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3.5 Assessing Competitiveness Flashcards

1
Q

How is Finance Cost defined?

A

interest paid by a business on any borrowed money

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2
Q

How is Finance Income defined?

A

interest received by a business on any money help in deposit accounts

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3
Q

What are Financial Statements?

A

There are 2 main financial statements that all companies are required to produce, by law for each financial year. They are:
- Statement of financial position (balance sheet)
- Statement of comprehensive income (profit & loss account)

Unincorporated businesses are also required to create financial statements, but they will not be as detailed as those required by companies. However, they will usually take a similar format to those listed above.

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4
Q

What is the Statement of Comprehensive Income?

A
  • Otherwise known as an income statement or profit and loss account, the statement of comprehensive income will record the income and expenditure of a business over a period of time.
  • The period of time is usually 1 year (but can vary from 6 months to 18 months)
  • It will be used to calculate whether a business has made a profit or a loss over the accounting period.
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5
Q

What are the Key Parts of the Statement of Financial Income?

A
  • Revenue
  • Cost of Sales
  • Gross Profits
  • Selling Expenses
  • Administrative expenses
  • Operating Profit
  • Finance Costs
  • Profit for the Year (net profit)
  • Profit for the year (net profit) after tax
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6
Q

What is the Revenue section of Statement of Comprehensive Income?

A
  • This is the money the business receives from selling goods and services.
  • Revenue must not include VAT. This is because VAT does not belong to the business
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7
Q

What is the Cost of Sales section of Statement of Comprehensive Income?

A
  • This refers to the production costs of a business
  • More specifically it relates to direct costs, such as raw materials and labour
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8
Q

What is the Gross Profit section of Statement of Comprehensive Income?

A
  • This is the cost of sales subtracted from the revenue
  • It is the profit made before the deduction of general overheads
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9
Q

What is the Selling Expenses section of Statement of Comprehensive Income?

A

A business is likely to incur a range of expenses that are directly related to the selling its products e.g. sales commissions, advertising, distribution and promotional costs.

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10
Q

What is the Administrative Expenses section of Statement of Comprehensive Income?

A
  • These are the general overheads or indirect costs of the business e.g. office salaries, expenses claimed by senior staff, stationery supplies, IT expenses etc.
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11
Q

What is the Operating Profit section of Statement of Comprehensive Income?

A
  • If the selling and administrative costs are subtracted from gross profit we get the operating profit
  • The operating profit is the profit generated from the firm’s core acitivites
  • It does not include any income from financial investments made by the business
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12
Q

What is the Finance Costs Section of Statement of Comprehensive Income?

A
  • If a business borrows money it will have to pay interest to the lender.
  • The amount paid will be entered in the statement as a finance cost
  • However, a business may also recieve interest if it has money in deposit accounts this will appear as finance income in the account
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13
Q

What is the Profit for the Year (Net Profit) section of the Statement of Comprehensive Income?

A
  • If the cost of finance is subtracted from the operating profit the net profit for the year is determined
  • This is the profit before taxation
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14
Q

what is the Profit for the Year (Net Profit) after tax section of the Statement of Comprehensive Income?

A
  • This is the amount of money that is left over after all expenses, including taxation, have been deducted from revenue
  • It is often referred to as the ‘bottom line’
  • The money belongs to the owners of the business,
  • In case of a limited company it belongs to the shareholders, Some of it may be retained
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15
Q

What are the different Stakeholders that would be interested in the Statement of Financial Income?

A
  • Shareholder
  • Managers & Directors
  • Employees
  • Suppliers
    -Government
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16
Q

Why would Shareholders be interested the Statement of Financial Income?

A
  • Naturally the owners of a business will be interested in its performance
  • Shareholders are likely to be interested in the profit made by the business - particularly the profit for the year (net profit) after tax
  • Rising profits are an indicator of improving performance –> probably calculate the net profit and gross profit margin from the statement of financial income to assess performance more rigorously
  • It is also possible to gauge the growth of the business by looking at the statement of comprehensive income –> if the revenue is rising this suggests that the business is growing
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17
Q

Why would Managers & Directors be interested in the Statement of Financial Income?

