3.5- Assessing competitiveness

Question 1

What is gearing ratio?

Answer 1

-Long term finance of the business and where it comes from
-A result of over 50% means the business is highly geared; most of the money comes from loans, this is very risky for a potential investor
-A result of less than 50% means the business is low geared and most of the money comes from the owners

Question 2

What is the formula for gearing ratio?

Answer 2

Non-current liabilities/capital employed x 100

Question 3

What is ROCE (Return On Capital Employed)?

Answer 3

-Return on capital employed is a measure of the profitability of the business
-If you were considering investing in a business you might calculate the ROCE % and then compare this against a bank savings plan
-The higher the ROCE figure the better

Question 4

What is the formula for ROCE?

Answer 4

Operating profit/capital employed x 100

Question 5

What are pros of using ratio analysis?

Answer 5

-Performance evaluation
-Trend analysis
-Investment decisions can be made
-Operational efficiency

Question 6

What are cons of using ratio analysis?

Answer 6

-Just a snapshot of the business
-Ratios are only as good as the information provided in the balance sheet
-Must be seen in an industry context

Question 7

Why might employees skive work or quit their jobs?

Answer 7

-Unfair employers
-Wasn’t what they expected
-Too little coaching and feedback
-Too few growth opportunities
-Feel devalued and unrecognised

Question 8

What is labour productivity?

Answer 8

A measure of efficiency

Question 9

What is the formula for labour productivity?

Answer 9

Total output/number of workers

Question 10

What does labour productivity show?

Answer 10

-Productivity is output per worker and measures the efficiency of the workforce
-A business will seek to increase productivity to reduce the average cost per unit
-Labour productivity can be improved through kaizen, TQM and lean production

Question 11

What is labour turnover?

Answer 11

The number of staff leaving a business in a year compared to the number of staff that work there

Question 12

What is the formula for labour turnover?

Answer 12

Number of employees leaving/number of employees x 100

Question 13

What does labour turnover show?

Answer 13

-High turnover = unhappy staff
-Low turnover = happy staff
-Low turnover can mean no new ideas
-High may be due ti poor recruitment, weak induction, lack of challenge, low wages

Question 14

What is absenteeism?

Answer 14

The absence of an employee

Question 15

What is the formula for absenteeism?

Answer 15

Number of work days lost lost through absence/total days x 100

Question 16

What does absenteeism show?

Answer 16

-If there is low staff morale
-Can be caused by poor management, stress at work, job satisfaction
-Too much could cost the business
-Can be improved by job enlargement, rotation and schemes

Question 17

How can a business reduce absenteeism?

Answer 17

-Financial rewards
-Employee share ownership
-Empowerment
-Consultation strategies