Assessing Competitiveness 3.5 Flashcards Preview

Business Studies - Theme 3 > Assessing Competitiveness 3.5 > Flashcards

Flashcards in Assessing Competitiveness 3.5 Deck (85):

in an income statement what is the order of the 7 subheadings which need to be calculated?

1. revenue
2. cost of sales
3. gross profit
4. overheads
5. operating profit
6. finance costs
7. profit before tax


what is revenue?

money generated from sales


what is cost of sales?

direct costs of manufacturing


what is finance costs?

interest from borrowing


what is the formula of gross profit?

revenue - cost of sales


what is the formula of operating profit?

gross profit - overheads


what is the formula for profit before tax?

operating profit - finance costs


is a brand a tangible or an intangible asset?

an intangible asset


on a balance sheet what is the order of the 8 subheadings which need calculating?

1. non current assets
2. current assets
3. current liabilities
4. net current assets
5. non current liabilities
6. net assets
7. share capital & reserves
8. total equity


what are non current assets?

long term assets e.g. a building. also a brand


what are current assets?

something you own to turn into cash - e.g. stock


what are current liabilities?

short term debts who you owe to creditors


what is the calculation for net current assets?

current assets - current liabilities


what are non current liabilities?

a long term loan - e.g. a mortgage


what is the calculation for net assets?

non current assets+ net current assets - non-current liabilities


what are share capital and reserves?

where the money comes from


what is the calculation for total equity?

share capital + reserves


what is the total equity supposed to equal?

the net assets


what is another name for the statement of comprehensive income?

a profit and loss account


what is another name for the statement of financial position?

a balance sheet


what do published accounts allow an analyst to find out? (4)

1. the amount of cash or near cash the company holds in its bank accounts the cash total compares with short term liabilities
3. how much of the firms long term capital is in the form of debt
4. how profitable the business is


what do balance sheets help bankers to decide? (3)

1. to invest in the business
2. lend it some money
3. buy the organisation outright


is it PLCs or LTDs which have to publish the two financial statements?

PLCs - public limited companies


what are the three main types of current assets?

1. inventories - value of all stock a firm holds
2. receivables - sums owed by customers who have bought items on credit
3. cash


what is the definition of corporation tax?

a tax levied as a percentage of a companies profits


what is the definition of cost of sales?

all the costs arising from sales to customers, including raw materials, supplies and packaging


what is the definition of dividends?

regular payments to shareholders as a reward for their investment


what is the definition of gross profit?

profit made on trading activities


what is the definition of a liability?

a debt (a bill which has not been paid or a loan that has not been repaid)


what is the definition of liquidity?

a measurement of a firms ability to pay back its short term bills


what is the definition of operating profit?

gross profit minus expenses


what is the definition of reserves?

a companies accumulated, retained profit. It forms part of the firms total equity


what is the calculation for gross profit margins?

(gross profit/ sales) x100


what is the calculation for operating profit margins?

(operating profit/sales) x100


what is the calculation for net profit margins?

(net profit/sales) x100


what is return on capital employed (ROCE)?

money which a company will get back on what they've invested


ROCE is a useful ratio to: (3)

1. evaluate the overall performance of the business
2. provide a target return for individual projects
3. benchmark performance with competitors


what is the ROCE (%) calculation?

(operating profit (or net profit)/ total equity + non current liabilities ) x100


what is gearing?

measures the proportion of a business' capital provided by debt


why is the gearing ratio useful? (3)

1. measure of financial health of a business
2. focuses on the level of debt in the financial structure of the business
3. high gearing can mean high business risk (but not always)


what is the percentage which businesses gearing must be above for them to be considered 'high geared'?



what is the calculation for gearing?

(non-current liabilities/ total equity + non-current liabilities ) x100


what are the three types of ratio?

1. profitability ratios
2. liquidity ratios
3. gearing


what do profitability ratios show?

they measure the relationship between net/gross profit and revenue, assets and capital employed. they are also referred to as performance ratios


what do liquidity ratios show?

the short term financial stability of a firm by examining whether there are sufficient short term assets to meet the short term liabilities (debts)


what does gearing ratio show?

the extent to which the business is dependent upon borrowed money, it is concerned with the long term financial position of the company


what are the two liquidity ratios?

