7 Mission, corporate objectives, functional objectives and strategy Flashcards
(29 cards)
mission
-overriding purpose of business
-determines the strategic position of business
-useful for communication between stakeholders and giving overall strategy
tactics
short term achievable
strategy
medium to long term plan to meet corporate objectives
SWOT
use: identify SWOT to help with business decision makings
internal factors: strength and weakness
external factors: opportunities and threats
financial ratio analysis
- profitability (ROCE- return on capital employed)
- liquidity (current ratio)
- gearing
- efficiency ratios: payables days, receivables
days, inventory turnover.
advantage: compare with past performances AND benchmarking
disadvantage: does not take account of external environment (like risk of new competitors)
balance sheet
shows the financial position of business
snaptshot of CA, CL, non-CL,equity and debt on a particular day
current assets
-cash in hand
-receivables
-inventory
current liabilities
-overdraft
-payables
non-current liabilities
money owned for more than 12 months
equity
amount of investment by owners (using internal source of finance like retained profits and shared capital)
debt
finance borrowed from external sources
liquidity
use: the ease and cost which assets can be tuned into cash and used immediately
formula: CA/CL : 1
(ratio to CL is always 1)
acceptable range of ratio: 1.5-2.5
gearing
use: measure financial health of business by focusing on the debt created from investment
formula 1: non-CL / (total equity+non-CL) 100%
formula 2: (debt/equity) 100%
acceptable ratio: 20%-50%
inventory turnover
Cost of sales/average inventories held
high inventory turnover: supermarkets(car manufacturing- because of JIT)
low inventory turnover: bookstore
payables days
(trade payables/ cost of sales) x 365
receivable days
(trade receivables/ revenue) x 365
ROCE
(operating profit/capital employed )*100
investment appraisal
predict the financial outcomes of potential capital investment
calculations:
-Payback period
-Average rate of return
-Net present value
payback period
time takes to repay the project’s initial investment
->initial investment - cumulative net cashflow
ARR
average rate of return
Step 1: Total net cash flow/ number of years
Step 2: (step 1/initial investment) *100 %
NPV
net present value- take consideration of discount factor
Step 1: net cash flow * discount factor of every year
Step 2: sum up all of the NPV of each year
Elkington’s Triple Bottom Line
profit, people, planet
Fiscal policy
government spending on taxation
Monetary policy
Bank of England setting on the interest rates
