3.5 Flashcards
Labour productivity
Output per employee
Why productivity matters:
- Labour costs are significant
- Efficiency and profitability are closely linked
- Unit costs must be kept down to remain competitive
Factors influencing:
- Extent and quality of fixed assets e.g., equipment etc.
- Skills/ability/motivation
- Methods of production
- Organisation
- Training/support
- External factors (suppliers)
Ways to improve:
- Measure performance
- Set targets
- Streamline production process
- Invest in equipment
- Invest in training
- Improve working conditions
Problem with high staff turnover
- Reputation
- Recruitment/training costs
- Loss of production
- Increased pressure on remaining staff
- New staff - decreased quality
- Time consuming to replace
- Disruption to efficiency
Factors that effect staff turnover
- Type of business (seasonal)
- Pay/other rewards
- Working conditions/standards
- Opportunity for promotion
- Opportunity for more responsibility
competitors actions - Communications in business
- Employee loyalty
- Job enjoyment/enrichment
Ways to improve staff turnover
- Effective recruitment and training (correct staff for the job)
- Provide competitive pay/incentives
- Job enrich/largement/responsibilities
- Rewards for staff loyalty
Labour turnover
% of staff who leave during a period
Absenteeism
% of staff who are absent from work
How it affects a business:
- Significant business costs
- Key to understand reasons
- Often predictable
ROCE
Tells us what returns (profits) the business has made on the resources available to it
Calculation = operating profit/capital employed x100
ROCE %:
- The higher the better
- Watch for different trends overtime
- Watch out for low quality profits which boosts ROCE
- Leased equipment will not be included in capital employed
Low quality profits: An ‘exceptional profit’ which is one off e.g., selling assets
Gearing
Shows how much of the business is financed by debt
Calculation = Non current liabilities/(total equity+non current liabilities) x 100
Ways to increase/decrease gearing
Increase:
- Focus on growth (not profit)
- Convert short term debt to long term loans
- Buy back ordinary shares
- Pay increased dividends
- Issue preference shares or ventures
Decrease:
- Focus on profit/improvements
- Repaying long term loans
- Retain profit
- Do not pay dividends
- Issue more shares
- Convert loans to equity
Ratio analysis
To interpret financial reports
+ It provides significant information to users of accounting information regarding the performance of the business
- It is no current and doesn’t take external accounts into consideration
Human resource flow
Movement of employees through organisation
Human resource inflow:
- HR plans
- Recruitment selection/induction
Internal human flow
- Training
- Reemployment (new roles)
- Job design
Human resource outflow:
- Redundancies
- Dismissal
- Retirement
Return on capital employed (ROCE)
Profit of a business as a percentage of the total amount of money used to generate it - the higher the ratio the better (appealing to investors)
Window dressing
Legal manipulation of accounts by a business to present them in a favourable light
Benefits of high labour turnover
Removal of ineffective staff, new ideas/experience/skills, if size needs to be reduced
Drawbacks of high labour turnover
Cost of recruitment, takes time for new staff to become accustomed - mistakes and training
