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CHAPTER 60: INTERPRETATION OF FINANCIAL STATEMENTS

Financial Statements

Statement of
Statement of Financial
Comprehensive Income
Position (Balance Sheet)
(Profit & Loss Account)

I. Statement of Comprehensive Income (Profit & Loss Account)

→ For most PLCs, the Statement of Comprehensive Income is used to show the
income & expenditure of the business for a period of time (usually one year)
& calculate the profit made by the business.

A. Key Information
1. Revenue(/turnover)
→ money the business receives
from selling goods & services.

2. Cost of sales
→ production costs of a business
which relates to direct costs such
as raw materials & labour.

3. Gross profit
→ is the cost of sales subtracted from the revenue.

4. Selling expenses
→ Range of expenses related to the selling of business’s products. Example,
advertising.

5. Administrative expenses
→ Are general overheads/indirect costs of the business. Example, office
salaries.

6. Operating profit
→ Is when the selling & admin costs are subtracted from gross profit.

7. Finance costs
→ If a business borrows money, it will have to pay interest to the lender. The
amount paid will be entered in Statement of Comprehensive Income as a
finance cost. However, a business may also receive interest if it has money
in deposit account. This will appear as finance income in the accounts.
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8. Profit for the year (net profit)

→ Profit before taxation
→ Is when the cost of finance is subtracted from the operating profit.

9. Profit for the year (net profit) after tax

→ Also known as ‘bottom line’.
→ Money that is left over after all expenses, including taxation, has been
deducted from revenue.

B. Stakeholder Interest
1. Shareholders
→ Naturally the owners of a business will be interested in its performance.
Shareholders are likely to be interested in the profit made by the business
particularly the profit for the year after tax. Rising profits are an indication
of improving performance.

2. Managers & Directors

→ Since managers & directors are responsible for running the business, they
are likely to use key information from Statement of Comprehensive
Income to monitor progress. Example, changes in revenue will show how
fast a company has grown & whether targets have been met.

3. Employees
→ If employees are seeking a wage increase, it may be helpful to have
access to some of the information in the Statement of Comprehensive
Income when presenting a claim. For instance, if employees wanted a 5%
wage increase, they might point to the 92% increase in the profit for the
year.

4. Suppliers
→ Before a supplier accepts an order from a new customer on trade credit,
it is prudent to carry out a check on their creditworthiness. If the Statement
of Comprehensive Income show that a customer is consistently profitable,
this might be enough proof for the supplier.

5. Government
→ Companies have to produce a Statement of Comprehensive Income by
law. It is needed by the tax authorities to help assess how much tax a
business has to pay.

II. Statement of Financial Position (Balance Sheet)

→ Provides a summary of a firm’s assets, liabilities & capital.
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
 Assets-resources that a business owns & uses.

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 Liabilities-debts of the business, that is, what it owes to other businesses,

individuals & institutions.
 Capital-money introduced by the owners of the business; source of funds
& can be used to purchase assets.

A. Key Information
1. Non-current assets
→ Long term resources of the
business which are not
expected to be sold within
12 months.
 Goodwill-intangible
/invisible/ non-physical
asset; exists if a
company has built up a
good reputation & its
customers are likely to
return.
 Other intangible assets-
example, brand names,
copyright, etc.
 Property, plant &
equipment-
tangible/visible assets
that the business owns.
(Physical assets)

2. Current Assets
→ Liquid assets that belong to
the business.
→ Are either cash or are
expected to be converted into cash within 12 months.
 Inventories- stocks of raw materials, finished goods & work in progress.
 Trade & other receivables-trade debtors, prepayments & any other
amounts owed to the business that are likely to be repaid within 12
months.
 Cash at bank & in hand-money held by a business on the premises or in
bank accounts.

3. Current liabilities
→ Money owed by the business that is expected to be repaid within 12
months.
 Borrowings-short term loans/bank overdrafts taken by the business.
 Trade & other payables-trade creditors & other amounts owed by the
business to suppliers of goods & services.
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 Current tax liabilities-corporation tax, income tax & other tax owed by
the business that must be repaid within 12 months.

