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Business Studies - Theme 3 > Assessing Competitiveness 3.5 > Flashcards

Assessing Competitiveness 3.5 Flashcards

1
Q

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

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

what is revenue?

A

money generated from sales

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3
Q

what is cost of sales?

A

direct costs of manufacturing

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4
Q

what is finance costs?

A

interest from borrowing

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5
Q

what is the formula of gross profit?

A

revenue - cost of sales

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6
Q

what is the formula of operating profit?

A

gross profit - overheads

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7
Q

what is the formula for profit before tax?

A

operating profit - finance costs

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8
Q

is a brand a tangible or an intangible asset?

A

an intangible asset

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9
Q

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

A
  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
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10
Q

what are non current assets?

A

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

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11
Q

what are current assets?

A

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

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12
Q

what are current liabilities?

A

short term debts who you owe to creditors

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13
Q

what is the calculation for net current assets?

A

current assets - current liabilities

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14
Q

what are non current liabilities?

A

a long term loan - e.g. a mortgage

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15
Q

what is the calculation for net assets?

A

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

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16
Q

what are share capital and reserves?

A

where the money comes from

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17
Q

what is the calculation for total equity?

A

share capital + reserves

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18
Q

what is the total equity supposed to equal?

A

the net assets

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19
Q

what is another name for the statement of comprehensive income?

A

a profit and loss account

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20
Q

what is another name for the statement of financial position?

A

a balance sheet

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21
Q

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

A
  1. the amount of cash or near cash the company holds in its bank accounts
  2. how 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
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22
Q

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

A
  1. to invest in the business
  2. lend it some money
  3. buy the organisation outright
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23
Q

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

A

PLCs - public limited companies

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24
Q

what are the three main types of current assets?

A
  1. inventories - value of all stock a firm holds
  2. receivables - sums owed by customers who have bought items on credit
  3. cash
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25
Q

what is the definition of corporation tax?

A

a tax levied as a percentage of a companies profits

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26
Q

what is the definition of cost of sales?

A

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

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27
Q

what is the definition of dividends?

A

regular payments to shareholders as a reward for their investment

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28
Q

what is the definition of gross profit?

A

profit made on trading activities

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29
Q

what is the definition of a liability?

A

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

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30
Q

what is the definition of liquidity?

A

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

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31
Q

what is the definition of operating profit?

A

gross profit minus expenses

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32
Q

what is the definition of reserves?

A

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

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33
Q

what is the calculation for gross profit margins?

A

(gross profit/ sales) x100

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34
Q

what is the calculation for operating profit margins?

A

(operating profit/sales) x100

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35
Q

what is the calculation for net profit margins?

A

(net profit/sales) x100

36
Q

what is return on capital employed (ROCE)?

A

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

37
Q

ROCE is a useful ratio to: (3)

A
  1. evaluate the overall performance of the business
  2. provide a target return for individual projects
  3. benchmark performance with competitors
38
Q

what is the ROCE (%) calculation?

A

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

39
Q

what is gearing?

A

measures the proportion of a business’ capital provided by debt

40
Q

why is the gearing ratio useful? (3)

A
  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)
41
Q

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

A

50%

42
Q

what is the calculation for gearing?

A

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

43
Q

what are the three types of ratio?

A
  1. profitability ratios
  2. liquidity ratios
  3. gearing
44
Q

what do profitability ratios show?

A

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

45
Q

what do liquidity ratios show?

A

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

46
Q

what does gearing ratio show?

A

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

47
Q

what are the two liquidity ratios?

A
  1. current ratio

2. acid test ratio

48
Q

what is the calculation for current ratio?

A

current assets/ current liabilities

49
Q

what is the calculation for acid test ratio?

A

current assets (excluding stock)/ current liabilities

50
Q

what is an example of profitability ratio? (1)

A

return on capital employed

51
Q

what is the ideal current ratio?

A

1.5: 1

52
Q

what is the ideal acid test ratio?

A

1: 1

53
Q

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

A

the higher the better

54
Q

how can the ROCE be improved? (2)

A
  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
55
Q

what are the three main ways to finance a decision?

A
  1. use working capital (such as cash)
  2. borrow the capital (such as a loan)
  3. fund the expansion by asset sales
56
Q

what is the definition of inter-firm comparisons?

A

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

57
Q

what is the definition of net realisable value?

A

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

58
Q

what is the definition of profit quality?

A

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

59
Q

what is labour productivity?

A

measures the output per employee

60
Q

what is the importance of productivity? (2)

A
  1. reduce costs and influence potential profitability

2. can mean businesses can adapt pricing

61
Q

what is the definition of EOS?

A

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

62
Q

what three factors influence the level of labour productivity:

A
  1. motivation of staff/ morale
  2. level of skills/ training
  3. methods of production
63
Q

what is the calculation for productivity?

A

output/ number of workers

64
Q

how can labour productivity be improved? (4)

A
  1. motivate staff
  2. review/ change production methods
  3. become more capital intensive
  4. use non-financial incentives
65
Q

what are 4 strategies to reduce labour turnover?

A
  1. increase the amount of training
  2. increase financial incentives
  3. consultation
  4. better motivation techniques - job enrichment/enlargement/rotation and recognition
66
Q

what 4 factors influence a businesses ability to retain staff?

A
  1. type of job - higher stress is harder to retain
  2. capacity/ expertise to train people
  3. success of business
  4. management style
67
Q

what are 4 reasons a business could be losing staff?

A
  1. lack of flexibility of jobs
  2. insubordination - not following instruction
  3. lack of motivation
  4. may not agree with ethos/ business culture
68
Q

what is the definition of labour turnover?

A

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

69
Q

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

A
  1. training up is expensive
  2. don’t want to share trade secrets - sometimes given gardening leave
  3. recruitment costs
  4. loss of morale
70
Q

what is the definition of labour retention?

A

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

71
Q

what is the calculation for labour turnover?

A

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

72
Q

what is the calculation for labour retention?

A

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

73
Q

what are 4 HR strategies to improve employee performance?

A
  1. financial rewards
  2. employee share ownership
  3. consolation strategies
  4. empowerment
74
Q

what are some examples of financial rewards? (4)

A
  1. PRP
  2. share options
  3. commission
  4. bonuses
75
Q

what is the definition of employee share ownership?

A

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

76
Q

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

A

by giving them to many employees you are diluting the value.

more complicated than giving cash

77
Q

what are three methods of consolation strategies?

A
  1. appraisal
  2. quality circles
  3. ACAs
78
Q

what are 2 issues of consolation strategies?

A
  1. takes a long time - issue may end up being resolved

2. some things cannot be fixed

79
Q

why is empowerment a strategies to improve performance?

A

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

80
Q

what are two issues with empowerment?

A
  1. excuse to cut costs/ delayer and make managers redundant

2. smoke screen for more work on the same pay.

81
Q

what are 5 causes of absenteeism?

A
  1. illnesses/ sickness
  2. poor levels of motivation
  3. paternity/ maternity leave
  4. poor working conditions
  5. transportation issues
82
Q

what is the calculation of absenteeism?

A

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

83
Q

why is absenteeism important to measure? (3)

A
  1. affects efficiency and cost
  2. early warning of staff turnover
  3. measure the productivity loss
84
Q

why is absenteeism such a significant issue? (3)

A
  1. significant business cost
  2. key to understand reasons (genuine or not)
  3. often predictable
85
Q

what are 4 ways absenteeism can be improved?

A
  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

Business Studies - Theme 3 (8 decks)

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