1. current ratio
2. acid test ratio


what is the calculation for current ratio?

current assets/ current liabilities


what is the calculation for acid test ratio?

current assets (excluding stock)/ current liabilities


what is an example of profitability ratio? (1)

return on capital employed


what is the ideal current ratio?

1.5: 1


what is the ideal acid test ratio?

1: 1


does a business want the level of ROCE to be high or low?

the higher the better


how can the ROCE be improved? (2)

1. increasing the level of profit generated by the same level of capital invested
2. maintaining the level of profits generated but decreasing the amount of capital it takes to do so


what are the three main ways to finance a decision?

1. use working capital (such as cash)
2. borrow the capital (such as a loan)
3. fund the expansion by asset sales


what is the definition of inter-firm comparisons?

comparisons of financial performance between firms, to be useful these firms should be of a similar size in the same market


what is the definition of net realisable value?

the price that can be obtained for second hand stock after deducting the selling costs


what is the definition of profit quality?

this assesses the likelihood of the source of the profit made by a business continuing in the future. high quality profit is usually generated by a firms usual trading activities, whereas low quality profit comes from a one-off source


what is labour productivity?

measures the output per employee


what is the importance of productivity? (2)

1. reduce costs and influence potential profitability
2. can mean businesses can adapt pricing


what is the definition of EOS?

factors which cause actual cost per unit to decrease as the output increases


what three factors influence the level of labour productivity:

1. motivation of staff/ morale
2. level of skills/ training
3. methods of production


what is the calculation for productivity?

output/ number of workers


how can labour productivity be improved? (4)

1. motivate staff
2. review/ change production methods
3. become more capital intensive
4. use non-financial incentives


what are 4 strategies to reduce labour turnover?

1. increase the amount of training
2. increase financial incentives
3. consultation
4. better motivation techniques - job enrichment/enlargement/rotation and recognition


what 4 factors influence a businesses ability to retain staff?

1. type of job - higher stress is harder to retain
2. capacity/ expertise to train people
3. success of business
4. management style


what are 4 reasons a business could be losing staff?

1. lack of flexibility of jobs
2. insubordination - not following instruction
3. lack of motivation
4. may not agree with ethos/ business culture


what is the definition of labour turnover?

percentage of the workforce that leave a business within a given period (usually a year)


why is it so important to retain staff? (4)

1. training up is expensive
2. don't want to share trade secrets - sometimes given gardening leave
3. recruitment costs
4. loss of morale


what is the definition of labour retention?

ability of a business to convince its employees to remain with the business


what is the calculation for labour turnover?

(number of employees leaving/ average number of employees) x100


what is the calculation for labour retention?

(number of staff staying in a period/ average number of employees) x100


what are 4 HR strategies to improve employee performance?

1. financial rewards
2. employee share ownership
3. consolation strategies
4. empowerment


what are some examples of financial rewards? (4)

1. PRP
2. share options
3. commission
4. bonuses


what is the definition of employee share ownership?

the right to purchase a share at a point in the future or given them outright


what is an issue with employee share ownership? (2)

by giving them to many employees you are diluting the value.
more complicated than giving cash


what are three methods of consolation strategies?

1. appraisal
2. quality circles
3. ACAs


what are 2 issues of consolation strategies?

1. takes a long time - issue may end up being resolved
2. some things cannot be fixed


why is empowerment a strategies to improve performance?

give staff autonomy (independence) for something and making them accountable for it


what are two issues with empowerment?

1. excuse to cut costs/ delayer and make managers redundant
2. smoke screen for more work on the same pay.


what are 5 causes of absenteeism?

1. illnesses/ sickness
2. poor levels of motivation
3. paternity/ maternity leave
4. poor working conditions
5. transportation issues


what is the calculation of absenteeism?

(numbers of days off/ total number of working days a year) x100


why is absenteeism important to measure? (3)

1. affects efficiency and cost
2. early warning of staff turnover
3. measure the productivity loss


why is absenteeism such a significant issue? (3)

1. significant business cost
2. key to understand reasons (genuine or not)
3. often predictable


what are 4 ways absenteeism can be improved?

1. awards/ rewards for good attendance
2. team bonding events to build team spirit
3. set high expectations from the start
4. regular meetings/consultation with staff