisation An organisational structure where authority rests with senior management at the centre of the business Commission A payment to a salesperson based on each sale made. Communication The process of exchanging information or ideas between individuals or groups (sender to receiver). Competition The businesses that compete for a share of a market Competitive advantage Skills, competences, resources and other advantages that enable a business to out-perform its competition Competitive market A market in which a business faces significant competition meaning it will struggle to achieve high profit margins and market share without some form of competitive advantage Competitiveness The ability of a business to offer a better product than competitors (as measured by customers) OR the ability of a firm to succeed in the market whether through low prices, quality products or a USP. Conciliation A way of mediating industrial disputes to gain agreement without going to arbitration Conglomerate A business with several significant business activities in diverse markets. Consultant Someone who is not employed by the business but is brought in to provide advice. Consumer protection Legislation designed to protect consumers in their dealings with businesses 3
Contingency planning Planning for specific situations or risks which will threaten a business if things go wrong Contribution The difference between total sales and total variable costs Contribution per unit A key number for breakeven analysis: the difference between selling price per unit and variable cost per unit. Copyright Legal protection for anyone that has produced work in a range of areas these include literature, drama, music, art, layouts, recordings and broadcasts of work. Core competences The unique abilities a business has that provide it with competitive advantage Core workers Employees who are part of the core workforce of a business central to the business activities Corporate objectives Objectives that relate to the business as a whole and support the achievement of corporate aims. Usually set by top management - medium to long term goals for the business. Corporate strategy Concerned with the overall purpose and scope of the business activities Corporation tax The tax levied on the profits of companies. The percentage varies depending on the size of the profits earned; typically 20-23% Correlation A measure of how close the relationship it (positive or negative) between an independent variable and a dependent variable Cost leadership A business strategy concerned with aiming to be the lowest-cost producer in an industry. Usually requires exploitation of economies of scale (Link to Porter s Generic Strategies) Costs Amounts incurred by a business as a result of its trading operations Cost minimisation A strategy of achieving the most cost-effective way of delivering goods and services to the required level of quality also Cost reduction Actions taken by a business aimed at reducing total costs, or lowering average unit costs Credit crunch The financial crisis of 2007-9 which resulted in lower bank lending as a result of declining confidence amongst financial institutions Creditors Amounts owed by a business e.g. to suppliers for goods purchased on credit Creditor days A ratio that estimates the average period (in days) taken to settle amounts owed by a business to suppliers 4
Critical path analysis Project management tool that uses network analysis to help manage complex and time-sensitive operations Culture The set of values, belief s and behaviour that exists within an organisation the way we do things 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) Customer service The ways in which a business meets the needs and wants of its customers Customer relationship management (CRM) The process of building a long-term, profitable relationship between a business and its customers Customs Union Where there is a free trade between member countries but an agreed tariff on non-members Debentures A long-term source of finance a debenture is a form of bond or long-term loan issued by a company Debtors Amounts owed to a business e.g. by customer paying on trade credit terms Debtor days A ratio that focuses on the average time it takes for trade debtors to settle their accounts. Usually measured in days Decentralisation An organisational structure where authority is delegated further down the hierarchy, away from the centre Delayering The process of removing one or more layers from the organisational structure Delegation Where a manager(or superior) entrusts a task to another employee (subordinate) Demand The amount of a product or service that customers are willing and able to pay at a given time Or Demand is the desire/want to own a good or service with the ability to pay. Demographic Defining a market in terms of social-economic factors such as segmentation age, income, class, ethnicity etc. Depreciation An accounting estimate of the fall in value of a fixed asset over time Depression A prolonged period of negative economic growth (1-3 years) Direct selling Method of distribution which involves a business transacting with a customer without the use of intermediaries 5
