BUSS3 Key Term Glossary Financial Strategies and Accounts

A liquidity ratio that   looks at whether a business can pay for current liabilities out of cash and   near-cash assets (it ignores the value of stocks)

A ratio that calculates the   relationship between revenues and the total assets employed in a business

Amounts owned by, or owed   to a business

A measure of the total   accounting return from an investment project

The financial statement   that provides a snapshot of the assets and liabilities of a business at a   particular date

Expenditure on assets which   are intended to be kept in the business (e.g. IT systems, machinery) rather   than sold or turned into products

Specific objectives set by   a business for cash-flow generated by a business

The tax levied on the   profits of companies.  The percentage   varies depending on the size of the profits earned; typically 20-30%

A strategy of achieving the   most cost-effective way of delivering goods and services to the required   level of quality

A ratio that estimates the   average period (in days) taken to settle amounts owed by a business to   suppliers

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)

A long-term source of   finance – a debenture is a form of bond or long-term loan issued by a company

A ratio that focuses on the   average time it takes for trade debtors to settle their accounts.  Usually measured in days

An accounting estimate of   the fall in value of a fixed asset over time

The multiplication factor   that converts a projected cost or benefit in a future year into its present   value

Amounts paid to   shareholders out of the profits earned by a company.

A measure of shareholder   return – calculated by comparing the dividend per share by the share price

Assets such as property,  equipment and vehicles that are intended to be retained and used in a   business for more than one year

A 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

A business that is viable   and able to continue in business for the foreseeable future

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

A financial statement that   summarises the trading results of a business over a specific period – usually   one year

Analytical techniques to   help management evaluate the returns from potential investments, and to help   choose between competing investments

Amounts owed by a business   to others

The ability of a business   to finance required payments to creditors

The present value of a   series of future net cash flows that will result from an investment, minus   the amount of the original investment

The profit earned by a   business from its entire trading operations – stated before financing (e.g.  interest) and tax

Where a business suffers   financial difficulties from expanding too quickly – usually suffering set-up   losses and increased working capital

The time it takes for a   project to repay its initial investment

A separately-identifiable   part of a business for which it is possible to identify revenues and costs   and calculate a relevant profit

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

The amount of profit earned   in a period (absolutely measure) or rate of profit earned compared with   revenue (relatively measure)

Amounts set aside to cover   future costs or liabilities (e.g. redundancies, business closures, legal   disputes)

Interpretation of financial   performance by calculating and interpreting ratios

Profits earned by a   business that are kept in the business rather than distributed as dividends

Spending on day-to-day   operation of the business – e.g. paying for materials, staff costs,  management salaries, advertising

The issue of new shares to   existing shareholders in order to raise new finance.  The new shares are usually offered at a   significant discount to the existing share price to encourage take-up

A measure of the percentage   return that a business earns from the capital employed in the business.  Often referred to as the “primary ratio”

The amount invested into a   company by shareholders

The rewards earned by   shareholders = dividends paid to them + any increase in the value of their   shares

A liquidity ratio that   looks at how often a business rotates its stock during a year

Amounts that a business   owes to its suppliers

Amounts that are owed to a   business from its customers

The net amount invested by   a business to finance day-to-day trading: usually calculated as current   assets less current liabilities