4. Non-current liabilities
→ Long-term liabilities of a business. Any amount of money owed for more
than one year.
 Other loans & borrowings-money owed by the company that does not
have to be repaid for at least 12 months. Example, long-term bank
loans, mortgages.
 Pensions
 Provisions

5. Net assets
→ Value of all assets minus the value of all liabilities. It will be the same value
as shareholder’s equity at the bottom of the balance sheet.

6. Equity
→ Shows the amount of money owed to the shareholders.
 Share capital
 Other reserves
 Retained earnings

B. Stakeholder Interest
1. Shareholders
→ Shareholders might use the balance sheet to see how the funds raised by
the business have been put to use. For example, shareholders may see
that more than 60% of the assets are tied up in property.
→ Balance sheet can also be used to assess the solvency of the business,
with the help of working capital. A business is solvent if it has enough
assets to pay its bills.

2. Managers & Directors

→ Balance sheet might be used by the management of a business.
→ Example: It is important for senior managers to be aware of the firm’s
financial position. Thus, it will need to monitor working capital levels to
ensure that the business does not overspend.

3. Suppliers & creditors

→ Suppliers will be most interested in the solvency of the business. Suppliers
are not likely to offer trade credit to a business that only has a limited
amount of working capital.
4. Others
→ It is possible that employees might use the balance sheet to assess
whether a business can afford a pay rise or whether their jobs are secure.
This is only if the assets are greater than the liabilities.
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CHAPTER 61: RATIO ANALYSIS

I. Calculation
1. Profitability or Performance Ratios
→ Help to show how well a business is doing. They tend to focus on profit,
capital employed & revenue.
 Gross profit margin
-how much profit business will have to make in order to survive.

-Higher gross margins are usually preferable than lower ones as this
shows that the business is able to cover its costs.

𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = × 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

-Gross profit margin may be increased by:

a. Raising revenue/turnover by increasing price.
b. Cutting the cost of sales by finding cheaper suppliers.

 Profit for the year margin

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥

𝑃𝑟𝑜𝑓𝑖𝑡 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝑚𝑎𝑟𝑔𝑖𝑛 = × 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

 Return on capital employed (ROCE)

-Interpretation: The higher the ratio the better. But to decide whether
the business has performed well, it should be compared with another
business in the same industry.

-referred to as the ‘primary ratio’.

-it compares the profit, i.e., return, made by the business with the
amount of money invested, i.e., its capital.

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑂𝐶𝐸 = × 100%
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑
(𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠)

2. Liquidity
→ How much liquid assets the business has, to meet its debts/borrowings.
 Current Ratio-assesses whether or not a business has enough resources
to meet any debts that arise in the next 12 months.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
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 Acid Test Ratio

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠

𝐴𝑐𝑖𝑑 𝑇𝑒𝑠𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Interpretation of both Liquidity Ratios:

<1- liabilities > asset; business is insolvent/has cash shortages; business
does not have enough liquid assets to pay back short term loans/debts.
1 -assets = liabilities; there is cash flow problems; no cash in hand
1.5-2 - ‘best’ for the business; efficient working capital; business has
enough cash to meet short term loans/debts
>3 -business has invested too much money on liquid assets which is not
good so the business cannot use the money in the short term. They can
use it in the future if they sell the asset.

3. Financial Ratio
→ Gearing Ratio-can assess whether or not a business is burdened by its
loans.

𝑁𝑜𝑛 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑅𝑎𝑡𝑖𝑜 = × 100%
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

Interpretation:
 50%
-means that a much larger proportion of business
finance is borrowed; high burden for the business.
-High gearing ratio would mean that creditors are
less likely to give loans to the business.
 25% - means that the business is not
overburdened with long-term debt.

Summary:
 High gearing ratio (50%)-means lower
profit/dividend for the shareholders.
 Low gearing ratio (25%)-means higher
profit/dividend for the shareholders.

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II. Limitations of Ratio Analysis

1. Quality of final accounts
→ Ratios are based on financial accounts (Balance sheet & Income
Statement). Consequently, ratio analysis is only useful if the accounts are
accurate. One factor that can affect the quality of accounting
information is the change in monetary values caused by inflation. Rising
prices can distort comparisons made between different time periods.