Discount factor The multiplication factor that converts a projected cost or benefit in a future year into its present value (in NPV) Diseconomies of scale Factors which result in higher unit costs as production output increases Distribution channel How a business gets its products to the end consumer (with or without the use of intermediaries) Diversification A strategy of expanding into different markets with different products to spread the risk.. often seen as the most risky of the generic business strategies suggested by Igor Ansoff. Dividend Amounts paid to shareholders out of the profits earned by a company per share owned. Dividend yield A measure of shareholder return calculated by comparing the dividend per share by the share price Downsizing The reduction in the scale and resources of a business, usually involving job losses and/or the sale or closure of business units Economies of scale Cost advantages that a business can exploit as a result of expanding its scale of production. E of S reduce the average (unit) cost of production Economic growth Increase in the value of economic activity over a specific period measured in terms of the change in GDP Efficiency Measure of the ability to achieve the required level of production whilst minimising the use of resources Elasticity of demand The responsiveness of demand to a change in price or incomes Electronic market Market in which buyers and sellers are brought together using digital communication to exchange information and conduct transactions. Compared with physical markets where buyers and sellers meet face to face. Emerging market A developing economy experiencing faster economic growth than developed economies but with less-developed infrastructure (e.g. China, Brazil, India & Russia) Employee Engagement The connection between a business s employees and it s mission, values and objectives. Employment law Legislation concerned with the rights and responsibilities of employers and employees in the workplace Empowerment Delegating power to employees so that they can make their own decisions. 6
Enterprise The process by which new businesses are formed in order to offer products and services in a market Entrepreneur An individual who has an idea and sets up a business to exploit it. OR Someone who takes a risk of financial loss and makes decisions / manages the business. An individual who sets up and runs a new business and takes on the risks associated with the business Euro zone The group of countries in the European Union which share the same currency (the Euro) European Union The economic and political union of most European states aimed at reducing trade barriers and harmonising economic policy Exchange rate The price of one currency expressed in terms of another e.g. Pound / US Dollar External growth Growth of revenues and profits arising when a firm buys another business (takeover) Expenditure budget Expenditure budget: the agreed targeted/planned/forecast costs/expenses of a business over a period of time External recruitment Where candidates for a job vacancy come from outside the organisation Extrapolation The use of trends established by historical data to make predictions about future values Factoring A source of finance where a business receives a proportion of the amount owned by trade debtors from a specialist finance-provider Fair trade A social movement that exists to promote improved trading terms and living conditions for producers of raw material in less developed countries. A premium paid contributes towards community facilities e.g. schools Favourable variance Difference between actual and budgeted results which is good news. e.g. higher than budgeted revenue Free trade Where there is trade between countries without barriers such as quotas and tariffs Fiscal policy Use of taxation and government spending to influence aggregate demand and supply in the economy 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 7
Fixed costs Costs that do not vary directly with the level of output e.g. rent, salaries. Expenditure that does not vary in proportion with changes in output /in the short-run. Flexible working Where a business uses a number of different working practices in order to suit the job in hand and the needs of employees (e.g. part-time, job-sharing, Homeworking, annualised hours contracts) Focus Group A market research method which involves a small number of people gathered to discuss a specific issue/topic. Franchise Where the owner of the business, the franchisor sells the right to use the product to another, the franchisee Franchisee The person or company which operates a franchised business format - under licence from a franchisor Franchisor The owner of a business format (franchise) which is licensed out to other people or businesses (franchisees) Free market economy Economic resources are owned largely by the private sector with little state intervention Freedom of trade International trade which is not discouraged through the use of trade barriers such as tariffs and import quotas Full-time employee Employees who work more than 30 hours a week in a business (compare with part-time, which is working for less than 30 hours) i.e. a complete/full working week. Functional objectives Set for each major business function designed to ensure that the corporate objectives are met GDP Acronym for Gross Domestic Product the total value of all goods and services produced by an economy over a given period. GDP is the main measure of economic growth Gearing 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 Gearing ratio% = long term loans x 100 capital employed Globalisation Process by which regional economies, societies, and cultures have become integrated through a globe-spanning network of communication and business activities. Going concern A business that is viable and able to continue in business for the foreseeable future 8
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. Government intervention Actions taken by government to intervene in the workings of markets for example the imposition of taxes, legislation, or providing services that the market under-supplies Government spending The provision of goods and services by the public sector; includes transfer payments (i.e. benefits) Hard HRM An approach to HRM based on treating employees as resources in the same way as any other business resource Health & safety Legislation designed to protect the physical welfare of everyone who comes into contact with a business Hierarchy The structure and number of layers of management and supervision in an organisation Horizontal integration Expansion by a business by acquiring other businesses operating at the same stage of the supply chain e.g. a fashion retailer buys another retailer Human resource management (HRM) Strategies for managing people in order to achieve