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
Rate of absenteeism
Number of staff absent/total no. of staff x100
Strategies to solve HR problems
Increased financial rewards, empowerment, consultation
Effects of strategies to solve HR problems
Motivation, less resistance to change, pay system encourages them to come to work, inspire confidence, loyalty