A
  • Since managers and directors are responsible for running the business, they are likely to use key information in the statement of comprehensive income to monitor progress
  • For example, they might be setting annual targets for growth in revenue or profit for the year (net profit).
  • Changes in the revenue, for example will show how fast a company has grow and whether targets have been met
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18
Q

Why would Employees be interested in the Statement of Financial Income?

A
  • If employees, or their representatives, are seeking a wage increase, it may be helpful to have access to some of the information in the statement of comprehensive income when presenting a claim
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19
Q

Why would Suppliers be interested in the Statement Financial Income?

A
  • Before a supplier accepts an order form a new customer on trade credit, it is prudent to carry out a check on their creditworthiness
  • One way to do this is to look at the trading history of the customer
  • If the customer can provide several years of authenticated accounts, this might help to show whether the customers is able to pay what is owned at the end of the credit period
  • If the statement of comprehensive income show that a customer is consistently profitable, this might be enough proof for the supplier
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20
Q

Why would Government be interested in the Statement Financial Income?

A
  • Companies have to produce a statement of comprehensive income by law
    -It is needed by the tax authorities to help assess how much tax a business has to pay
  • HMRC collects taxes on behalf of the government and requires all business owners to provide documentary evidence of the profits or losses made by the business ever year
  • Also, the ONS (Office for National Statistics), a government agency, may have an interest in business accounts because it collects economic data, which is collated and presented for public consumption
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21
Q

What are the section of a Statement of Financial Position?

A

Previously known as the balance sheet, the Statement of Financial Position catalogues the a businesses assets and liabilities on a particular date in time.

It is broken down into 3 section:
- Assets
- Liabilities
- capital

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22
Q

What is the Asset section of the Statement of Financial Position?

A
  • These are items that a business owns or uses. They are divided into current or non-current assets.
  • Current assets, such as raw materials and inventory (stock) are used up in the production process.
  • Non-current assets, such as factories and machinery, are used repeatedly over a period of time. A business would expect to retain these assets for beyond the next accounting period.
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23
Q

What is the Liabilities section of the Statement of Financial Position?

A
  • These are debts that of a business, money owed to other parties. Again they will be categorised as either current or non-current.
  • These may be short term, an overdraft or a supplier who’s provided trade credit, or long term, such as a mortgage, bank loan or hire purchase agreement
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24
Q

What is the Capital section of the Statement of Financial Position?

A

This is the money provided to the business by the owners or shareholders. It is a source of funds usually used to purchase assets.

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25
Q

What are the pieces of Key Information in the Statement of Financial Position?

A
  • Non-current Assets
  • Current Assets
  • Non-current Liabilities
    -Current Liabilities
  • Net Assets
  • Equity
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26
Q

What is in the Non-current Asset section in the Statement of Financial Position?

A
  • Goodwill –> This is a non-physical asset of a business, it is the amount the business is worth above the value of net assets. Goodwill exists if a company has built up a good reputation and its customers are likely to return
  • Other intangible assets –> e.g. brand names, copyrights, trademarks and patents
  • Property, plant and equipment –> These are the tangible assets that the business owns,
  • Investments –> These are the financial assets owned by the company e.g. the shares held in other companies. If investments are listed under non-current assets it means that they are not expect to be sold for at least 12 months
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27
Q

What is in the Current Asset section of the Statement of Financial Position?

A
  • Inventories –> This refers to stocks of raw materials and components, stocks of finished goods and work in progress
  • Trade and other receivables –> These are trade debtors, prepayments and any other amount owed to the business that are likely to be repaid within 12 months
  • Cash at bank and in hand –> This is the money held by a business on the premises or in bank accounts
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28
Q

What is in the Current Liabilities section of the Statement of Financial Position?

A
  • Borrowing –> Any short-term loans or bank overdrafts taken out by the business
  • Trade and Other Payables –> Trade creditors and other amounts owed by the business to suppliers or goods services and utilities
  • Dividends Payable –> When the balance sheet is prepared *(at the end of the financial year perhaps) it is possible that the company has decided how much it will pay the shareholders in dividends. However the money has not yet been paid so it appears in the balance sheet as dividends payable
  • Current Tax Liabilities –> Corporation tax, employees’ income tax and any other tax owed by the business that must be repaid within 12 months
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29
Q

What is in the Non-current Liabilities section of the Statement of Financial Position?

