7. Analysing the Strategic Performance of the Business INCOMPLETE ONLY EQUATIONS Flashcards
(83 cards)
1
Q
Operation Profit Margin
A
Operational Profit
————————- X100
Revenue
2
Q
Gross Profit
A
Revenue - Cost of Sales
3
Q
Current Ratio
A
Current Assets
————————
Current Liabilities
4
Q
Gearing
A
NC Liabilities
——————— X100
(Equity + NCL)
5
Q
Capital Employed
A
Total Equity + Non Current Liabilities
6
Q
ROCE (Return on Capital Employed)
A
Operating Profit
———————— X100
(Equity + NC Liab
7
Q
Name all the Long Term Assets
A
Land, Buildings
Machinery
Vehicles
8
Q
Name all 3 Current Assets
A
Inventories
Receivables
Cash
9
Q
Receivables Days
A
Receivables
———————— X365
Annual Revenue
10
Q
Payables Days
A
Trade Payables
———————- X365
Cost of Sales
11
Q
Name 2 Long Term Liabilities
A
Loan
Mortgage
12
Q
Name 2 Current Liabilities
A
Payables
Overdraft
13
Q
Why would a shareholder need an income statement
A
To assess profitability, stability and to help obtain loans for a business
14
Q
Why would shareholders use the balance sheet information?
A
To see whether to:
Invest
Lend the business money
Buy the organisation
15
Q
What is the rule for converting £ —> € and then € —> £
A
£ ———> € you time’s
€ ———> £ you divide
16
Q
Name the 4 different key words the economic cycle
A
Slow Down
Recovery
Boom
Recession
17
Q
Define economic growth
A
The total value of all goods and services an economy is and can produce
18
Q
What happens when exchange rates fall
A
Export prices fall and import prices rise
19
Q
What does SPICED stand for
A
Strong Pound Imports Cheaper Exports Dearer
20
Q
Define inflation
A
An increase in the average prices of goods in an economy measured by the consumer price index
21
Q
Define unemployment
A
The number of people able, available and willing to find work and are actively seeking work but aren’t employed
22
Q
How do you calculate the unemployment rate
A
% of unemployed
————————-
Labour force
23
Q
Why does unemployment happen? Name 4 reasons
A
Seasonal changes
Structural unemployment (mismatch of skills needed and have)
Frictional (transitioning between jobs)
Cyclical (fall of demand)
24
Q
Name 2 opportunities and 2 threats of high unemployment
A
+ Demand for inferior goods
+ Greater supply of labour
- Lower spending
- Lower morale
- Social issues increase
25
Name 2 opportunities and 2 threats of low unemployment
+ Consumers have more income
+ High Demand for income elastic goods
- Labour market tightens
- Harder to recruit
26
What does PESTEL stand for
```
Political
Economical
Social
Technological
Ethical
Legal
```
27
Name 2 pros and cons of protectionism
+ Countries develop new industry’s
+ Small businesses grow
- Import prices rise
- Countries retaliate
28
Name 2 pros and cons of open trade
+ Business get economies of scale
+ More consumer choice
+ Businesses in countries specialise at what they’re good at
- Business exploit laws abroad
- Fewer local jobs as companies go abroad
29
Define demographic changes
Changes in the structure of the UK population in terms of: gender, buying habits, race and age
30
Define CSR
Corporate social responsibility: pressures that lead some businesses to act with integrity towards society
31
From top to bottom name the 4 steps in Carroll’s CSR pyramid
Philanthropy
Ethical
Legal
Economic
32
Explain the stakeholder concept
It suggests managers should take into account their responsibilities to other groups, not just the owners when making decisions
33
Explain the shareholder concept
It suggests managers should run the company in the direct interest of the shareholders disregarding other stakeholder groups
34
Name 2 pros and a con of technology on a business
+ Use to advertise
+ Record info costs easily
- Decreased productivity of technology breaks down
35
Name 3 calculations in investment appraisal
ARR
Payback
Net Present Value
36
Define Payback
The time period required for the earnings from an investment to cover the initial cost
37
How do you calculate payback?
Number of years +
Outlay
————
/12
38
Name 2 pros and cons of payback
+ Easy to calculate
+ Accurate
- Doesn’t consider after the payback period
- Doesn’t consider NPV and value of money
39
Define ARR
The average rate of return generated by an initial investment
40
How do you calculate ARR?
Average Annual Return
——————————— X 100
Initial Outlay
AAR: inflows - outflows / no. of years
41
Define NPV
Discounting cash flow taking into account the time value of money
42
Name 2 pros and cons of NPV
+ Accounts for time
+ Useful in what if scenarios as you can calculate different interest rates
- Difficult choosing a discount factor
- Hard to calculate
43
Name 4 other factors the Board of Directors consider before making a decision based on investment appraisal
1) Objectives
2) Finance
3) Reliability of Data
4) Social Responsibilities
44
When are sensitivity analysis used?
