(3.5) Assessing Competitiveness

Question 1

What are the 4 human resources strategies to increase productivity, retention, reduce turnover and absenteeism?

Answer 1

Financial rewards - increased pay
Employee Share Ownership - Gives employees a share of the company (allows them to feel apart of the company)
Consultation strategies - involve employees in the decision making, involves listening to employees
Empowerment strategies - allowing staff to set their own objectives (need to have a strong culture)

Question 2

What is the equation for labour productivity?

Answer 2

Output per period / Number of employers per period

Question 3

What is the best type strategy for increasing labour productivity and why?

Answer 3

Empowerment Strategies - allows experienced staff to set their own objectives, requires a strong culture,

However staff needs to be confident

Question 4

What are the advantages and disadvantages of having a good labour productivity?

Answer 4

+Drives down costs
+increases competitiveness - business can charge lower prices
+Makes better use of capital resource -
+Makes optimum use of Human Resources -

-May Compromise on quality

Question 5

What is the formula for labour turn over?

Answer 5

( Staff leaving per year / Average number of staff ) * 100

Question 6

What is the best strategy for improving labour turnover?

Answer 6

Employee Share Ownership - makes staff feel part of the organisation and want the organisation to grow. Only managers (higher ups) usually get shares

Question 7

What might cause labour turnover?

Answer 7

Low pay
Lack of training and development opportunities
Poor working conditions
Poor recruitment and selection processes
Economic boom

Question 8

What is the formula for labour retention?

Answer 8

( Staff not leaving per year / Average no of staff ) * 100

Question 9

What is the best strategy for labour retention?

Answer 9

Financial Rewards - more money can lead to employees working harder

Question 10

What is the benefits of a high retention rate?

Answer 10

Lower requirement and selection cost
Better continuity
Stable workforce
Better experience and skill sets of workers

Question 11

What is the formula for absenteeism?

Answer 11

( Days absent per year / Total number of working days ) * 100

Question 12

What is the best strategy for absenteeism?

Answer 12

Consultation strategies - employees are more likely to motivated if they are involved in the decision making process

Question 13

Why is absenteeism bad?

Answer 13

Business has to pay sick pay
Temporary staff have to be paid for
Existing staff have to be paid overtime
Output suffers - temp staff are less productive
Absence can delay / prevent big projects
Production delays / quality decrease could prevent customers
Demotivating for remaining staff
Cultural shift - is it ok to call in sick

Question 14

What is the gearing ratio?

Answer 14

It tell you what proportion the business value is financed by long term debt

Question 15

What is the gearing ratio formula and what does the output tell us?

Answer 15

(non-current liabilities/ Capital Employed) x 100

Gearing > 50%
-vulnerable to increases to interest rates

Gearing < 50%

• May be able to borrow more
• Business isn’t taking enough risk

Question 16

What is the Return on Capital Employed (ROCE)?

Answer 16

It tells us the Return on capital employed. Relates profit to the size of the business

Question 17

What is the Return on Capital Employed (ROCE) formula and what does the result mean?

Answer 17

(Operating Profit/ Capital employed) x 100

• The higher the percentage the better
• Identify trends
• Low quality profit (eg selling random assets or benefiting from a trend) might boost ROCE and be miss leading
• Needs to compared to interest rates (would saving in the back be more profitable than investing in a business)

Question 18

What are the limitations of ratio analysis?

Answer 18

The basis for comparison - less reliable over times when comparing

The quality of financial accounts - eg when inflation is high are asset values inflated accordingly

Limitations of the balance sheet

Qualitative information is ignored - eg change in leader ship

Other differences - eg different accounting methods or accounting methods can be misleading for investors

Window dressing - Making the ratio analysis look better than it is

Question 19

What is the formula for capital employed?

Answer 19

TA - TL

Net Assets

Question 20

Why are shareholders interested in the statement of financial position?

Answer 20

• Shareholders may see how their investment has been spent
• Suppliers and creditors will be interested to see whether the business will be able to pay its debts
• Managers may use it to analyse liquidity and asses the level of risk associated with debt