Chapter Four

Question 1

Effectiveness

Answer 1

The degree to which a business has achieved its objectives

Question 2

Efficiency

Answer 2

Refers to how well a business uses resources to achieve objectives

Question 3

Performance Indicators

Answer 3

Are measurable statements which business use to evaluate performance

Question 4

Financial Indicators

Answer 4

Are found in the accounting records and are expressed in dollar terms

Question 5

Non Financial Indicators

Answer 5

Are commonly expressed in real terms and often make use of qualitative data

Question 6

Financial Statements

Answer 6

Summarise the activities of a business over a period of time

Question 7

Net Profit

Answer 7

The difference between revenue earned from the operations of the business and any expenses incurred in earning that revenue

Question 8

Expenses

Answer 8

Are what it has cost the business to provide its services or sell its products

Question 9

Revenue

Answer 9

Is what the business receives in the normal course of trading or operating, including sales, fees, interest, dividends, royalties and rent

Question 10

Profitability

Answer 10

Measures the earning performance of the business and indicates the business’s ability to maximise profits

Question 11

Cost of goods sold

Answer 11

Includes the cost of materials used to produce the goods and any direct labour costs involved in producing the goods

Question 12

Balance Sheet

Answer 12

Shows a businesses assets and liabilities at a point in time

Question 13

Assets

Answer 13

Are items of value owned or controlled by the business that can be given monetary value

Question 14

Liabilities

Answer 14

Are items of debt that the business owes

Question 15

Owners Equity

Answer 15

Refers to the money given to the business by the owner for the purchase of resources and for undertaking operations

Question 16

Liquidity

Answer 16

The extent to which the business can meet its financial commitments in short term (less than 12 months)

Question 17

Credit terms

Answer 17

The terms and conditions of sale between a customer and a business, including the amount of time provided for making final payment

Question 18

Solvency

Answer 18

The extent to which the business can meets its financial commitments in the long term (more than 12 months)

Question 19

Gearing

Answer 19

Measures the percentage of the assets of the business which are funded by external sources

Question 20

Evaluation

Answer 20

The process of assessing whether the business has achieved stated objectives

Question 21

Gross Profit Margin

Answer 21

Shows the amount of revenue that results in gross profit

Question 22

Net Profit Margin

Answer 22

Shows the amount of revenue that results in net profit

Question 23

Working Capital Ratio

Answer 23

Measures the level of current assets available to meet a business’s current liabilities

Question 24

Customer Satisfaction

Answer 24

Is the degree to which the businesses perceived performance meets a customer’s expectations

Question 25

Benchmarking

Answer 25

Compares the strengths and weaknesses of a business against those of other successful businesses, with the aim of reforming those processes that are not achieving the business's objectives

Question 26

Market Share

Answer 26

Is the share of the total market that a business has, expressed as a percentage

Question 27

Triple Bottom Line

Answer 27

Refers to the economic, environmental and social performance of a business

Question 28

Sustainability Report

Answer 28

Publishes information about the financial, environmental and social performance of a business