business objectives Hunch Use of intuition as a key part of decision-making, rather than rely on detailed, scientific decision-making processes Income budget The budget which sets out estimates of the likely demand for and value of the firms sales OR A financial plan estimating inflows / receipts / sales revenue / money received over specific period of time in the future. Income statement (Profit / Loss Account) A financial statement that summarises the trading results of a business over a specific period usually a year Induction training Training aimed at introducing new employees to a business and its procedures Industrial inertia Where a business decides to stay in its existing location despite potentially better locations being available Inflation A rise in the average level of prices in an economy Infrastructure The system of transport links (road, rail, public transport), communications and other external services that a business needs to operate effectively in a location. 9
Innovation Putting an new idea or approach into action the commercial exploitation of ideas Inputs The resources (land, labour, capital, enterprise) that go into producing goods and services Interest rate The cost of borrowing money and the return made on savings Internal recruitment Where candidates for a job vacancy come from within the organisation Interview Part of the recruitment process where a candidate is met face-to-face Investment appraisal Analytical techniques to help management evaluate the returns from potential investments, and to help choose between competing investments Intuition An approach to decision-making based on the hunch or intuitive feelings of the decision-maker (contrast with scientific decision-making) Job description A summary of the main duties and responsibilities of a job Job design The way in which tasks are combined to form a job refer to Hackman & Oldman s theory. Job enlargement Giving employees more tasks of a similar level of complexity to expand the number of tasks completed. Job enrichment Making a job more interesting or varied so that is more rewarding Joint Venture A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. Just-in-time Method of lean production where production resources arrive at the moment they are required rather than being held in stock Kaizen A cultural approach to lean production and quality assurance. Involves encouraging employees to constantly seek and implement small incremental changes to production in order to improve quality and efficiency 10
Labour intensity The extent to which production or operations depend on investment in and use of labour i.e. people, training Labour productivity Output produced per employee over a given time period Labour shortage Where a business finds it does not have sufficient employees in number, or with the right skills and experience, for its needs Labour Turnover Measure of the rate at which employees are leaving an organisation. The formula being: Number of leavers per year x 100 Average Number of staff Leadership The process and methods of influencing others to take desired actions towards the goals of the organisation Lead-time The period of time between an order being placed and being received Lean production Approach to management that focuses on cutting out waste whilst still ensuring quality. Lease An agreement to rent assets e.g. premises or vehicles, from another business organisation over a period of time in return for regular payments Liabilities Amounts (debts) owed by a business to others Limited liability Shareholders are only liable for the money they have invested - not for the overall debts and liabilities of their company Liquidity The ability of a business to finance required payments to creditors Location Location is the physical place from which a business conducts its operations The place (or places) from which a firm does business. Can be both a physical location and also virtual. Loan Capital Long-term capital from sources other than shares or savings, such as via a bank loan which must be repaid within a set period and on which a set rate of interest is charged Loss leader Where a price is set deliberately below the cost of production in order to attract customers who will then buy other, more profitable products 11
Management The process of setting objectives and taking decisions to make the most efficient use of an organisation's resources Manager Someone who sets objectives and directs and controls resources in a business Managing Director A member of the board of directors, who is the senior manager in a business. Also referred to as the Chief Executive Officer (CEO) Margin of safety The difference between the actual level of output and the break even output Market Any place (e.g. physical, electronic) where buyers and sellers meet/come together with to make transactions Marketing budget Specific amounts that are allocated to activities in the marketing plan Market development A growth strategy where the business seeks to sell its existing products into new markets - e.g. exporting (from Ansoff s matrix) Marketing economies Economies of scales achieved where marketing costs per unit sold can be lowered by spreading marketing costs over larger output Market growth The percentage growth in the size of the market, measured over a specific period Market research The process of planning, collecting, and analysing data relevant to help make marketing decisions. Market research is the systematic and objective collection of data and the analysis of that data in order to assist the marketing process. Marketing mix Set of marketing tools that the firm uses to pursue its marketing objectives. Commonly taken to comprise 4Ps product, price, promotion and place OR the 7Ps marketing (price, product, promotion, place, people, process, physical) used by a business to influence customer behaviour. Mass market Describes the largest group of customers with specific needs and wants in an industry Market penetration A relatively low-risk growth strategy where a business focuses on selling existing products into existing markets (from Ansoff s matrix) Marketing plan Actions that management intend to take via the marketing mix and strategy to achieve marketing objectives 12