A
  • Other loans and borrowings –> Money owed by the company that does not have to be repaid for at least 12 months e,g, bank loans and mortgages
  • Retirement Pension Obligations –> Companies need to show any money owed to past employees in the form of pension obligation
  • Provisions –> Provisions have to be made if a company is likely to incur expenditure in the future, such expenditure might arise as a result of agreements in contract or warranties.
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30
Q

What is in the Net Asset section of the Statement of Financial Position?

A
  • Net assets is simply the value of all assets minus the value of all liabilities
  • It will be the same value as shareholders’ equity at the bottom of the balance sheet
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31
Q

What is in the Equity section of the Statement of Financial Position?

A
  • Share Capital –> The amount of money paid by shareholders for their shares when they were originally issued. It does not represent the current value of those shares on the stock market. Share capital is not usually repaid to the shareholders in the lifetime of a company
  • Share Premium Account –> this shows the difference between the value of new shares issued by the company and their nominal
  • Other reserves –> Refers to any amounts owing to the shareholders not covered by the other entries under equity
  • Retained Earnings –> The same as retained profit. It is the amount of profit retained by the business to be used in the future
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32
Q

What Stakeholders would be interested in the Statement of Financial Position?

A
  • Shareholders
  • Managers and Directors
  • Suppliers
  • Others
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33
Q

Why would Shareholders by interested in the Statement of Financial Position?

A
  • Shareholders might use the balance sheet to analyse the asset structure of the business
  • This shows how the funds raised by the business have been put to use
  • The balance sheet also shows the capital structure of the business, i.e. the different sources of funds used by the business
  • the balance sheet can also be used to assess the solvency of the business
  • A business is solvent if it has enough liquid assets to pay its bills
  • The value of working capital will help to assess solvency of the business
  • the value of a business is roughly equivalent to the value of net assets in the business
    -This means that shareholders can use the balance sheet to see if their investment is growing
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34
Q

Why would Managers and Directors be interested in the Statement of Financial Position?

A
  • the balance sheet might be used by the management of a business e.g. it is important for senior managers to be aware of the firm;s financial position at any given point in time
  • It will need to monitor working capital levels to ensure that the business does not overspend
  • Also, if the business is considering raising some more finance, it will have consider the current capital structure before choosing a suitable source
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35
Q

Why would Suppliers and Creditors be interested in Statement of Financial Position?

A
  • Suppliers will be most interested in the solvency of the business
  • Suppliers are not likely to offer trade credit to a business that only has a limited amount of working capital
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36
Q

Why would Others be interested in Statement of Financial Position?

A
  • It is possible that employees might use the balance sheet to assess whether a business can afford a pay rise or whether their jobs are secure
  • The office for National Statistics (ONS) sheet to compile national statistics
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37
Q

How is Gearing Ratios defined?

A

Exploration of the capital structure of the business by comparing the proportions of capital raised by debt and equity.

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38
Q

How is Profitability or Performance Ratio defined?

A

Illustration of the relative profitability of a business.

39
Q

How is Ratio Analysis defined?

A

A numerical approach to investigating accounts by comparing two related figures.

40
Q

How is Return on Capital Employed (ROCE) defined?

A

The profit of a business as a percentage of the total amount of money used to generate it.

41
Q

How is Window Dressing defined?

A

The legal manipulation of accounts by a business to present a financial picture that is to its benefit.

42
Q

What is Ratio Analysis?

A

Ratio analysis – a method of assessing a firm’s financial situation by comparing two sets of linked data.
- Analysts use ratios to compare the relative performance of one company against another, or within a company, of departments against budgets.

43
Q

What are the Stages of Ratio Analysis?

A

If ratios are to be useful its important to use the right one. The following process allows for this:
1 - Identify the reason for the investigation
2 - Decide on relevant ratio(s)
3 - Gather the information required, then calculate the ratio
4 - Interpret the ratio
5 - Make the appropriate comparisons
6 - Take action based on results
7 - Repeat process again

44
Q

How does a Business compare its finding from Ratio Analysis?

