Answers to business literacy test

did you do in our business literacy quiz? Here are the answers.

When a company is said to be a "£500m company" what does that mean?

That the company’s turnover (or sales in US
parlance) are £500m – not its profits or cash in the bank

What is liquidity?

The ease with which an organisation can convert its assets
into cash. The chief failing of most dotcoms is poor liquidity – their main
"asset" being the promise of future customers.

What is the difference between an ISP and an ASP?

An ISP (Internet service provider) acts as
an amalgamated carrier and service provider. Meanwhile, the term ASP
(application service provider) describes the new breed of software vendors
selling, or renting applications over the Net, rather than in shrink-wrapped
format. Evidence suggests that distinctions between the two are beginning to

What does return on investment (ROI) tell you?

Also known as return
on capital employed (ROCE), ROI is calculated by dividing pretax earnings by
average investment. It tells you the rate of return you can expect from your
investment in a piece of equipment, project or training programme.

What is lifetime value?

This refers to the
estimated total value of an individual customer to a company over a given
"lifetime" (this could be as little as five years). An important
concept given the switch in marketing emphasis from mass-marketing (selling a
defined portfolio of products to as many customers as possible) to relationship
marketing (selling as many products as possible to a select group of
customers). Estimating lifetime values is a precarious and often contradictory
process – eg a customer may be a poor source of profit per se, but may be in
the habit of recommending the company to other more lucrative customers.

What is BTO?

Build to order. A
concept pioneered by high-tech manufacturers such as Dell, theoretically
allowing for the greater customisation of a product. More importantly BTO
ensures that the cost of "dead" capital implicit in stock-holding is
kept to minimum. As such, BTO is an important strand of any just-in-time
manufacturing strategy.

What is EVA, or economic value added?

The most influential
of the many matrixes that emerged in the late 1990s designed to measure the
value a company to its shareholders. Developed by the US think-tank Stern
Stewart, the ability to demonstrate a positive EVA (or even to show the process
was under way) became almost mandatory on Wall Street. As in, "I watched
one CFO [chief finance officer] savagely attacked by a pack of analysts because
of his inability to describe how the new value management programme would
increase the share price."

What is scalability?

An IT term used to
describe the ability of a system to grow over time without having to be
re-jigged. As in, "We were worried about opting for Microsoft NT because
of its scalability problems." Increasingly becoming a mainstream term to
describe problems inherent in all expansionist activity.

What is front-to-back office integration?

The corporate equivalent of joined-up
government. The concept of dividing up companies into front and back offices
originated in banks, but now any company worth its salt differentiates between
its customer-facing activities (front office) and its administrative and
financial engine (back office). Having made the distinction, the race is now on
to integrate the two functions, thus allowing for "seamless" and
"transparent" co-ordination

What is an outage?

The latest word for network failure, usually
used in the context of the Internet. Not to be confused with denial of service
attacks – downtime caused by malicious hacking activity – or with outrage,
which is what you feel when it happens.

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