Strategic position

Question 1

What is a mission?

Answer 1

• Overall goal/purpose
• Guides objectives
• Effective = differentiate from comp, defines market, relevant to stakeholders
• Criticisms = vague, ineffective, PR, unsupported

Question 2

What are objectives?

Answer 2

• SMART targets
• Mission -> Corporate (profit, growth, survival) -> Functional (FMOP) -> Team -> Individual

Question 3

What is strategic direction?

Answer 3

• Big high risk investments
• Hard to reverse
• Assess position prior to decision
• New market/product, changing business model

Question 4

What are the internal influences on strategic position?

Answer 4

• Ownership
• Stakeholders
• Business culture
• Resource constraints
• Ethics

Question 5

What are the external influences on strategic position?

Answer 5

• Political
• Ethical
• Social
• Technological
• Legal
• Environment

Question 6

What is SWOT analysis?

Answer 6

• Method of evaluating company position
• Internal = S (strengths) + W (weaknesses)
• External = O (opportunities) + T (threats)

Question 7

What are balance sheets?

Answer 7

• Statement of financial position
• Assets = liabilities + equity

Question 8

What are income statements?

Answer 8

• Statement of comprehensive income
• Revenue, costs and expenses to show profit and loss
• Shows overall profitability

Question 9

List the 8 financial ratio analysis equations

Answer 9

• Gross profit margin
• Operating profit margin
• Return on capital employed
• Current ratio
• Gearing
• Payables days
• Receivables days
• Inventory turnover

Question 10

List the equations for the 8 financial ratio analysis equations

Answer 10

• Gross profit margin = (gross profit / revenue) * 100
  –> Gross profit = turnover - cost of sales
• Operating profit margin = (operating profit / revenue) * 100
  –> Operating profit = turnover - total costs
• RoCE = (operating profit / capital employed) * 100
  –> Capital employed = equity + NCL
• Current ratio = current assets / current liabilities
• Gearing = (NCL / capital employed) * 100
  –> Capital employed = equity + NCL
• Payables days = (payables / cost of sales) * 365
• Receivables days = (receivables / turnover) * 365
• Inventory turnover = cost of sales / inventory

Question 11

List the meanings of the 8 financial ratio analysis equations

Answer 11

• Gross profit margin = % of revenue which is money made off sales
• Operating profit margin = % of revenue which is truest form of profit
• RoCE = how much money is being generated from capital
• Current ratio = how many times current assets can pay off current liabilities
• Gearing = what % of capital is long term debt
• Payables days = average number of days it takes to pay suppliers
• Receivables days = average number of days it takes to be paid by customers
• Inventory turnover = number of times a year the business sells all its inventory

Question 12

Explain the types of assets and liabilities

Answer 12

• Fixed assets = hard to turn into money, retained >1 year (buildings, machinery, vehicles)
• Non-current liabilities = cash flow management tool, debt >1 year (mortgages, loans)
• Current assets = retained >1 year (trade receivables, inventory, cash)
• Current liabilities = debt <1 year, cash management tool (trade payables, overdraft, running costs)
• Net assets = total assets + total liabilities
• Net current assets = current assets - current liabilities (how much they can budget to spend)

Question 13

What are the types of financial performance indicators?

Answer 13

• Revenue
• Gross/operating/profit for the year
• Cash flow
• Return on investment
• Return on capital employed

Question 14

What are the limitations of financial performance indicators?

Answer 14

• Historical data (outdated)
• Short-termism (only applies for current 1/4, hard to predict the future)
• Limited focus (lack overall knowledge, department specific)
• Internal perspectives (not compared to benchmarks)

Question 15

What are the types of non-financial performance indicators?

Answer 15

• Marketing
  –> Sales volume/value = whether sales are improving
  –> Market share = performance compared to competitors
  –> Brand loyalty = repeat customers
  –> Cost per unit of promotion = promotion cost spread over sales
• Operations
  –> Productivity = output per units of input
  –> Quality = customer satisfaction/loyalty, faulty products/returns, complaints
  –> Capacity utilisation = responsiveness to change in demand
• Human resources
  –> Labour productivity = units per worker
  –> Absenteeism = workforce lacks motivation, decreased competitiveness
  –> Labour cost per unit = cost per unit spent on labour
  –> Labour turnover/retention = how many workers leave/stay in the workforce

Question 16

What are core competencies?

Answer 16

• Key strengths of a business (SWOT)
• Unique elements providing strategic advantage
• Eg. strategic marketing, product innovation, customer services, value added

Question 17

What is short-termism?

Answer 17

• Defect to be avoided
• Trading
• Competitive
• Sensitive to 1/4 econ growth
• Immediate gratification
• Not benefit business in LR

Question 18

What is long-termism?

Answer 18

• Implementing sustainable strategies for future benefit
• Preferred approach
• Investment
• Sustainability
• Social and environmentally sensitive

Question 19

What is Elkington’s triple bottom line?

Answer 19

• Method of assessing overall business performance
• People, planet and profit objectives
• Different businesses will have a different focus
• Benefits = employee attentiveness/behaviour
• Drawbacks = difficulty measuring social and environmental impacts

Question 20

What are the role of the competition and markets authority?

Answer 20

• Ensures comp not unduly interfered with
• Protects consumer interests
• Investigates mergers
• Takes action against anti-comp businesses
• Investigates market with comp problem
• Provide info on comp law