2. Qualitative information is ignored.

→ Ratios only use quantitative information. On the contrary, some important
qualitative factors may affect the performance of a business that are
ignored by ratio analysis.

→ For example, in the service industry, the quality of customer service may
be an important performance indicator.

3. If 2 businesses in the same industry are compared using the ratio analysis.
Then, this is likely to result in a more valid/ accurate comparison. However, if
businesses in different industries are compared with each other using ratio
analysis. Hence, the result can be inaccurate.

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54

CHAPTER 62: HUMAN RESOURCES

I. Calculation & interpretation of the ff. to help make business decision:
A. Labour productivity
→ Output per worker.
𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡(𝑝𝑒𝑟 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑓 𝑡𝑖𝑚𝑒)
𝐿𝑎𝑏𝑜𝑢𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐴𝑣𝑒𝑟𝑔𝑎𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠(𝑝𝑒𝑟 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑓 𝑡𝑖𝑚𝑒)

→ Is an important measure of the efficiency of a workforce.

→ For example, if there are 2 teams of workers in a factory, each with identical
equipment & the same number of workers, then the team with the highest
productivity could be identified as the most effective team.

→ Increasing labour productivity is generally assumed to increase the

competitiveness of a business. Higher labour productivity should drive down
costs, allowing a business either to lower its prices & so gain higher sales or to
keep its prices the same but increase its profit margins.
→ On the contrary, businesses sometimes find that they become less
competitive despite increasing their labour productivity.

→ Reasons:
 Rival businesses may increase their productivity at an even faster rate.
 A rival business may bring out a far better new product. So even if the
business has lower cost due to productive workforce, customers may
prefer to buy the new product rather than a cheaper old product.

B. Labour Turnover
→ Also known as staff turnover; is the proportion of staff leaving a business over
a period of time.
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑡𝑎𝑓𝑓 𝑙𝑒𝑎𝑣𝑖𝑛𝑔 𝑜𝑣𝑒𝑟 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑
𝐿𝑎𝑏𝑜𝑢𝑟 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 = × 100%
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑡𝑎𝑓𝑓 𝑖𝑛 𝑝𝑜𝑠𝑡 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑

→ Causes of high labour turnover:

 Low pay leads to higher labour turnover as workers leave to get better
paid jobs.
 Few training & promotion opportunities will encourage workers to leave
their current jobs.
 Poor working conditions, low job satisfaction, bullying & harassment in the
workplace.

→ Disadvantages of High Labour Turnover:

 Recruiting new staff can be costly.
 Large companies may put on induction programmes which further adds
to costs.

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→ Advantages of Labour Turnover:

 Some workers may be ineffective & need to be encouraged to leave.
Getting rid of ineffective staff leads to labour turnover.

 Where a business pays low wages or where conditions of work are poor, it
may be profitable to have a constant turnover of staff rather than raise
wages or improve conditions of work.

C. Labour Retention
→ Looks at the rate at which employees stay with the business.
→ Opposite of labour turnover.

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑡𝑎𝑓𝑓 𝑠𝑡𝑎𝑦𝑖𝑛𝑔(𝑜𝑣𝑒𝑟 𝑎 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑)

𝐿𝑎𝑏𝑜𝑢𝑟 𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 = × 100%
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑡𝑎𝑓𝑓 𝑖𝑛 𝑝𝑜𝑠𝑡 (𝑖𝑛 𝑡ℎ𝑒 𝑡𝑖𝑚 𝑒𝑝𝑒𝑟𝑖𝑜𝑑)

→ Advantages:
 High labour retention would mean that business will keep their skilled &
experienced workers. Thus, this will lead to lower recruitment & selection
costs.

 With the existing employees, since they are already familiar with the
working procedures & environment. Hence, the business no longer has to
provide training which may lower costs.

D. Absenteeism
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑡𝑎𝑓𝑓 𝑎𝑏𝑠𝑒𝑛𝑡 𝑜𝑛 𝑎 𝑑𝑎𝑦
𝐴𝑏𝑠𝑒𝑛𝑡𝑒𝑒𝑖𝑠𝑚 = × 100%
𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑡𝑎𝑓𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑

→ Disadvantages:
 Staff who are absent often aim to be ill. The business then in most cases,
has to pay sick pay.

