1. Business Objectives Flashcards
What is an organisations mission?
The fundamental objective of the entity
What is the principle goal of a public organisation?
To provide services that are deemed important by society
What are the 3 common categories of objectives for a public organisation?
- Demonstrate efficiency in the allocation and use of their resources
- Demonstrate balancing of the financial budget
- Minimise wastage levels
What are the 3 main categories of for profit, private organisations?
- Sole Trader
- Partnership
- Limited Company
What are the 2 main categories of for not for profit, private organisations?
- Mutuals
- Charities
What is the principle goal of a limited company?
Maximising the wealth of its shareholders
What 2 things do shareholders expect?
- A vote in how the company is run
- Returns in the form of increasing share price and dividend payments
What is the primary goal of a charity?
To provide a service for the whole of society/a specific group
What is the primary goal of a mutual?
To provide it’s members with services
What are the 3 Es of value for money objectives of a not for profit?
- Efficiency - minimum wastage of resources
- Economy - quality at minimum cost
- Effectiveness - achieving objectives
What is the goal of setting non financial objectives?
To satisfy wider stakeholder groups
What is the equation for earnings?
Profit after tax and preference dividends
What is the equation for ROCE?
PBIT / TALCL
What is the equation for Return on Equity?
Earnings / Shareholder Funds
where shareholder funds are share capital + reserves
What is the equation for gross profit margin?
Gross Profit / Revenue
What is the equation for operating profit margin?
PBIT / Revenue
What is the equation for net profit margin?
PAT / Revenue
What is the equation for asset turnover?
Revenue / TALCL
What is the alternative equation for ROCE?
Operating profit margin x asset turnover
What is the equation for current ratio?
Current Assets / Current Liabilities
What is the equation for quick ratio?
Current Assets - Inventory / Current Liabilities
What is the equation for inventory turnover?
COS / Inventory
What is the equation for inventory days?
Inventory / COS x 365
What is the equation for receivables days?
Receivables / Credit Sales x 365
What is the equation for payables days?
Payables / Credit Purchases x 365
What is the equation for the working capital cycle?
Inventory Days + Receivables Days - Payables Days
What 2 things do gearing ratios indicate?
- The degree of risk attached to the company
- The sensitivity of earnings and dividends to changes in profitability and activity level
What 3 things does long term debt comprise of?
- Bank borrowings and bonds
- Overdrafts
- Redeemable preference shares (irredeemable are equity)
What is the equation for the debt:equity ratio?
Long term debt / Equity
What is the equation for gearing?
Long term debt / Equity + long term debt
What is the equation for the debt ratio?
Long term debt / Total Assets
What is the equation for interest cover?
PBIT / Interest Expense
What is the equation for total shareholder return?
Dividend + Change in price / original price
What is the equation for EPS?
Earnings / Number of Shares
What is the equation for earnings yield?
EPS / Share Price
What is the equation for dividend yield?
Dividends per share / Share price
What is the equation for dividend payout ratio?
Dividends per share / EPS
What is the equation to relate earnings yield (1), dividend yield (2) and dividend payout ratio (3)?
(1) x (3) = (2)
What is the equation for P/E ratio?
Share Price / EPS OR Market Cap / Earnings
What happens to cost of borrowings when interest rates rise?
Become more expensive
What happens to borrowing demand when interest rates rise?
Demand decreases as it is more attractive to save
What happens to domestic currency when interest rates rise?
Strengthens due to an increase in deposits by foreign depositors
What happens to bond values when interest rates rise?
They fall
What happens to inflation when interest rates rise?
Inflation reduces due to decreased demand
What happens to business with rising inflation?
Costs increase and so they will often increase prices
What happens to investment with rising inflation?
Less investments due to uncertainty about the future
What happens to exports with rising inflation?
Exports are less competitive (as domestic prices are high)
What happens to imports with rising inflation?
Imports are more attractive
What happens to domestic currency with rising inflation?
Weakens
What happens to interest rates with rising inflation?
Interest rates rise to compensate savers for inflation
What happens to foreign currency transactions when foreign currency strengthens? (Exchange rates rise)
They are worth less
What happens to exports when foreign currency strengthens? (Exchange rates rise)
They are less competitive
What happens to imports when foreign currency strengthens? (Exchange rates rise)
They are more attractive
