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18 Cards in this Set

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Cost leadership
A business strategy concerned with aiming to be the lowest-cost producer in an industry. Usually requires exploitation of economies of scale

Shareholder value

Where shareholders earn a return from their investment which is greater than their required rate of return
Average rate of return
A measure of the total accounting return from an investment project
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
Creditor days
A ratio that estimates the average period (in days) taken to settle amounts owed by a business to suppliers
Debtor days
A ratio that focuses on the average time it takes for trade debtors to settle their accounts. Usually measured in days
Discount factor
The multiplication factor that converts a projected cost or benefit in a future year into its present value
Gearing
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
Investment appraisal
Analytical techniques to help management evaluate the returns from potential investments, and to help choose between competing investments
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
Operating profit
The profit earned by a business from its entire trading operations – stated before financing (e.g. interest) and tax
Overtrading
Where a business suffers financial difficulties from expanding too quickly – usually suffering set-up losses and increased working capital
Payback period
The time it takes for a project to repay its initial investment
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
Rights issue
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
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"

working capital

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