 If temporary staff are brought in to cover for absent staff, this leads to
increased costs. Equally, costs will increase if permanent staff have to work
overtime & are paid at higher rates than their basic rate of pay.

→ Reasons for differences in rates of absenteeism:

 Small businesses tend to have lower rates of absenteeism because there is
much more feeling of teamwork. Whereas, workers in large businesses can
feel that no one will suffer if they take a day off work & so absenteeism is
acceptable.

 Nature of the tasks given to workers-Repetitive tasks will lead to job

dissatisfaction & will encourage workers to report sick. Interesting &
rewarding jobs tend to have lower absentee rates.
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56

 Workers who feel that they are underpaid are more likely to take time off
work. They see it as compensation for the lack of monetary reward they
receive.

II. Strategies to increase productivity & retention & to reduce turnover &
absenteeism
1. Financial rewards
→ Theory of Scientific Management-According to Fredrick W. Taylor, people
are motivated mainly by money & would work harder to earn more.
Therefore, employees should be paid piece rates & the main benefit of
piece rates to business is that it rewards productive workers. Workers who
are lazy will not earn as much as those who are productive. This system
helps to motivate workers & businesses are likely to get more out of their
employees.

→ Performance related pay, bonus, profit related pay, etc. can also be used
to improve worker’s performance.

→ If financial rewards are profitable, it is unlikely that staff will want to leave a
business so staff turnover will be lower.

2. Employee share ownership

→ In large businesses, usually PLCs, they will give their employees (in high
positions) the opportunities to buy the shares of their business in the stock
market & they will be given a discounted rate. The employees will then
become the owner as well as the employee. In addition to their salary,
they will also be receiving profits. As a result, employers will benefit
because the workers are likely to be better motivated & more loyal to the
company if they own shares. They may work harder, take less time off sick
& are less likely to leave.

3. Consultation strategies
→ Employees are likely to be better motivated & more productive if they are
involved in decision making. Staff often complain when changes are
made & they are not consulted.

→ Types:
a. Pseudo Consultation
-no consultation/discussion
-management makes a decision & informs employee of that decision
through representatives.
-employees have no power to influence these decisions.

b. Classical Consultation
-employees have an influence on management decisions.
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57

c. Integrative Consultation
-between management & trade union where they discuss matters
such as ways of increasing productivity or methods of changing work
practices.

→ If employees are consulted, changes are less likely to be resisted. Also,

employees may have ideas of their own which might benefit a business &
such idea can only be expressed of there is a proper consultation process.

→ However, consultation takes too long & slows down the process of
change. Also, some see consultation as a ‘cosmetic’ process where the
views of workers are heard but then ignored.

4. Empowerment strategies
→ Involves granting employees more authority in the workplace.

→ Strategies to help empower employees:

 Training-It is not possible to empower staff effectively without first
equipping them with the skills needed to take on more advanced tasks.

 Provide the necessary resources-There is a little point empowering staff if

they are not given the resources & information needed to undertake
more complex tasks.

 Hand over authority-Once employees have been empowered, they must

be confident that they have complete authority to make decisions. The
methods they choose & approaches they take must not be questioned.

→ Overall, giving people more control over their own work role should help
to improve their motivation & productivity. They will feel valued, more loyal
& less likely to leave an organisation. It may help to reduce absenteeism
because empowered staff may have a greater sense of responsibility.

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58

CHAPTER 63: KEY FACTORS IN CHANGE

Main point of this chapter: How the business will respond to the changes in these
factors?
I. Key factors in change
1. Organisational structure
→ Example: Usually, the business does not give bonuses to its employees, but
if it does, then the culture of the business changes. Therefore, the business
will deal with this by achieving high profit in order to give bonuses to its
workers.

→ One of the most significant drivers for organisational change is external

growth as a result of a merger/acquisition. In such cases, two
organisational cultures will come together & their compatibility will often
be the key factor that leads to success or failure.

