C2 Cramming

Question 1

Define Porter’s Five Forces

Answer 1

The 5 factors that determine the profitability of an industry
If all high = higher rates of return
If all low = low or fluctuating returns

Question 2

Outline Porter’s Five Forces

Answer 2

1. Threat of New Entrants
2. Threat of Substitutes
3. Bargaining Power of Buyers
4. Bargaining Power of Suppliers
5. Rivalry among existing competitors

Question 3

Define the Ansoff Matrix

Answer 3

Model that outlines the growth options for businesses
There are four methods split between NEW/EXISTING PRODUCTS/MARKETS
Looks at risk & reward of methods

Question 4

Outline the 4 methods in the Ansoff Matrix

Answer 4

1. Market Penetration - existing market & product, low risk/reward
2. Market Development - new market + existing product
3. Product Development - existing market + new product
4. Diversification - new market & product, high risk/reward

Question 5

Define “Window Dressing”

Answer 5

Improving the look of a business’ accounts despite being in a bad position

Question 6

Outline 3 reasons why a business would do “window dressing”

Answer 6

1. Please shareholders of PLCs
2. Show growth in terms of sales
3. Increase the likelihood of mergers/contracts

Question 7

Outline 2 reasons for a business not to do “window dressing”

Answer 7

1. Reduce risk of a hostile takeover
2. Delay paying tax

Question 8

Outline 3 methods of “window dressing”

Answer 8

1. Manipulating sales - choosing whether to record a sale or when money’s received
2. Borrowing money to improve cash flow - improves ability to pay short-term debts
3. Writing off bad debts - choosing which year to not pay debts to reduce profits