Unit 7 - Economy Flashcards
(41 cards)
7.1| What are corporate objectives?
Those that relate to the business as a whole.
7.1| What is the purpose of corporate objectives?
— Provide strategic focus
— Measure performance of the firm as a whole
— Inform decision-making (which involves strategic choice)
— Set a scene for more detailed functional objectives
7.1| What are the key areas for corporate objectives?
> Market - market share, customer satisfaction, product range
> Innovation - new products, better processes, technology
> Productivity - optimum use of resources, focus on core activities
> Profitability - level of profit, rates of return on investment
> Physical & financial resources - factories, locations, finance and supplies
> Management - structure, promotion & development
> Employees - organisational structure, employee relations
> Public responsibility - compliance with laws, social and ethical behaviour
7.1| What are functional objectives?
Set for each key business function and are designed to ensure that the corporate objectives are achieved.
7.1| How might functional objectives support corporate objectives?
(CO) Increase sales = launch five new products in the next two years (marketing)
(CO) Reduce costs = increase factory productivity by 10% (operations)
(CO) Increase cash flow = reduce the average time taken by customers to pay invoices from 75 to 60 days (finance)
(CO) Improve customer satisfaction = achieve a 95% level of high customer service (people)
7.1| What does SMART stand for?
S - specific
M - measurable
A - achievable
R - relevant
T - time bound
7.1| What are the key internal influences on corporate objectives & decisions?
+ Stakeholder influence
+ Business ownership
+ Attitude to profit
+ Ethical stance
+ Leadership
+ Strategic position & resources
7.1| What are the key external influences on corporate objectives and decisions?
+ Short-termism (external investor pressure to focus on and achieve short-term objectives at the expense of long-term strategy
+ Economic Environment (consumer spending, interest rates)
+ Political / legal environment
+ Competitors
+ Social and technological change
7.1| What is the mission statement?
The overriding purpose of the business
— A reason for the firms existence
— A strategic perspective
— Supports the stated “vision” for the future
7.1| Who are the key audiences for a mission statement?
- Employees
- Customers
- Investors
- Society
7.1| What makes an effective mission statement?
— Differentiates the business from its competitors
— Defines the markets or business in which the business wants to operate
— Is relevant to all major stakeholders (not just shareholders and managers)
— Excites, inspires, motivates & guides
7.1| What are the common criticisms of a mission statement?
X - Not always supported by the actions of the business
X - Often too vague and general
X - Often merely statements of the obvious
X - Just PR?
X - Sometimes regarded cynically by staff
X - To be effective, everyone in the business has to “buy-in”
7.1| What are the key influences on the mission of a business?
- Personal beliefs, values and objectives of the leaders/ founders
- Nature of the industry
- Degree of competition
- Values and relative power of stakeholders
- Business ownership
7.1| What is SWOT analysis?
SWOT Analysis helps a business assess its competitive strength and the nature of its external environment.
7.1| What does SWOT stand for?
S - strengths
W - weaknesses
O - opportunities
T - threats
7.1| What is likely evidence of strengths and weaknesses?
— Market share (%)
— Profitability (operating profit)
— Efficiency (unit costs)
— Brand recognition & loyalty
— Reputation for quality
7.1| How could you evaluate strengths and weaknesses?
+ Is the judgement made reliable?
+ How sustainable are the strengths?
+ Can weakness be overcome? How?
7.1| How can you assess opportunities and threats?
— How to take advantage of opportunities
— How to protect against threats
— Role of risk management & contingency planning
7.1| Benefits and Drawbacks of SWOT Analysis.
> BENEFITS:
— Logical structure
— Focuses on strategic issues
— Encourage analysis of external environment
> DRAWBACKS
— Often lacks focus
— Can quickly become out-of-date
7.2| What information can you find on the Income Statement?
— Revenues
— Cost of sales
— Gross profit
— Operating profit
— Net profit (profit of the year)
7.2| What information can you find on the Balance Sheet?
— Current assets
— Current liabilities
— Inventories
— Trade receivables & payables
— Long-term liabilities
— Capital & reserves
7.2| What is Ratio Analysis?
Ratio Analysis involves the comparison of financial data to gain insights into business performance
7.2| What are the main groups of ratio?
- Profitability ratios
+ Gross profit margin
+ Operating profit margin
+ ROCE - Liquidity ratios
+ Current ratio
+ Acid-test ratio - Efficiency ratios
+ Payables Days
+ Receivables Days
+ Inventory Turnover
+ Gearing
7.2| Who are the key users of ratios?
> Profitability:
— Shareholders
— Government
— Competitors
— Employees
> Liquidity
— Shareholders
— Lenders
— Suppliers
> Efficiency
— Shareholders
— Lenders
— Competitors