Market Segment A group or sub-group or section of customers/people who share a specific characteristic Market segmentation The process of dividing a market into smaller sections (segments) segmentation which contain customers with similar needs and wants in order to identify different types of consumer e.g. by age, gender, location Market share Proportion of a market revenue or sales volume/share of the total market that is captured by a particular business, product or brand. Usually expressed in percentage terms. The firm with the largest percentage market share is known as the market leader. Market size Total value or quantity of demand in a specific market over a specific period of time. Can be measured in value terms (e.g. sales) or in terms of quantities (e.g. units) bought or sold. Market niche The identification of a previously unexploited gap in the market tends to be small and specialised groups of customers with similar characteristics Merchandising Promotion of a product at the point-of-sale, usually in a retail environment Merger The coming together of two businesses of equal size into a new, merged business. In reality true mergers are rare the deal is much more likely to be a takeover Mission statement A formal statement which explains the overriding purpose & values of a business & thus direct it. Monetary policy The use of interest rates and other techniques (e.g. quantitative easing) by financial authorities to support their economic objectives, including economic growth and the control of inflation Moving average A calculation that takes a data series and smooth s the fluctuations in data to show a trend average Multinational A business which owns operations in more than one country 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 Net profit Profit that remains after all operating costs are taken away from sales revenue. Net profit is usually stated before any deductions for tax. 13
Net profit margin A measure of profitability. Net profit margin is calculated as net profit divided by sales revenue. The resulting figure is shown as a percentage Network analysis Breaking a project down into separate activities and their requirements - AKA critical path analysis Niche market A niche market is a focused segment of a larger market sector which is it possible to target as customers have more specific needs and wants. Not for Profit Business Businesses with a motive other than profit this may be to provide a social benefit or service to society or support a cause. Objectives Objectives are targets or goals of an organisation that can be specifically measured overtime Offshoring Where a business has work (e.g. production) done for it overseas Off-the-job Training that takes place away from the workplace (e.g. on a course) On-the-job Training that takes place at the workplace (e.g. being supervised and coached whilst working) Operating profit Profit earned by a business from its entire trading operations stated before financing (e.g. interest) and tax Opportunity cost The cost of a decision as measured by the benefits foregone of the next best alternative Ordinary Share Capital Investment given to a business by shareholders in return for a share of profit (a dividend) and a voting right. The dividend is not fixed so does not have to be paid. Organic growth Growth when a firm expands its existing operations and product range, rather than acquiring another business Organisational culture Set of shared beliefs and actions that are built into the way that people in an organisation behave Organisational structure The way that the roles and responsibilities within an organisation are structured Output The finished products (goods and services) that result from the production (or "transformation") process. Outsourcing Where a business has work done for it by someone else 14
Overtime Hours worked beyond those contracted to work. For full time staff this may be paid at time and a half or double time Overdraft When money is withdrawn from a bank account & the available balance goes below zero - the account is said to be "overdrawn" and is interest paid on the amount. Businesses will negotiate an overdraft limit with their bank Overtrading Where a business suffers financial difficulties from expanding too quickly usually suffering set-up losses and increased working capital Patent The right to be the only user of producer of a specified product or process Payables (Creditors or Trade Payables) Value of debt for goods bought on credit for which payment to suppliers is owed Payback period The time it takes for a project to repay its initial investment Payment terms The period of time that a supplier allows for an invoice to be settled Penetration pricing Pricing strategy that involves setting lower, rather than higher prices in order to achieve a large market share Peripheral workers Employees who are on the fringe of the core workforce. They are not essential (core) workers, and their activities can often be outsourced or provided using flexible contracting Permanent employee An employee who is employed on a formal employment contract and remains with the firm for an open-ended period until the contract is ended. A permanent employee has a contract with an agreed number of hours every week compare with a temporary employee ( temp ) who is employed for a shorter, time-limited period. Personal finance: Money that is provided by the owner from their own savings, family or personal wealth/assets. Person culture An organisational culture in which all individuals believe themselves superior to the organisation. Such a business can be hard to manage, since individuals are likely to pursue their own goals in the medium to long-term Person specification A description which identifies the skills and experience that are likely to be held by a successful applicant for a job vacancy Power culture Where the organisation is dependent on a main power source usually the owner or founder 15