Used when assessing the likely outcomes of a decision where quantitative techniques are used
45
How do you work out Equity
Share capital + Retained Profit
46
Name all 5 parts of Porter’s 5 Forces Model
1) Competitive Rivalry
2) Buyer Power
3) Supplier Power
4) Threat of Substitution
5) Threat of New Entry
47
Name two strategies to combat competitive rivalry
1) Differentiate
2) Promotion
Takeover/Merge
Lower costs
48
Name one strategy to combat the threat of substitutes
1) Differentiate
49
Name two strategies to combat bargaining power of suppliers
1) Build strong relationships
| 2) Agree to a long term contract
50
Name two strategies to combat the threat of new entrants
1) Trademarks or parents
| 2) Control of distribution channels
51
Name two strategies to combat bargaining power of buyers
1) USP
| 2) Forward vertical integration
52
Name 2 pros and 2 cons of Porter’s 5 Forces Model
+ Analytic tool
+ Build on strengths and spot opportunity
- Misses our important forces
- It underestimated the forces of change
53
Name 2 risks with investment decisions
1) Costs may be higher than expected
| 2) Sales may be lower than expected
54
When are sensitivity analysis’ used?
When assessing the likely outcomes of a decision where quantitative techniques are used
55
How do you conduct a sensitivity analysis?
- Change one variable at a time
| - Create a table or pessimistic, optimistic and expected outcomes and then the difference
56
What does a sensitivity analysis show?
It shows which variable has the greatest impact. It allows investor to assess the impact on profit and expected dividend levels
57
What the difference between a balance sheet and an income statement
A balance sheet shows the companies assets, liabilities and capital whereas the income statement shows all revenues and costs after a given period
58
Name the 4 types of ratio
1) Profitability
2) Liquidity
3) Gearing
4) Efficiency
59
What does liquidity show
* Investigates the short term financial stability
| * Examined whether there are enough short term assets to meet short term liabilities
60
Name the liquidity ratio
Current Ratio
61
What does gearing show?
Gearing shows the reliance on borrowed money indicating how vulnerable a firm is to financial setbacks
62
Name 2 ways you can raise and reduce the gearing
1) Buy back shares
2) Obtain more loans
1) Issue more shares
2) Repay loans
Or retain more profit
63
Name the 3 profitability ratios
1) Gross Profit
2) Operating Profit
3) ROCE
64
How do you interpret ROCE
The higher the value suggests resources are being used efficiently. A high profitability will please shareholders
65
How do you calculate inventory turnover?
Cost of goods sold
—————————
Inventories
66
What does inventory turnover show?
It measures the number of times per year a business sells and replaces its inventories
67
When calculating inventory turnover where you would you find each figure
Cost of good sold - Income statement
| Inventories - Balance sheet
68
How do you raise or reduce the inventory turnover?
1) Reduce the level of inventories held
| 2) Increase the rate of sales
69
What does it mean if your receivable days is shorter than your payable days
You receive money faster than you pay your debts which is a positive
70
Name 3 problems when interpreting accounts
The figure could be made up of receivables you won’t receive
It may not be reliable as the value of stock changes rapidly
Low quality profit - you may have sold off an asset but this won’t continue
71
Name 2 strengths and 1 weakness of ratio analysis
+ Insights into competitors performance through ratios
+ Focusing on specific areas helps make compromises quicker and easier
- Figures aren’t facts. They are only averages that can be deceiving
72
Name 4 types of financial objectives
```
Profit
Revenue
Cash flow
ROCE
Shareholder returns
```
73
Name 4 internal influences on financial objectives
Labour force
Financial
Type of business
Operational
Extra:
Ownership
Shareholders
Stakeholders
74
Name 4 external influences on financial objectives
Competitive environment
Economy
Government
Stakeholders
75
Name 4 non financial data pieces relating to finance
Market data
Economies of scale
Product quality
Customer retention
Extra:
Labour turnover: productivity
76
Define short termism
Obsession with immediate issues
77
Name 3 causes of short termism
Pressure
Threat of takeover
Lack of financial understanding
78
Define core competencies
Something unique a business can do strategically well
79
Define a balance scorecard
Provides information on financial and non financial performance
80
Who came up with the balance score card
Kaplan & Norton
81
Name the 4 perspectives of the balance scorecard
Financial
Customer
Internal processes
Organisational capacity
82
Explain Elkington’s triple bottom line
It assess performance based on; profit, plant and people. It aims to measure the financial, social and environmental performance
83
Name 2 pros and 2 cons of the triple bottom line
+ Encourages CSR
+ Goes beyond the measure of profit
- Hard to measure people and planet
- Only used to improve public relations
Extra:
- Is one measure more important than another
