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A level revision > 3.3 - making business decisions > Flashcards

3.3 - making business decisions Flashcards

1
Q

What is time series data

A

time series data is when sales figures are collected at consistent time intervals (e.g. every month)

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2
Q

What is time series analysis used for

A

time series analysis is used to reveal underlying patterns in the time series data

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3
Q

What are cons of time series data

A

time series data can be difficult to interpret if the data has fluctuations.

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4
Q

What is a three period moving average

A

a three period moving average calculates the average of periods 1,2 and 3, then periods 2,3 and 4 and so on.

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5
Q

What is a four quarter moving average

A

The four quarter moving average takes the averages over the quarter of a year.

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6
Q

What are scatter graphs and lines of best fit

A

Scatter graphs and lines of best fit show trends in data.

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7
Q

How can you tell the correlation in a line of best fit

A

The closer the line of best fit is to the data points, the stronger the correlation is

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8
Q

What is extrapolation

A

Extrapolation is when trends in past sales data is used to forecast future sales

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9
Q

What are pros of extrapolation

A

exrapolation allows managers to forecast future sales and set sales targets. Sales performance can then be measured against these targets.

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10
Q

What are the cons of extrapolation

A

Extrapolation relies on the assumption that past trends will remain true, however past performance is no guarantee of the future since a firms sales can be influenced by external factors.

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11
Q

What is cyclical variation

A

The difference between the actual sales figure and the moving average for a period of time

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12
Q

How do you calculate cyclical variation

A

Cyclical variation = actual sales figure - moving average

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13
Q

What is the main reason why businesses invest

A

Businesses often invest in order to achieve their objectives e.g. if a firms objective is to increase sales then they may invest in new machinery to produce more

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14
Q

Why are investments risky

A

Any situation where you have to spend money in the hope of making money in the future is risky, because there is the possibility that you do not make as much money as you expect

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15
Q

What do firms do when making strategic decisions about investments

A

When firms are making strategic decisions about how to invest, they gather as much data as possible so that they can work out the risk and reward involved

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16
Q

What are the 2 main questions firms ask when deciding whether an investment is good or not

A

1 - how long will it take to get the money back that they spent. 2 - how much profit will they get from the investment

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17
Q

What are the 3 methods businesses can use to help decide whether an investment is a good idea

A

1- calculating the payback period. 2 - calculating the average rate of return. 3 - calculating discounted cash flows

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18
Q

What is the payback period

A

The payback period is the time it takes for a project to make enough money to pay back the initial investment.

19
Q

How do you calculate the payback period

A

Payback period = amount invested / annual net cash flow

20
Q

What is the average rate of return

A

Average rate of return compares the net return with the level of investment. The net return is the income of the project minus the costs, including the investment

21
Q

How do you calculate ARR

A

ARR = average net return / investment x 100

22
Q

What is discounted cash flows

A

Discounted cash flow takes into account the time value of money. It adjusts the value of cash flows in the future to calculate their present value

23
Q

What is the net present value

A

The net present value is the sum of the present values of cash flows, minus the cost of the initial investment.

24
Q

What does a negative NPV mean

A

If a business ends up with a negative NPV, it means that the projects returns will not be good

25
What does a positive NPV mean
A positive NPV shows that the return on both of the projects is more than 100%.
26
What are decision trees
Decision trees combine proability and expected pay off, so a business can use the data to make better decisions
27
What is the expected monetary value (EMV) of an outcome
the expected monetary value (EMV) of an outcome is the probability of the outcome occuring multiplied by the pay off the business can expect to get.
28
What is net gain
Net gain is the financial gain after initial costs have been subtracted.
29
In a decision tree what does the square represent
A square represents a decision node which is the decision to be made.
30
In a decision tree what do the lines from a square represent
The lines coming from a square show the possible courses of action and the costs of each action.
31
In a decision tree what does a circle represent
A circle represents a chance node which shows there are alternative outcomes for a course of action
32
In a decision tree what do the decimals represent
The declimals on the lines are the probabilities of each outcome occuring
33
In a decision tree what are the values in £s
The values in £s represent the pay--off for the business if that outcome happens.
34
What are the advantages of decision trees?
- decision trees make managers work out the probability and potential pay-off for each outcome using real numerical values instead of saying vague statements such as 'this will increase sales' - decision trees are a good visual representation of the potential outcomes of a decision - decision trees allow managers to compare options quantitatively and objectively - decision trees are useful in familiar situations where the business has enough experience to make accurate estimates of probabilities and benefits.
35
What are the disadvantages of decision trees?
- Decision trees are quantitative, so they don't take into non numerical data such as employees opinions on decisions. - probabilities are very hard to predict accurately so there can be a lot of uncertainty about the probabilities. - The values on a decision tree can depend on the person who makes it, due to different peoples opinions and experience. - there are a wider range of potential outcomes than a decision tree suggests.
36
What is critical path analysis
Critical path analysis identifies the most efficient and cost--effective way of completing a complex project.
37
What happens in a critical path analysis
1- the various activities which activities make up the project identified, and the order or sequence that these activities must be performed ain 2 - the duration of how long each activity will take is estimated 3 - these activities are then arranged as a network or graph showing the whole project 4 - the shortest time required to get from start to finish is then identified.
38
What are the circles on the analysis
The circles on the network are called nodes and they show where one activity stops and another activity begins. Each node is split into 3 parts, the number on the left shows the number of the node, the number on the top right shows the earliest start time of next activity, and the number on the bottom right shows the latest finish time of previous activity.
39
What is the earliest start time
EST = earliest start time (in number of days, weeks, months etc) since the start of the project. An activity cant start until the activity before it has been completed. EST is worked out by adding the duration of the previous activity to its EST
40
What is the earliest finishing time
EFT = earliest finishing time. Its the time that an activity will finish if its started at the earliest start time. You can work out the EFT for an activity by adding its duration to its EST.
41
What is the latest finishing time
LFT = latest finishing time. This is the latest time by which the activity can be completed without holdingup the completion of the project. LFT is calculated by working backwards from the final node. The LFT of the final node is equal to the EST of the final node. To work out the LFT of the node before, you subtract the duration of the next activity from its LFT.
42
What is the latest start time
LST = latest start time. Its the latest time an activity can be started and still be finished by its LFT. To calculate LST, subtract the duration of the activity from its LFT.
43
What is float time
Float time (total float) is the length of tiem you can delay an activity without delaying the completion of the project. Total float = LFT - duration - EST

A level revision (80 decks)

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