Flashcards in Unit 7-analysing the strategic position of a business Deck (62):
What is an income statement?
An accounting statement showing a firm's revenues, costs and profits over a given year
What does the layout of an income statement look like?
Cost of sales
Pre tax profit
Profit for the year
WhT is an income statement helpful for?
Inform future strategic decisions
See profit utilisation
Help get loans
Legal requirement for PLCs
What is a balance sheet?
Shows à firms assets and liabilities on a given day
How does the layout of a balance sheet look?
Non current assets
Net current assets
Non current liabilities
Why is the balance sheet useful?
To assess liquidity
To inform strategic decision making
To see how investment has been raised
To see the value of the firm
To help raise finance
What is return on capital employed?this measures profit made as a % of the money invested in the firm
this measures profit made as a % of the money invested in the firm
How do you calculate ROCE?
Operating profit/total capital employed. X100
What is current ratio?
Measures how many current assets a firm has compared to current liabilities
What is gearing?
Shows how much of a firm's investment has come from borrowing
How do you calculate gearing?
Non current liabilities/ total capital employed. X100
What is inventory turnover?
Shows how often in one year a business sold its average stock of goods
How do you measure inventory turnover?
Cost of goods sold(or sales revenue) /average inventories
What is receviables days?
This shows how long on average it takes a firm to collect debts owed by customers
How do you calculate receivables days?
Receviables/sales revenue. X365
How do you calculate payables days?
Payables/cost of sales. X365
How do you answer a big question using these financial ratios?
Explain what the figures show
Judge whether good or bad for firm in Q
Say what you would also need to make a fuller judgement
What is a core competence?
A unique quality
What did prahalad and Hamal say about core competencies?
To be one it must be:
Significant for consumers
Allow firm access to variety of markets
Be hard to replicate
How can long term performance be measured?
R and D spending
Spending on training
Customer satisfaction and brand loyalty
What is Kapton and Norton's balanced scorecard?
A method of assessing a firm's performance
What are the 4 categories of the balanced scorecard?
Learning and growth performance
What is Elkington's Triple bottom line?
It looks at 3 areas of assessing long term performance
What are the positives of the methods of assessing overall long term performance?
Gives a fuller picture than just assessing financially
Can keep stakeholders happy as it shows an interest in them
Can develop methods of tracking performance in future
What are the negatives of the methods of assessing overall long term performance?
Can't measure everthing
Some judgements are subjective, e.g. Planet
Can be seen as purely a PR exercise
Reasons for government intervention?
Prevents unethical behaviour
Reduces environmental issues
Keeps a 'level playing field' for businesses
Reasons against government intervention?
Protects, helps less efficient firms
Increases 'red tape' and costs for U.K. Firms
May argue business owners know best
What are the 3 key areas for laws?
The labour market
Give an example of a law for each of the different types of law areas
Competition act, e.g. Forbids cartel activity
National minimum wage act
The environmental protection act
What are the 4 main areas for government policy?
Towards entreprise - encouraging start ups, e.g. Enterprise finance guarantee
Regulation - rules regarding how firms can operate in a market
Infrastructure - improving transport, communication, energy supplies etc
International trade - U.K. Government tries to promote free international trade
What is GDP?
Measures the value of a country's total output of good and services over a period of time, normally one year.
What is protectionism?
Government policy to prevent the free import of goods into a county
What is the exchange rate?
The value of one currency against another
Why do uk businesses generally want a weaker pound?
It makes it easier to export and more expensive for foreign imports
What is inflation?
The general rise in prices
Why do businesses generally prefer low inflation?
Helps maintain demand (especially if wages are rising by just as much)
Stops their costs rising too quickly
What are interest rates?
Show the cost of borrowing
What is monetary policy?
Using interest rates and the supply of money to influence demand in the economy
Why is fiscal policy?
Using taxation and public spending to influence the economy
What is an emerging market?
Economies/ countries that are undergoing rapid industrialisation and economic growth
What are some benefits to the UK of emerging markets?
Huge new potential markets and sales
Chance to offshore
Spread of risk
Access to cheaper raw materials
What are some drawbacks to the UK of emerging markets?
Competition from cheap imports
China is now moving up the value chain
Bad image from using cheap labour
On what will it depends pas to whether a firm can benefit or not from emerging markets?
Can they get an understanding of what consumers in these countries want
Can they adapt marketing mixes
Can they get through the red tape
Do they have the liquidity
Can they manage the potential diseconomies of scale of growing in a different country
what are the main current changes in the social environment?
Demographic changes - ageing population, increase in migration, increase in urbanisation e.g. China
Consumer changes - increased use of tech worldwide, increased focus on healthiness, increase in online shopping
What is CSR?
The duties a business has towards its stakeholders
How does Carroll's CSR pyramid look?
Bottom - economics responsibilities, i.e. Being profitable
- legal responsibilities
- ethical responsibilities
Top - philanthropic responsibilities responsibilities, i.e. Be a good corporate citizen
What are some of the potential long term benefits of taking a stakeholder approach?
Lower costs - happier staff, less wastefulness process TQM, avoid bad PR
Increased demand - happy customers, marketing benefits e.g. Differentiation from rivals
On what does it depend as to whether a firm will benefit or not from a stakeholder approach?
Whether, financially, looking at the short or long term
The firm's strategy, e.g. Cost minimisation means shareholder approach more likely
The type of firm, e.g. An oil company could cause enormous problems if it didn't take a stakeholder approach
WHat are some possible outcomes benefits of embracing technology?
Increased short term costs, e.g. Buying it, redundancies
Hopefully long term benefits, e.g. More competitive, more sales, increased efficient, decreased costs
GIve some possible examples of change for the marketing department
Use of loyalty card for data
Use of social media and relationships marketing
Online selling and advertising
Opens new distribution channels
GIve some possible examples of change for the operations department
Computer aided design CAD
Computer aided manufacturing CAM
More efficient transportation
GIve some possible examples of change for the HR department
New methods of communication with staff
Different ways of recruiting
Workforce planning for fewer staff
GIve some possible examples of change for the finance department
Record keeping - cloud
WHat are porter's five forces related to?
The competitive environment
What's are porter's five forces?
Bargaining power of suppliers
Bargaining power of buyer
Threat of new entrants
Threat of substitute products
What is predator pricing?
Dropping prices to undercut rivals
What Is payback?
Shows how long it will take to recoup the investment money
How do you calculate payback?
See how many years of net cash flows it will take to recoup the original investment
What is ARR
Average annual rate of return - it shows the profit the investment should make as a yearly % of the amount invested
How do you calculate ARR?
(Total profit / number of years of returns)
What is NPV?
Shows if the investment will give a positive return in real terms i.e. After inflation