3.5 Flashcards
Gearing ratio
Measures the level of debt (proportion of a business’ finance that is debt.)
Gearing = non current liabilities/total equity anon-current liabilities x100
+/ high gearing: debt is relatively cheap compared to dividends, easy to pay the interest if profits and cash flow are strong
+/ low gearing: less risk of defaulting on debts, can borrow funds to expand
How to finance future strategies, risk of rising interest rates, set investment criteria.
Return on capital employed
Measures the officially with which the firm generates profit from the funds invested in the business. Operating profit/ total equity + non-current liabilities. The higher the value the better because it means that the resources are being used efficiently
Efficiency targets - identifying training needs, future investments, disposal/purchase of non-current assets.
Value of ratios
Human resource data.
Quantifiable into that can be used to measure work force performance: Labour productivity, labour turnover and retention Ana absenteeism
Labour productivity
Measure of workforce performance that looks at output per worker, total output /number of workers.
Factors that influence: extent and quality at fixed assets / skills, ability and motivation/ methods of production / extent of training / external factors like reliability of suppliers
Improving: invest in capital equipment ( machinery and software) invest in employee training, improving working conditions.
issues with raising-labour:
Trade off (compromise) with quality’s- output may affect quality therefore decreasing satisfaction and sales
Employee resistance dependent on methods used like new technology
Employee may demand higher for improved productivity
Labour turnover
Measures the percentage of the work force (employees) that leave a business within a given period.
Number of employees leaving during period/average number employed during period. X100
Factors that influence: type of business ( temporary staff about seasonal turnover), pay and other rewards, economic conditions, labour mobility (transferable staff skills and other jobs available ), employee loyalty
Disadvantages of high level:
Higher recruitment and training, costs in advertising. Recruitment
Costa of tempting or cover staff
Increased pressure on remaining staff leading to more
Harder to maintain required standards of quality / cs
Minimising labour turnover:
Effective recuirtment and training (recruit high stuff for corporate culture)
Provide competitive pay and non-financial benefits
Profit and loss account
Measures the business performance (income and custo) over a given period of time)
Shareholder interest
Balance sheet
Snapshot of business’ assets (owns or is owed) and liabilities (what it owes)
Assets:
Long term non current: land/buildings -vehicles
Current assets : short term assets that change daily: inventories, receivables, cash
Capital : three main sources of long term capital: shareholders (share capital), banks (luan capital) and retained profits (sc and r= total equity)
absenteeism
Can be defined as the number of staff who miss work as a proportion of the total num of staff employees intentional or habitual absence
Num of staff absent per time penda/ total nom of staff days worked per time period
A significant business cost (sickness absence costs)
Key to understand reasons and often predictable
Tackling: understand causes - monitor trends - have clear sickness and absence policy, rewards for good attendance, employee motivation
Statement of comprehensive income calculations.
Sales revenue = quantity sold x selling price
Gross profit = sales revenue-cost of sales
Operating profit = gross profit - expenses
Profit for the year = operating profit - interest and taxation
Negative and positive effects of labour turnover
-/ cost of recruiting placements and training, time taken new recruitments - to settle and adopt culture like loss of productivity while learning reachers their peak
+/ bring new ideas and enthusiasm, workers with specific skills can be employed rather than training existing workers
Equity
Proportion of the capital structure that is left a retained profits
Retention rates
Measure of a firms ability to keep its workforce within the business normally for more than a year
Num of employees more than a year / average num of stuff
Low retention = high recruitment, selection and training costs, risk gloss of important info, loss of talent
Employee retention looks at ways to convince employed to remain: financial incentives and flexible working
Financial rewards, commission (payment made to num of units sold), bonus (additional one off sum), performance related pay
Employee share ownership
