Business berry y2 Flashcards
(26 cards)
Investment Appraisal
Payback Period - How long to breakeven
Average Rate of Return (ARR) - Annual profit % from an investment, compares potential return for an investment
Net Present Value (NPV) - Potential return in real terms
Total Equity
Share Capital + Reserves = Net Assets
Long-Term assets
Fixed Assets
Intangible assets
Goodwill which suffer from amortisation ( like depreciation )
Profit quality
High = continue into the future
Low = unlikely to occur again ( exceptional items ) ( listed separately in income statement )
Ratio analysis
Techniques to analyse financial performance with data
LIquidity
The ability to pay short-term debts, Liquidity ratios utilise the balance sheet
Current ratio
( liquidity ) Ability to meet short term debts, ideal is 1.5-2:1
Gearing
( liquidity ) Shows what proportion of capital invested in the business comes from long-term loans, >50% is high, <25% is low
Return on Capital Employed
( profitability ratio ) Shows the operating profit compared with the total capital employed, higher the better
Inventory turnover
( financial efficiency ) Measures how quickly stock is converted into sales
Receivables days ( debtors )
( financial efficiency ) Ratio shows number of days to convert receivables into cash
Payables days ( creditors )
( financial efficiency ) Number of days to pay any payables owed
Issues with ratio analysis
Reliability
Historical data
Performance change regularly
Difficult to compare to rivals
Economic/External factors
Objectives of the business
Diseconomies of scale
disadvantages suffered as a result of business increasing scale of operations that lead to a rise in unit costs
Communication
Coordination
Control
Economies of scale
Financial
Risk-Bearing
Managerial
Marketing
Increased Dimensions ( Experience curve - Advantages as a result of having both managers and employees who are familiar with running the business )
Synergy - Business join together to achieve more than the sum of the two separately
Economies of scope
Advantages of increasing scale of operations by expanding the range of activities it undertakes leading to fall in unit costs
Joint Venture
Two+ businesses agree to act collectively to set up a new business venture with all parties contributing equity to fund, setup and purchase of assets
Intrapreneurship
When employees in a larger organisation act in the same way as an entrepreneur
Handy’s model ( culture )
Task ( TEAM ) - Emphasis on achieving set outcomes through cooperation
Role - Clear rules result in a hierarchy where org functions on each individuals role within a structure
Power - A few people central to the org has control
Person - High autonomy to individuals often highly skilled
Organisation structure
Functional - Groups employees into different departments of expertise
Regional - Organises people by geographic location
Product Based - Divisions focus on different products as individual units
Matrix - Reporting to multiple leaders, sharing resources and staff
Strategic Drift
Occurs when a strategy fails to adapt to changes in the internal and or external environment making it no longer fit for purpose
Internal :
Changing leadership
New objectives
Change in size
External :
Technology
Societies priorities
Globalisation
Divorce of ownership and control
Refers to the situation that arises when one group of people own a business but a different group make the day-to-day decisions
Lewin’s forcefield analysis
Two opposing forces when change is being implemented : driving and resisting forces