2. Size of the organisation

→ The larger the organisation the less adaptable & flexible it becomes. This
might simply be because there is more change to manage but also
because decision making takes longer in firms with a longer chain of
command.

→ In contrast, smaller businesses are far more flexible because decisions can
be taken quickly & implemented without the involvement of a large
number of stakeholders. Thus, smaller businesses are more likely to
respond quicky with changes.

3. Time/speed of change
→ If the speed of change is fast, the business has to respond fast or in
parallel with the changes otherwise they may fail & leave the market.

→ Example: Before, Nokia Company produces analogue phones. Due to

fast changes in technological advancement, they thought they can
cope with these changes but they fail to respond with this fast change.
As a result, they fail in the market & as of present, they can’t compete
with other businesses like Samsung, Apple, etc. who have responded
quickly with these changes.

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II. Managing Resistance to change

→ Some shareholders may resist with the changes:
1. Workforce
→ Reasons:
 Employees & managers may fear that they will be unable to carry
out new tasks, may be made redundant or may face a fall in
earnings.

 Individual workers might be concerned that they will no longer work

with their preferred colleagues or may be moved to a job that they
dislike.

2. Owners
→ Owners may also be resistant as they might fear operating in unknown
markets & conditions. They might not want the cost of any changes.
They may also fear that they might not be able to adjust to new
situations & be forced out of business.

3. Customers & suppliers

→ If the business changes their way of dealing with its customers like for
example, how the customers will place their orders to the business. If
some customers are not prepared to place orders in this new way, then
the business may lose some of its customers.

Solution: To manage successful change in a business-create a sense of

urgency. This means getting people to actually see & feel the need for
change. Stakeholders must understand the need for change through
effective communication if anger and fear are to be overcome.

III. Transformative Leadership

→ Is a leadership style in which leaders encourage, inspire & motivate
employees to innovate & create change that will help grow & shape the
future success of the business.

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60

CHAPTER 64: CONTINGENCY PLANNING

Contingency Planning
-is the process of anticipating possible changes in a
business’s situation & discussing ways of dealing with them.
-keeping up a back-up plan due to external factors.

I. Identifying key risks through risk assessment Risk assessment-the process

→ Possible scenarios: of identifying the risk/threats/
1. Natural disasters negative impacts.
→ The Earth is susceptible to natural
disasters. These are catastrophic
events that usually occur suddenly & are caused by environmental
factors. Examples include floods, hurricanes, volcanic eruptions,
tsunamis, earthquakes, epidemics, etc. Such events can have
devastating effects & may result in high levels of damage, death &
disruption.

→ Example: Since Japan is prone to earthquake, the businesses should

take contingency plan to have their other operations in other countries
where earthquake is uncommon so that their production will not be
disrupted.

2. IT systems failure
→ IT systems may fail anytime, to protect valuable information of the
business, they will have to keep ‘back-up’ in different devices/places
as part of contingency planning. This is so that they will not lose all the
important information if the IT system fails.

3. Loss of key staff (valuable/skilled staff)

→ If the skilled/experienced staff leaves the business, the business will
need to have back-up workers to replace the staff who left. Otherwise,
the business will cease production.

→ Example, if the skilled managers leave the business, the business should
prepare the assistant managers & give them training ahead of time so
that they can take this position. This is the contingency plan.

II. Planning for Risk Mitigation

Risk Mitigation-actions/process taken by the business to reduce the risks.

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A. Business Continuity (Plan)

→ Shows how a business will operate after a serious incident & how it expects to
return to normal in the quickest time possible.

B. Succession Planning
→ Part of risk mitigation involves identifying & developing current employees
who have the potential to occupy key roles in the future. This is an important
process because it will help a business deal with the problem of losing key
staff.

→ Without succession planning, a business might end up promoting a person

who is not equipped to do the job or recruiting an unknown outsider at a far
greater risk & expense.

→ Overall, succession planning means that once key staff leaves the business,
some workers will fill the empty positions(temporarily) so it will not be a
problem for the business.