A

Ratios are meaningless on their own, they need to be compared with other results:
1 - Inter-firm comparisons – comparisons between companies. A company compares itself against others in order to asses their relative performance. Ideally selecting the competitors with the most in common.
2 - Intra-firm comparisons – comparisons within the company. The efficiencies of different divisions or locations can be compared
3 - Comparisons to a standard – certain ratios are recognised as efficient within the business community
4 - Comparisons over time – comparing quarterly or annual data allows you to assess progress over time.

45
Q

What are Gearing Ratio?

A
  • The Gearing Ratio measures the levels of borrowing within a business ( the relationship between loans on which interest is paid and shareholder’s equity on which dividends might be paid) in which . It is important for a business to measure the amount of debt as too much can impact on the ability of the business to service (pay) that debt.
  • If the company can’t meet the interest and capital repayments, it will impact on the company’s solvency.
46
Q

How do you calculate the Gearing Ratio?

A

GR = (Non-current Liabilities)/(Capital Employed) x 100

Capital Employed = (NCA + CA - CL)

47
Q

What does the Gearing Ratio mean?

A
  • If the gearing ratio is greater than 50%, then the business is said to have a high capital gearing.
  • If the gearing ratio is less than 25%, then the business is said to have a low capital gearing.
  • Between 25% and 50% is said to be a normal level of capital gearing.
48
Q

What are the Benefits of High Capital Gearing?

A

High capital gearing offers several benefits:
- There are relatively few shareholders, so easier for existing shareholders to keep control
- If interest rates are low, it can be a very cheap source of finance.
- In times of high profits, interest payments would likely be lower than dividend expectations of shareholders, allowing the business to retain more profits for investment.

49
Q

What are the Benefits of Low Capital Gearing?

A

Low capital gearing also has advantages:
- With more capital provided through shares, less opportunity for payables (creditors) to force business into liquidation.
- Low geared companies avoid large interest repayments in times of high interest rates
- The company avoids the pressure of having to repay all the debt at some stage in the future.

50
Q

What is a General Summary for Gearing Ratios?

A
  • Highly profitable businesses prefer high gearing to shareholder funds as a source of finance, as interest payments can be managed from profits, but little shareholders to take those profits as dividends
  • Lower gearing tends to suit businesses that are less profitable, where the ability to adapt to increased interest payments if rates change is limited.
51
Q

What are Profitability Ratios?

A
  • hlpe show how well a business is doing
  • They tend to focus on profit, capital, employed and revenue
  • the profit figure alone is not a useful performance indicator, it is necessary to look at the value of profit in relation to the value of revenue or the amount of money that has been invested in the business

The two ratios are:
- Return on Capital Employed (ROCE)
- Profit Margins

52
Q

What is Return on Capital Employed?

A
  • Return on capital employed shows the operating profit (before tax) as a percentage of capital employed.
  • Tax is ignored because it is determined by the government and is therefore outside the control of the company
  • Interest is excluded because it does not relate to the business’s ordinary trading activities
  • Operating Profit is used as it only covers profits from trading, not exceptional items.
  • Capital employed is the total equity provided by shareholder funds (share capital and retained profit) plus non-current liabilities (long term loans + debentures)
53
Q

How do you calculate Return on Capital Employed?

A

ROCE = (OP before tax)/ (NCA + CA - CL) x 100

54
Q

What does Return on Capital Employed ratio mean?

A
  • The ROCE will vary between industries, but the general rule is, the higher the better.
  • It is effectively measuring the return made from an activity based on the capital being used. You could consider it as an investment appraisal method.
  • Much like a ARR calculation, you are comparing the return against other potential uses for the capital, the opportunity cost.
55
Q

What are the Limitations of Ratio Analysis?

A
  • The basis for comparison –> Comparison over time, Inter-firm comparisons and Other Differences
  • The quality of final account
  • Limitations of the balance sheet
  • Qualitative information is ignored
  • Window Dressing
56
Q

Why is the Comparison over Time as a Basis of Comparison a Limitation of Ratio Analysis?

A
  • Care must be taken when comparing ratios from the same company over time
  • Many companies remain broadly in the same industrial sector overtime, but other can diversify and change very rapidly
  • Equally, some companies remain the same size over time, Other, grow rapidly or shrink quickly
  • Such factors can affect the way in which ratios can be used as a measure of performance
57
Q

Why is Inter-Firm Comparisons as a Basis of Comparison a Limitation of Ratio Analysis?

