3.5/3.6 Flashcards
statement of comprehensive income
shows a firms, revenue, costs and profit.
who looks at Statement of comprehensive income
- Shareholders, see how profitable it is, look at trends
-managers, can compare different departments to see where costs can be saved
-loan providers, interested to see operating profit as this is how they pay their loan back
-suppliers, check if they have enough to pay the supplier
-employees, check profits for any bonuses etc
statement of financial position
3 reasons why its useful
shows assets and liabilities at a particular point
-pick out trends by comparing previous SOFP
-keeps shareholders happy if they know profitability of business
-managers can see how flexible the business capital is
liquidity
ability to turn assets into cash
solvency
ability to pay debts
what does gearing ratio show
the proportion of a firm’s finance that’s from non-current liabilities rather than share capital or reserves
capital employed (eq)
capital employed = non-current liabilities + total equity
gearing ratio (eq)
non -current liabilities / capital employed x100
does a business want to be highly or lowly geared?
lowly geared as majority of their finances is not from long term debt.
ROCE (eq)
operating profit / capital employed x100
What does ROCE tell you?
how much money is being made by a firm compared to the amount put into the business
Benefits of ratio analysis
- good way of looking at business performance over a time period
-used to make business decisions e.g decide how to finance their growth
-comparison with other firms ratios
drawbacks of ratio analysis
- only as good as the data that it is based on
-doesn’t account for internal strength e.g quality of staff
-doesn’t account for the external climate
-future changes like tech cannot be considered
Labour productivity (eq)
output per period / number of employees
Labour turnover (eq)
number of staff leaving / average number of staff employed x100
Labour retention (eq)
number of staff employed at the start of period -number of leavers / number of staff employed at start of period x100
absenteeism
No. work days lost through absence / total possible days worked x100
Strategies to improve human resource figures
- financial rewards can be a motivator to work harder and increase staff retention
-employee state ownership, reward staff with shares e.g save as you earn scheme (reduces absenteeism)
-consultation strategies, I love employees in decision making
-empowerment
4 internal factors that can lead to change
- change in size
-new ownership
-poor business performance
-transformational leadership
Affects of change in size on a business 2 P 2 N
P- benefit from economies of scale
P-rapid growth means more dividends to shareholders
N-more workers= harder to communicate
N- changes to production methods such as new tech so productivity doesn’t fall as the business grows
Affects of change in ownership on a business 2 p 2 N
P-new owners may want to grow the business and benefit from economies of scale
P- new ideas being incorporated may end up in a better quality of product
N- stakeholders may raisin change
N- if growth isn’t managed properly diseconomies of scale occur
Affects of poor business performance on the business 2 p 2 N
p- can lead to new managers in place to improve quality
p- quick and extensive changes can reduce costs
N- staff made redundant
N- reduce competitiveness
Transformational leader and their affects
Owner or manager makes large, innovative changes
-recruited after poor performance period to turn things around
-improves competitive changes
-motivate employees
What is PESTLE analysis
Look at external factors that may cause change for a business.
Political
Economic
Social trends
Technological
Legal
Environmental
Organisational culture’s reaction to change
- open cultures welcome change as they can easily adapt to changing markets
-changing management may be resisted by a resistant culture - can be difficult as it means changing attitudes and behaviour
Scenario planning
Where a business consider specific events that may happen in the future and plan how they would operate
Reasons for scenario planning
- natural disaster e.g storm can mean delays to raw materials
-Failure of IT e.g damages operations, stakeholders and reputation - losing a staff member e.g lose staff member and another member can’t do the same quality of work
Risk mitigation
Reduces probability of a risk to a business occurring.
4 forms of risk mitigation
Risk acceptance- decide to take the risk without a plan
Risk avoidance- avoid the risk
Risk limitation - reduces impact of risk e.g back up generator on site if lots of power losses
Risk transference- transferred to a third party e.g insurance
Continuity planning
Plan of how to keep going after a major incident
Succession planning
Involves the identification and development of staff members that would be able to fill key roles.
total equity
total assets - total liabilities