PR (Public Relations) Giving out information to the media about the business with the aim of improving its image OR the planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its public. Pre-tax profits The surplus of revenue over a given period after all relevant costs have been accounted for, but before corporation tax has been paid Price elasticity of demand The responsiveness of demand to a change in the price of a product Price leader A market leader business whose price changes are followed by rivals Price skimming Pricing strategy where a higher price is charged for new product to take advantage of customers prepared to pay for innovation Price taker A business that has no option but to charge the ruling market price Pricing decisions The decisions taken about how to price a product Pricing strategies The overall strategic approach to pricing over the medium-to-long term, often based on the market positioning of a product Pricing tactics Short-term pricing decisions and approaches taken - e.g. temporary use of promotions or a short price war Primary research Market research that involves the collection of information first hand for a specific purpose. Primary data is first-hand information that is related directly to a firm s needs Private Limited Company Incorporated business that is owned by shareholders who tend to be family and friends of the entrepreneur. Product life cycle A theory which predicts the stages a product goes through from introduction to withdrawal from a market Product development Growth strategy where a business aims to introduce new products into existing markets (from Ansoff s matrix) Productivity Measures of output per worker over a given time period OR Measures of how effective a business is in turning resources (e.g. labour hours) into output Product portfolio The collection of products and brands owned and operated by a firm Product positioning The way in which the marketing function tries to create an image or identity in the minds of the target market Profit The difference between total sales and total costs 16
Profitability Ability of a business to generate profits from its activities. Profitability is often measured in terms of the return on sales (net profit margin) or return on investment (return on capital). Profit centres A separately-identifiable part of a business for which it is possible to identify revenues and costs and calculate a relevant profit 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 such as sale of assets Promotional mix Mix of activities and approaches taken to promoting a product, including advertising, direct selling etc. OR the ways in which a business can communicate with its customers Psychological pricing Using price as a way of influencing a consumer's behaviour or perceptions, for example using high prices to reinforce a quality image Public relations The promotion of a business through news stories, sponsorship and similar activities. Shortened to PR. Purchasing economies Cost savings that arise from buying in bulk or powerful relationship with a supplier due to increased output Qualitative research Market research concerned with collecting data on attitudes, opinions, beliefs, intentions etc. Quantitative research Market research concerned with collecting data that can be quantified - e.g. sales statistics Quantitative data is data in numerical form; usually collected from larger scale research in order to generate statistically reliable results Quality Where a product meets a customer s requirements OR quality is the extent to which a product fulfils customers expectations Quality assurance Organising every process to get the product 'right first time' and prevent mistakes ever happening Quality control The inspection of products as part of a sampling process to ensure that the right production standards have been achieved Quota (and tariffs) A restriction on the volume or quantity of a good that can enter or be sold in a market (form of trade barrier) Quota Sample (Convenience Sample) Where interviewers select people within target population who meet set criteria e.g. on age, income or gender 17
Random Sampling Sampling method in which all members of the population have an equal chance of being chosen. Rationalisation Reorganising production in order to increase productivity and efficiency, may involve closures or relocation Ratio analysis Interpretation of financial performance by calculating and interpreting ratios Receivables (Debtors or Trade Receivables) The value of payments from due from customers who have been given trade credit Recession A period of two consecutive quarters (i.e. six months) where economic growth (measured by the change in GDP) is negative i.e. the value of economic activity falls Redundancy A form of dismissal, which can happen when an employee's job no longer exists. Repositioning Changing the marketing mix for a product to appeal to a different market segment Reshoring When a business moves production back to the domestic country e.g. back to the UK Retrenchment Reduction in the scale and diversity of a firm s operations. usually results in the disposal or closure of business units & brands and lower staff numbers Return The rewards to enterprise e.g. profit, satisfaction Return on capital Measure of the return made by investing in a business or business project. Return on capital is calculated as: (Net profit / Capital Invested) x 100 and shown as a percentage Retained earnings Profits earned by a business that are kept in the business rather than distributed as dividends Revenue Income or sales that a business achieves in a period. Calculated by multiplying selling price per unit x units sold. Revenue expenditure Spending on day-to-day operation of the business e.g. paying for materials, staff costs, salaries, advertising Rights issue Issue of new shares to existing shareholders in order to raise finance. The new shares are usually offered at a significant discount to the existing share price to encourage take-up Risk Risk is the degree to which the problems that a business faces can lead to financial loss for the owners. The probability or chance that hoped-for outcomes will not occur 18