A
  • Caution must also be used when comparing ratios between companies at a point in time
  • Comparing Ratios between comparing ratios between companies at a point in time
  • Comparing the ratios of two companies that make broadly the same product is likely to say something about their relative performance
  • But comparing the ratios of a supermarket chain with those of a cement manufacturer is unlikely to be helpful
58
Q

Why is Other differences as a Basis of Comparisons as a Limitations of Ratio Analysis?

A
  • Even when companies are well matched in their activities and operating circumstances, there may be other difference between them that must be observed e.g. two similar companies may use different accounting techniques, different ends to the financial year etc.
59
Q

Why is The Quality of Final Accounts a Limitations of Ratio Analysis?

A
  • Ratios are based on financial accounts, such as as balance sheets and income statements
  • Consequently ratio analysis is only useful if the accounts are accurate
  • One factors that can affect the quality of accounting information is the change in monetary values cause by inflation
  • Rising prices can distort comparisons made between different time periods e.g. in times, of high inflation there might be no increase in real terms
  • There is also the possibility that the accounts have been window dressed
60
Q

Why is the Limitations of the Balance a Limitations of Ratio Analysis?

A
  • Because the balance sheet is a ‘snapshot of the business at the end of the financial year, it might not be representative of the business’s circumstances throughout the whole of the year
  • For example, a business experiences its peak trading activity in the summer and it has its year end in January when trade is slow, figures for stock and debtors will be unrepresentative
61
Q

Why is the Qualitative Information is Ignored a Limitation of Ratio Analysis?

A
  • Ratios only use quantitative information
  • However, some important qualitative factors may affect the performance of a business that are ignored by ratio analysis
  • For example, in the service industry the quality of customer service may be an important performance indicator
  • However, ratio analysis cannot isolate the impact that good customer service might have on sales
  • Sales might be higher as a result of good customer service but there might be other factors that have helped to increase sales, such as advertising
62
Q

How is Window Dressing is Limitation of Ratio Analysis?

A
  • Account must represent a ‘true and fair record’ of the financial affairs of a business.
  • Legislation and financial reporting standards place limits on the different ways in which a business can present financial information
  • These limits are designed to prevent fraud and misrepresentation in the compilation and presentation of accounts
  • However, businesses ca manipulate their accounts legally to present different financial pictures
  • This is know as window dressing
63
Q

Why might Businesses Window Dress their accounts?

A
  • Managers of companies might want to put as good a financial picture forward as possible for shareholders and potential shareholders . Good financial results will attract praise and perhaps rewards. They might also prevent criticism from shareholders and the financial press
  • If a business wants to raise new capital from investors, then it will want its financial accounts to look as good as possible
  • Where a business has experienced severe difficulties during the accounting period, it may decide to take action that will make the financial position look even worse now, bur which will improve figures in the future
  • Making the financial picture look worse may be way of lowering the amount of tax that is paid
  • If the owners of a business want to sell it , the better the financial position shown on the accounts the higher the price they are likely to get
64
Q

What are some ways to Window Dress an account?

A
  • a business may manipulate its sales by increasing the level of revenue recorded in the income statement
  • This will increase profit in that accounting period. It may be able to suppress costs by changing its accounting policies or choosing when to ‘write off’ unprofitable activities.
  • It can also ‘write off’ bad debts revalue property, boost liquidity through the sale and leaseback of assets, and manipulate current assets and current liabilities
65
Q

How is Labour Productivity defined

A

Output per worker in a given time period.

66
Q

How is Labour Retention defined?

A

The number of employees that remain in a business over a period of time.

67
Q

How is Labour Turnover defined?

A

The rate at which staff leave a business.

68
Q

How is Rate of Absenteeism defined?

A

The number of staff who are absent as a percentage of the total workforce. This can be calculated for different periods of time.

69
Q

What is Labour Productivity?

