Cambridge IAL Business flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Opportunity cost

The value of the next best alternative forgone when a resource is allocated to one use rather than another. It applies to firms, governments and individuals making choices with scarce resources.

Limited liability

A legal protection meaning shareholders of an incorporated company can lose only the capital they invested, not their personal assets, if the business fails. It encourages investment and risk-taking.

Public sector organisation

A body owned or controlled by government, funded mainly through taxation, and typically pursuing service and social objectives rather than profit. Examples include state schools and national health services.

Business objective

A target that guides a firm's decisions, such as profit maximisation, growth, survival, market share or social goals. Objectives change as the business life cycle and stakeholder pressures change.

Chain of production

The sequence linking primary extraction of raw materials, secondary manufacturing into finished goods, and tertiary provision of services. It shows how value is added at each stage before final consumption.

Labour turnover rate

The number of employees leaving during a period divided by the average number employed in that period, multiplied by 100. High turnover raises recruitment and training costs and disrupts continuity.

Span of control

The number of subordinates directly responsible to one manager. A wide span gives a flatter structure and faster communication; a narrow span allows closer supervision but adds management levels.

Herzberg's two factors

Hygiene factors such as pay and working conditions prevent dissatisfaction but do not motivate; motivators such as achievement, recognition and responsibility create genuine job satisfaction and effort.

Job enrichment

A non-financial motivator that gives workers more responsibility, autonomy and variety by adding tasks requiring higher-level skills. It aims to raise intrinsic satisfaction rather than simply increase pay.

Person specification

A document describing the ideal candidate for a vacancy: qualifications, experience, skills and personal qualities. It is derived from the job description and used to shortlist and select applicants.

Absenteeism rate

Days lost through unauthorised or sickness absence divided by total possible working days, multiplied by 100. Persistent absence signals low motivation, poor conditions or weak management control.

Market share

A firm's sales in a market divided by total market sales, expressed as a percentage. It can be measured by value or by volume, and the two measures may give different rankings.

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price. If the value exceeds one in absolute terms, demand is elastic and a price rise reduces total revenue.

Penetration pricing

Setting a low launch price to attract customers quickly and build market share, then raising the price once loyalty is established. It suits price-sensitive markets with strong competitor response.

Price skimming

Setting a high initial price to recover development costs from early adopters, then lowering it over time. It suits innovative products with inelastic demand and weak early competition.

Niche marketing

Targeting a small, specialised segment with tailored products. Competition is lower and margins higher, but sales volume is limited and the firm is vulnerable if the niche shrinks.

BCG matrix

A portfolio tool classifying products by market growth and relative market share into stars, cash cows, question marks and dogs, guiding where to invest, hold, build or divest.

Product life cycle

The stages a product passes through: development, introduction, growth, maturity and decline. Sales and profit patterns differ by stage, guiding pricing, promotion and extension decisions.

Capacity utilisation

Actual output divided by maximum possible output, multiplied by 100. Low utilisation spreads fixed costs over fewer units, raising unit cost; very high utilisation leaves little room for maintenance or demand spikes.

Break-even output

Fixed costs divided by contribution per unit, where contribution is selling price minus variable cost per unit. It is the output at which total revenue exactly covers total cost.

Just-in-time production

A lean method in which materials arrive as needed for production, minimising stock holding costs. It requires reliable suppliers and accurate demand forecasting, as there is little buffer stock.

Quality assurance

A system that builds quality into every stage of production through standards, training and process control, rather than inspecting defects at the end. It aims to prevent errors, not detect them.

Reorder level

The stock level that triggers a new order, calculated as maximum usage multiplied by maximum lead time. It ensures buffer stock covers demand and delivery delays.

Economies of scale

Falls in unit cost as output rises, from purchasing, technical, financial or managerial advantages. Beyond an optimum size, diseconomies of coordination and motivation can raise unit cost.

Working capital

Current assets minus current liabilities: the funds available to finance day-to-day operations such as stock, debtors and short-term expenses. Inadequate working capital causes liquidity problems.

Acid test ratio

Current assets excluding stock, divided by current liabilities. A stricter liquidity measure than the current ratio because stock may take time to convert into cash.

Return on capital employed

Operating profit divided by capital employed, multiplied by 100. It measures how efficiently invested capital generates profit and allows comparison with alternative uses of funds.

Payback period

The time taken for cumulative cash inflows from an investment to equal the initial outlay. It is simple and emphasises liquidity, but ignores cash flows after payback and the time value of money.

Net present value

The sum of discounted future cash flows from a project minus the initial investment. A positive NPV means the project adds value at the chosen discount rate; a negative NPV means it destroys value.

Gearing ratio

Non-current liabilities divided by capital employed, expressed as a percentage. High gearing means greater fixed interest obligations and higher financial risk if profits fall.

Ansoff's matrix

A grid combining existing and new products with existing and new markets to give market penetration, product development, market development and diversification, ranked by increasing risk.

Porter's five forces

A framework assessing industry attractiveness through rivalry, threat of new entrants, threat of substitutes, buyer bargaining power and supplier bargaining power. Stronger forces compress industry profitability.