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62

❖ BUSINESS TERMINOLOGIES IA2 (UNIT 3)

Annual revenue-the total value of Contribution-is defined as selling price
sales/price x quantity sold made within minus variable cost per unit; can be
a trading period of one year used to calculate break-even point; is a
financial factor taken into account
Ansoff’s matrix-is a decision-making tool
when making strategic and tactical
to help formulate business strategies
decisions
Assessing financial performance-
Corporate culture-is the ethos of a
analysing/ reviewing what the business
business and the way in which it
has achieved based on financial
conducts itself, it can differ on grounds
criteria.
of ethics, stakeholder inclusion,
Boston matrix-is a business tool used for management styles, CSR, treatment of
product portfolio analysis employees

Brand-A name, symbol or logo that Corporate objectives-the objectives of

identifies/differentiates the a medium to large-sized business as a
product/business in the eyes of the whole
consumer.
Corporate social responsibility (CSR)- a
Business continuity plan-shows how a policy that an organisation adopts for
business will operate after a serious image/PR/ethical/competitive reasons,
incident and how it expects to return to it also refers to the attitude of the
normal in the quickest time possible organisation towards employees/
customers/society/the environment
Company growth(inorganic)- the
development/expansion of the business Corporate strategy-refers to the action
by inorganic growth through mergers, plans & policies developed to meet a
takeovers, and acquisitions company’s objectives.

Company growth(organic)-the Critical path analysis-identifies the

expansion of a business through precise sequence of activities that need
increased sales/market share/ to be completed within a strict
distribution/product range/ customer timeframe and shows the best way to
base etc. avoid any unnecessary delay

Competitive advantage-a product offer Customer demand-The desire to buy a

which, by virtue of its price, quality, good or service from a business which
performance, etc. has demonstrable can be converted by the business into
advantages over its competitors sales

Conglomerate-A business that consists Customer loyalty-a positive attitude

of different types of businesses. They will held by a customer towards a business
be unrelated to each other but part of and/or its products which results in a
the whole group high level of repeat purchases rather
than switching to a competitor
Contingency planning-anticipates risks
before they happen and formulates a Customers-the persons or organisations
plan of action to cope with the risks. that actually make the purchase of
goods/services from a business

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63

Decision trees- shows the possible Growth strategy-the development/

outcomes of a decision with the expansion of a business which may be
estimated probability and expected organic, by expanding from within its
monetary value of each of these own resources or inorganic, through
outcomes mergers, takeovers, and acquisitions
Directors-are individuals elected to Inorganic growth-is the expansion of a
oversee the running of the company on business by takeovers and mergers.
behalf of the owners.
Investment appraisal-These are business
Diseconomies of scale-rising long run tools/techniques that can be used to
average costs as a business expands help management make strategic
beyond its minimum efficient scale decisions such as whether a capital
investment project should be
Diversification-developing new
undertaken or not. Examples include
products in new markets
simple payback/average rate of
Economies of scale-the reductions in return/discounted cash flow
average costs enjoyed by a business as
Investment-spending by a business on
output increases
for example plant and machinery or
Employee share ownership-is when human resources in order to generate
interest in a company is held by the returns in the future
company's workforce.
Joint venture-when two or more
Employees-People/internal stakeholders businesses set up a new business which
whose time/labour is contracted to will be operated jointly.
carry out work for a business for which
Labour productivity-a measurement of
they are paid by the business
the efficiency achieved by the average
Ethics-in the context of business ethics, employee as calculated by labour
consideration of the moral ‘rights or productivity = output per time
wrongs’ of a decision at an often- period/number of employees
strategic level, in accordance with the
Labour turnover-the rate at which staff
law, and a business’s code of conduct
leave a business
in relationship to corporate social
responsibility Labour/employee retention-looks at the
rate at which employees stay with the
External influences-are events that
business. It is the opposite of labour
happen in the environment around the
turnover
business and have an impact on the
business. They include political, Long term strategy-is the direction or
economic, or social. They may be focus of the business projected into the
characterized as PESTLE future, it helps determine and guide the
business’ operations over a period of
External technological environment-is
time
the impact of technological change on
businesses through e-commerce and Long-term loans-are a method of
the use of mobile technology finance, usually from a bank. Interest
must be paid back
Financial statement-shows the
performance of the business over time, Market development-the marketing of
in terms of revenue and profit existing products in new markets
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Market share-is the % of the total market Portfolio analysis-a method of