Robotics The science and technology of robots, and their design, manufacture, and application 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 Role culture An organisational culture which is highly bureaucratic and structured typical of long-established, larger businesses Sale & leaseback A method of raising finance. Sale and leaseback involves a business selling a major asset (e.g. land & buildings) and then leasing the same asset back from the new owner. Sales forecasting Techniques for estimating the likely demand (revenue and volume) for a product in future periods Sales promotion Tactical, point of sale material or other incentives designed to stimulate purchases Sample In market research, a sample is a subset of a population. Sampling is the process of taking and analysing a research sample. Scale The size or output of a business, best measured relative to that of direct competitors Scientific decision- Strategic decision-making taken after analysing and evaluating making relevant evidence Sectors of Industry Primary Sector: that part of the economy concerned with the extraction of resources at the first stage of production; agriculture, fishing and extractive industries such as oil exploration and mining. Secondary Sector: that part of the economy concerned with manufacturing goods. Tertiary Sector: that part of the economy concerned with providing a service such as restaurants, banking, retail and hairdressing. Selection The process of deciding which applicant for a job a business should appoint Share capital The finance invested in a business (limited company) by the shareholders part of the equity capital of a firm Shareholder An investor in a company and thus one of the owners of it. Shareholder returns Rewards earned by shareholders = dividends paid to them + any increase in the value of their shares Short-termism The pressure to deliver quick results to the potential detriment of longer term development of a company. 19
SMART objectives Objectives that are more likely to be achieved because they are Specific, Measurable, Achievable, Realistic and Timed Social enterprise Business with objectives other than just making profit. Part of a group of organisations in the not-for-profit sector Social responsibility The way in which a business meets its responsibilities to society as a key external stakeholder and especially with groups and individuals with a direct interest.in the business Soft HRM Approach to HRM based on treating employees as the most important resource in a business Sole trader One person business with unlimited liability for the debts of that business. A sole trader is a business that is unincorporated (has unlimited liability) and which is owned by one person Span of control The number of employees who are directly supervised by a manager Spare capacity When a business is able to produce more with existing resources (also known as excess capacity) Staff turnover Proportion of staff that leave a business over a period usually measured over a year Stakeholder Person, group or organisation with an interest in the activities of a business. Can be internal or external. Strategic decision A long-term decision which affects the overall strategic goals and objectives of the business (e.g. a decision to go ahead with a significant takeover) Stock control Processes and controls used to ensure that business has sufficient (but not too much) stock for its purposes Stocks Raw materials, work-in-progress and finished goods held for resale. Also referred to as "inventories" Stock turnover A liquidity ratio that looks at how often a business rotates its stock during a year Strategic drift Where the strategy of the business no longer matches with the environment which it operates it Strategic objectives Objectives concerned with the overall strategy of the business (compare with tactical objectives which are set in much more detail). Stratified Sampling A method of sampling that divides the population into sub-groups from which a certain number of people are chosen. Or where a selection of people/respondents is chosen at random (sometimes described as stratified random sample) from within a sub-group of the target market (target population). 20
Sub-contracting Delegation by a firm of part of its production process, under contract, to another firm, which may be in another country. Part of outsourcing Subsidies Financial assistance provided by the government to support economic activities that it wishes to encourage (e.g. the Car Scrappage Scheme OR to farmers) Supplier An individual, business or other organisation which provides goods or services to a customer or consumer Supply-side policies Specific government policies aimed at increasing the production potential of an economy (e.g. encouraging greater investment to improve productivity) Sustainability In a business context, this is the use of resources and suppliers which does not lead to environmental damage. SWOT analysis Assessment of the internal strengths and weaknesses of a business and the external opportunities and threats that the business needs to consider Synergies Cost savings or increased revenue opportunities that arise when two or more businesses are brought together. In a takeover or merger, cost savings (e.g. the elimination or duplicated activities or purchasing economies of scale) tend to be emphasised. Tactical decision A decision which is designed to help a business achieve its short-term objectives. Tactical decisions tend to be taken at a functional level (e.g. add extra shift capacity or run a sales promotion) Takeover The acquisition of one business by another Targets Similar to objectives, targets are often set at an individual or team level Target market The market segment or segments which a business is attempting to enter with the chosen marketing mix Tariff A tax levied on imports to increase their price compared with domestic goods (form of trade barrier) Task culture An organisational culture which places emphasis on individual projects and small teams. This culture rewards effective teamwork and expertise Team working Individuals work in groups rather than focusing on their own specialised jobs 21