A
  • Productivity is an important measure is an important measure of the efficiency of a workforce.
  • If 2 identical teams, with the same equipment, worked for the same period of time, the group that makes the most would be deemed to be more productive.
  • However, it not so easy when comparing businesses. A company’s figures may be distorted if they have a large amount of robotics involved in their production as workforce would be lower, but the infrastructure costs would be far higher.
  • Increasing labour productivity can be seen as increasing competitiveness. This is because increased production will allow a business to drive down its unit cost.
  • This would allow them to either reduce prices and potentially gain more sales, or keep prices the same and increase the profit per unit.
70
Q

How do you calculate Labour Productivity?

A

Labour productivity is defined as the output produced per worker.

  • LP = Total output (per period of time)/ Average No. of employees (per period of time)
71
Q

Why may a Business become Less Competitive despite increasing their Labour Productivity?

A
  • Rivals may improve productivity even faster
  • New businesses may set up again, with lower wage costs, reducing cost per unit
  • Other factors – a business may produce a new, more attractive product, which customers prefer to buy
72
Q

How do you calculate Labour Turnover?

A
  • Staff turnover can be another method of measuring a businesses effectiveness.
  • It measures the number of staff leaving a business, relative to the whole workforce over a period of time.

Its calculated as follows:
(No. of Staff Leaving (per period of time))/(Average No, of Staff (per period of time)) x 100

73
Q

What are some Reasons for High Turnover?

A
  • Relatively low paid jobs mean employees leave for higher paid jobs
  • Little training or promotion opportunities may lead people to leave to further their careers
  • Poor working conditions, low job satisfaction, bullying or harassment in the workplace
  • Poor recruitment selection mean staff are not suited to the role
  • Economic cycles – in recession, people are afraid to leave their jobs in case they don’t get another. In a boom, more opportunities are created, which leads to greater turnover.
74
Q

What are the Problems with high labour turnover?

A
  • Staff recruitment is costly
  • New staff need to become familiar with procedures and practices, this reduces productivity
  • Larger companies will usually provide corporate inductions, which increase costs further.
  • If internal appointment, training may be needed for a worker moving from a different role.
75
Q

Why is some Turnover needed?

A
  • New staff bring fresh ideas and experience
  • Some old staff may need to leave – getting rid of ineffective staff will increase turnover, but may also increase productivity
  • If a business is shrinking, it will need to lay ff staff, this will increase turnover.
  • In low skilled jobs, it may be more effective to have a high turnover of low paid staff, than increase wages and working conditions
76
Q

What is Labour Retention?

A

The opposite of labour turnover, labour retention measures how many people stay with an organisation over a period of time. It is calculated as follows:

  • (No. of staff staying (per period of time))/(Average No. of Staff (per period of time)) x 100
77
Q

What are the benefits of high retention rate?

A

The benefits to a business of a high retention rate are the same as the advantages of a low staff turnover rate, such as lower recruitment and selection costs, more continuity and a stable workplace

78
Q

What is Absenteeism?

A

Absenteeism is linked to the number of staff taking time of work through sickness or injury. This is a problem because:
- If staff are off ill, the business needs to pay sick pay
- If temporary staff are recruited to cover, this increases costs further.
- Equally, permanent staff working overtime to catch up will increase wage costs
- Output can fall if those replacements are not as effective as the original worker
- There may be quality issues
Can be a symptom of low morale and demotivated staff
- The higher the absenteeism, the more people report as ill. It may lead to a culture of people taking “sick days” for holiday

79
Q

How do you calculate Rate of Absenteeism?

A

(Number of staff absent on a day)/(total number of staff employed) x 100

80
Q

Why are there different rates in Absenteeism?

A

Differences in rates can occur for different reasons:
- Smaller businesses tend to have lower rates of absenteeism as there is much more teamwork and commitment. Workers in larger businesses will feel there’s less issue if they’re off.
- Health & safety. Businesses with good H&S procedures tend to suffer less absenteeism. However, some jobs are inherently more dangerous than others.
- Nature of the job can lead to increased absenteeism. Boring repetitive jobs can lead to low job satisfaction and motivation.
- Workplace culture will have an impact. Overworked employees tend to suffer from work-related stress, which can lead to long term absence.
- Stress related illness can also occur more frequently where staff are over-supervised and feel like they’re not trusted to do a job.
- Poorly paid workers tend to have higher absenteeism as they feel undervalued.