a business has in terms of volume or categorising all the products & services
value of a firm (its portfolio) to decide where
each fit within the strategic plans.
Mergers-A mutual agreement between
the managements and shareholders of Positioning-How a business uses its
two companies to bring both marketing mix to establish its relationship
organisations together to customers and in comparison, to
competitors
Mission statement-A statement of aims
or common purpose adopted by a Private limited company-is where shares
business designed to direct or stimulate are owned by friends/family that is not
the organisation listed/traded on the stock market
Opportunities-are options or openings Product development-marketing new/
that business might be able to exploit modified products in existing markets
resulting in improvement such as rise in
Rate of absenteeism-the number of staff
revenue.
who are absent as a percentage of the
Organic growth-involves expansion from total workforce. It can be calculated for
within a business by expanding the different periods of time. E.g.,
product range, or number of business daily/annually
units and location
Ratio analysis-involves using information
Organisational change-a process in from the financial statements and
which a large company/organisation turning it into numbers which are easy
changes its working methods or aims for to understand and can be used to
example in order to develop & deal compare the performance of a business
with new situations or markets over time or with similar businesses.
Penetration-using tactics such as the Recruitment-is finding suitable new
marketing mix to increase the growth of employees and can be done internally
existing products in an existing market. or externally
PESTLE analysis-analysis of the external Redundancies-employees that lose their
political, economic, social, jobs because the business no longer
technological, legal & environmental needs that job role
factors affecting a business
Remuneration-the reward for work in the
Physical resources- refer to the form of pay, salary/ wages including
operational factors concerned with allowances and benefits such as
premises, equipment and other company cars, health insurance,
resources needed to meet customer pensions, bonuses & non-cash
needs incentives
Porter’s strategic matrix-was developed Risk assessment-identifying and
by Michael Porter where he suggested evaluating the potential risks that may
four ‘generic business strategies’ that be involved in an activity that a business
could be adopted in order to gain proposes to undertake, ensuring
competitive advantage compliance with health and safety
legislation

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65

Risk mitigation plans-identify, assess, Succession planning-is a process for

and prioritise risks and plan responses to identifying and developing new
deal with the impact of these risks on leaders, from existing employees who
the operation of the business can replace existing leaders when they
leave, retire, or die
Risk-A potential threat to the success of
an enterprise that could cause Summer bonus scheme-is a non-
problems/failure/loss of money financial human resource initiative
aimed at the office-based employees
Sales revenue-The total value of sales
income generated from sale of goods SWOT analysis-is an analytical tool that
or services. can help managers with complex
decisions.
Scenario planning-a strategic planning
method designed to explore Takeover-is when one business gains
uncertainties, learn how to protect the control over another, the business that
business from their worst consequences has been taken over ceases to exist
and prepare how to exploit any
Threats-are possible hazards that have
opportunities that might present
the potential to damage the
themselves
performance of the business.
Share price-is the value of a share on
Trade-off- arises where having more of
the stock exchange
one thing potentially results in having
Shareholders-are the owners of a less of another
company. Their interests may conflict
Transformative leadership-is a
with other stakeholder groups such as
leadership style that aims to change the
employees and, in this case, the board
way things are done within a business
of directors/senior executives.
Social responsibility-is a widening of
business objectives beyond self-interest NOTE: These list of business
to include a responsibility towards all terms are extremely important
stakeholder groups
for the final exam. They came
Statement of comprehensive income- from the recent past papers as
shows the performance of the business well as from the old ones but
over time, in terms of revenue/ consider to study, memorize &
profit/operating expenses understand everything to be
Strategic decision-a decision that will fully prepared. These terms will
have a long-term effect on the surely increase your
growth/direction of the organisation confidence when starting your
essays in the exams.
Strategy-An action or decision that is
designed to have a long-term effect
which supports the aims and the
objectives of the business/as part of
business planning

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