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18 Cards in this Set
- Front
- Back
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Cost leadership
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A business strategy concerned with aiming to be the lowest-cost producer in an industry. Usually requires exploitation of economies of scale
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Shareholder value |
Where shareholders earn a return from their investment which is greater than their required rate of return
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Average rate of return
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A measure of the total accounting return from an investment project
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Capital expenditure
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Expenditure on assets which are intended to be kept in the business (e.g. IT systems, machinery) rather than sold or turned into products
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Creditor days
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A ratio that estimates the average period (in days) taken to settle amounts owed by a business to suppliers
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Debtor days
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A ratio that focuses on the average time it takes for trade debtors to settle their accounts. Usually measured in days
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Discount factor
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The multiplication factor that converts a projected cost or benefit in a future year into its present value
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Gearing
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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
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Investment appraisal
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Analytical techniques to help management evaluate the returns from potential investments, and to help choose between competing investments
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Net present value
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The present value of a series of future net cash flows that will result from an investment, minus the amount of the original investment
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Operating profit
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The profit earned by a business from its entire trading operations – stated before financing (e.g. interest) and tax
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Overtrading
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Where a business suffers financial difficulties from expanding too quickly – usually suffering set-up losses and increased working capital
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Payback period
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The time it takes for a project to repay its initial investment
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Profit centres
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A separately-identifiable part of a business for which it is possible to identify revenues and costs and calculate a relevant profit
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Profit quality
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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
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Rights issue
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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
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ROCE
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A measure of the percentage return that a business earns from the capital employed in the business. Often referred to as the “primary ratio"
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working capital |
The net amount invested by a business to finance day-to-day trading: usually calculated as current assets less current liabilities
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