Technical economies Reductions in unit costs arising from the effective use of technology Technological change Change that arises as a result of developments and innovation in technology e.g. new methods of distribution, Temporary Employee A temporary employee is only required to work for a limited time, with no permanent guarantee of regular and continued employment beyond an agreed date. Test marketing Launching a new product or service in a limited part of the target market in order to gauge the viability of the product and assess the most appropriate marketing mix Total Contribution Sales revenue/income minus (total) variable costs OR Price minus variable costs per unit multiplied by output /sales volume/ quantity. OR Contribution per unit multiplied by output /sales volume/ quantity. Total costs The total of variable and fixed costs in a business TQM (Total Quality Management) An attitude to quality where the aims are zero defects and total customer satisfaction Trade credit Amounts owed to suppliers of a business a source of finance Trade creditors (on Balance Sheet as Payables) Amounts that a business owes to its suppliers Trade debtors (on Balance Sheet as Receivables) Amounts that are owed to a business from its customers Trademark A word, symbol, or phrase used to identify a particular company s product and differentiate it from other companies products. A trademark is a sign/logo/symbol/word style used to distinguish a business / brand from its competitors. Trade union Organisations of employees who seek to negotiate their employment terms through collective bargaining Training The provision of work-related education or skills development Trend A general direction in which something tends to move Turnover The total value of sales made within a given period of time also known as sales revenue or sales income 22
Unemployment The extent to which people who are able and willing to work are not able to find employment. Often expressed as a percentage of the labour force. Unlimited liability Unlimited liability describes the potential risk that sole traders and partnerships face. The owners of a business are responsible for the total amount of debt of the business and may lose their personal belongings if they cannot cover the business debts. Unit cost The average production cost per unit. A measure of productive efficiency calculated as total costs divided by total output (over a specific period) Urbanisation The movement of people from the countryside to live in cities USP USP is an acronym for "Unique Selling Point". A USP is a feature of a product or service that makes it stand out compared with the competition. If a USP is sustainable, then it can be a source of significant competitive advantage for a business. VAT Value added tax is an indirect tax charged on our spending. Currently at 20% on all items we purchase with the main exceptions being most food, books, children s clothes and shoes. Variance The difference between the budgeted amount and what actually happens. A variance can be "positive" (favourable) or "negative" (adverse) Variable costs Costs that vary directly in proportion to output (e.g. materials, pay related to amounts produced or sold) Venture capital Investment made by specialist funds to finance the launch, early development or expansion of a private company Vertical integration Expansion by a business involving firms operating at different stages of the supply chain e.g. a retailer buys a wholesaler, or a distributor buys a manufacturer Viral Marketing Use of social networking sites or SMS to increase brand or product awareness Vision Statement Statement of what the organisation would like to achieve or accomplish in the long term. 23
Waste A cost of production. Sub-standard completed output or raw materials which are not retained in the production process What if or Sensitivity analysis A technique that uses variations in forecasts to review a range of possible outcomes for a project or proposal. Window dressing Methods used by companies to present their financial performance in the most favourable terms possible World Trade Organisation(WTO) Deals with the global rules of trade between nations (160+ member countries). Its aims to ensure that trade flows as smoothly, predictably and freely as possible. Workforce role The tasks involved in a particular level or grade of job Workforce planning How a business determines how many and what kind of employees are required Works council A formal meeting of employer and employees to consider issues affecting the business and workplace mandatory for larger businesses in the EU Workload The amount of work assigned to a particular worker, normally in a specified time period Working capital Amount of money that a business has available to conduct its day-to-day activities. In accounting terms the net amount invested by a business to finance day-to-day trading: usually calculated as current assets less current liabilities Zero hours contracts An employment contract between an employer and a worker, which means the employer is not obliged to provide the worker with any minimum working hours, and the worker is not obliged to accept any of the hours offered. Zero based budgeting A method of budgeting in which all expenses must be justified for each new budget year. Zero-based budgeting starts from a "zero base" for every function/department within an organisation. Please refer to Mrs Evans Theories & Models Guide Booklet for explanations of AS and A2 Theories you need to learn. 24