81
Q

What are Strategies to increase Productivity and Retention and to reduce Turnover and Absenteeism?

A
  • Financial Rewards
  • Share Ownership
  • Consultation
  • Empowerment
82
Q

How can Financial Rewards increase Productivity and Retention and to reduce Turnover and Absenteeism?

A

Differing theories on motivation have differing views on the value of financial rewards.
- Frederick Taylor – individual should be paid by output (piece rate) as this would motivate them to work harder.
- Abraham Maslow – pay will only motivate to the point of all physiological needs being met. After that, other influences will drive motivation
- Some businesses pay a bonus to staff who have limited/no absences.
- In 2013, it was estimated that the cost of absenteeism to businesses was nearly £29bn. Its little wonder people are willing to incentivise coming to work.

83
Q

How can Employee Share Ownership increase Productivity and Retention and to reduce Turnover and Absenteeism?

A
  • What better way to encourage employees buying into the success of the business than by making them a shareholder, allowing them to share in the profits of the business.
  • Whilst for the most part, share option schemes are only offered to management, some businesses will allow all staff to participate.
  • Government statistics suggested that in 2012-13, over 1,000 companies offered share schemes to their employees
84
Q

How can Consultation Strategies increase Productivity and Retention and to reduce Turnover and Absenteeism?

A
  • Employees who are involved, or feel they are involved, in the business’ decision making will feel more motivated and as such, tend to be more productive.
  • Staff will feel demotivated if they are given tasks to do, or decisions are made, without consultation or explanation.
  • If staff are consulted when decisions are being made, they are more likely to accept it, even if the decision is contradictory to their own idea.
85
Q

What are the different methods of Consultation?

A
  • Psuedo Consultation
  • Classical Consultation
  • Integrative Concultation
86
Q

What is Psuedo Consultation?

A
  • Managers make decisions and workers are informed about it through representatives, such as unions.
  • Employees have no influence over the process
  • Some would say it more giving information than consultation
87
Q

What is Classical Consultation?

A
  • Is a method that involves employees giving their views to a representative, who collates and reports those views to the management.
  • This allows the views of the employees to be heard and may influence management decisions
88
Q

What is Integrative Consultation?

A
  • The other methods do not directly involve the employees whereas this method is about a more open democratic process.
  • Whist every employee may not be directly consulted, management and representatives may consider solutions and then put it to the staff for consideration.
89
Q

What are Empowerment Strategies?

A

Empowerment is about allowing the employees to make the most of their knowledge, experience and creative talents. It is also a way of improving morale, which can have a positive effect on productivity.

  • Training
  • Providing Resources
  • Delegation
  • Inspire Confidence
  • Positive Feedback
90
Q

How can Training be used as a an Empowerment Strategy?

A

It is not really possible to empower staff effectively without first equipping them with the skills needed to take on more advanced tasks
- A business needs to identify any ‘skills gap’
- This is this difference between an employee’s current skills and those required to undertake new tasks
- This gap can be bridged by training

91
Q

How can Providing the Necessary Resources be used as an Empowerment Strategy?

A

There is little point empowering staff if they are not given the resources and information needed to undertake more complex task
- For example, if an employee is tasked with leading a small team to solve a problem, such as improving the response time to customer complaints, they will need a range of information and enough resources to make improvement

92
Q

How can Handing over Authority be used as an Empowerment Strategy?

A
  • Once employees have been empowered they must be confident they have complete authority to make decisions
  • The methods they choose and approaches they take must not be questioned
  • If employees are challenged or asked to explain themselves each time they make a decision, empowerment is not likely to work
93
Q

How can Inspiring Confidence be used as an Empowerment Strategy?

A

If employees are being empowered it is important that they feel confident about their new role
-A lack of confidence can lead to anxiety, hesitancy and mistakes
- Senior managers can help to inspire confidence by emphasising the strengths that an individual has, showing trust, and by recognising and praising achievements

94
Q

How can Providing Feedback be used as an Empowerment Strategy?

A
  • At an appropriate time it will be necessary to provide positive feedback to empowered workers
  • Workers need to know how they have performed in their new roles
  • Feedback will help you guide them in the future and build more confidence

Business---------------------------- (22 decks)

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