3.7 Flashcards
Strategy
Medium to long term
aims to achieve corporate objectives
Tactics
Short term plan to implement strategy
Put into order: strategic decisions, function decision, objectives
Corporate objectives- eg increase sales by 5%
Strategic decisions- eg increase production capacity
Functional decisions- eg HR recruit more peeps
SWOT
Internal strengths and weaknesses
External opportunities and threats
Balance sheet
Snapshot of a firms finances at a fixed point in time
All business assets and liabilities to show its value of capital
Net asset value - Balance sheets
(Fixed assets + Current assets) - (Current liabillties + Non current liabilities)
Total equity - Balance sheets
Always equals Net assets
is the share capital and reserves (shows where the business got the finance)
Working capital - Balance sheets
net current assets (current assets - current liabilites)
Income statements
Shows rev and expenses across a financial year- takes into account seasonal fluctuations
Calculations for Income statements
Gross Profit
Operating profit
Profit before tax
Profit after tax
Retained profit
What doesn’t a balance sheet provide
Information about the market health or the economy
If bad debts are included in the balance sheet it will be misleading
What doesn’t an income statement show
External factors such as demand and the economy
income statements can be distorted in times of high inflation
Liquidity ratios
Current ratio= current assets/current liabilities
Liquidity is to determine how easily a business can pay bills without using fixed assets
Profitability rations
Profit margins eg gross profit margin, operating profit margin
ROCE (Return on capital investment)= operating profit/(total equity +non current liabilities)*100
Efficiency of performance ratios (inventory turnover)
Inventory turnover = Cost of sales/ cost of avg stock held
Payable days and Receivable days
PD= Payables/cost of sales365
RD= Receivables/sales rev365
Gearing ratio
Gearing= non-current liabilities/(total equity+non-current liabilities)
over 50% is high
How much of funding is from loans
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Political and legal influences on a business
Competition laws
CMA to prevent monopolies
Laws protecting workers, the environment, noise pollution ect
Competition laws
Can’t price fix
Can’t limit production/divide up the market to avoid competition
Laws to protect consumers
Trade descriptions
Sales of goods
Consumer protection act
GDPR
Labour laws
Equality
Fair recruitment
Minimum wages
Correct process for redundancies
Fair contracts
Working hours
Natural monopolies
eg gas water energy
Regulated to ensure there is a standard met and consumers aren’t exploited
What are core competences
features of a business which are hard for competitors to replicate- an example is shared knowledge in the business; if you have the best technology experts, then competitors will struggle to compete with that knowledge
Importance of core competencies
provides a sustainable competitive edge, can change over time dependant on the demands of customers
Kaplan and Norton Balance Scorecard
looks at assessing a business’ performance by both financial and non-financial factors
The 4 perspectives of Kaplan and Norton
Financial perspective
Internal business process perspective
Learning and growth perspective
Customer perspective
Financial Perspective
“how do we create value for shareholders”
- profitability
- Measure with ROCE
- Target might be increase ROCE by 3%
- initiatives could include promotional campaigns, improve efficiency of production
Internal Business Perspective
“how can we improve our processes”
- look at efficiency
- Measure with capacity utilisation, unit costs, productivity
- Target could be increase Labour Productivity by 10%
- Initiatives could include looking at different production methods, new technology, offshoring, outsourcing etc
Learning and Growth Perspective
“how can we continue to grow and improve”
- employee development
- labour retention, training opportunities
- increase retention
- training, organisational structure
Customer Perspective
“what do our customers value about the business”
- improve customer loyalty, attract new customers
- measure market share, number of new customers vs repeat customers
- initiatives could involve delivery times, quality of product, focusing on value for money
Elkington’s Triple Bottom Line (ETBL)- 3P’s
Profit
People
Planet
- highlighting the importance of non-financial measures as well as financial
ETBL - Profit
traditional financial/economic value produced by the business
Elkington was aware that Profit is important for business however he criticises the sole focus on Financial measures
ETBL- People
measures a company’s social values and it’s ethics, how it treats employees and the local community, CSR would be involved here
Elkington wanted a business’ overall performance to measure it’s effect on all stakeholders, not just their shareholders
ETBL- Planet
measures the company’s environmental impact and values- again CSR would be involved here
Elkington focuses on sustainability for business performance, which looks at multiple stakeholders, the ideal is for all three to be well balanced
Economic environment
The impacts of the economic environment on business
economic growth or decline- influences on consumer consumption, security, and employee relations
Economic environment
The impacts of the economic environment on business
economic growth or decline- influences on consumer consumption, security, and employee relations
What is GDP
Gross Domestic Product
indicates the size of the economy for a country
a universal measure
The life of the economy (normally using a graph)
growth vs time
boom-> recession-> slump-> recovery-> boom…
economies almost always grow over time, long term trend line will often be going up
How does certain stages of the economy affect business
Boom- high confidence, high demand, high wages due to skilled labour shortages
Recession- confidence decreases meaning demand reduces, less spending, difficulties with producing
Slump-redundancies, very low confidence, unemployment high
Recovery- production increases, confidence slowly returns, employment increases, demand grows
the extent of how the business is affected depends on the price elasticity of demand
inelastic goods are least affected by economic environment
SPICED
Strong
Pound
Imports
Cheaper
Exports Dearer
Opportunities and threats- social and technological
SOCIAL
Demographic changes and opportunities and threats change with these
increase in senior citizens= business use special rates to entice them (price discrimination)
demographic alters lifestyle and buying behaviour
Opportunities and threats- social and technological
SOCIAL
Demographic changes and opportunities and threats change with these
increase in senior citizens= business use special rates to entice them (price discrimination)
demographic alters lifestyle and buying behaviour
Urbanisation and Migration
business’ may choose to close branches or reduce outlets in rural areas if most of their customers are in urban places
production may be moved to rural areas as it is cheaper land - may choose to stay close to urban areas to increase labour available
Technological opportunities and threats
new tech = new products, improved processes, customisation, new markets, e-commerce, new data to research and assess (loyalty schemes)
risks- costs, impacting staff morale if technology is replacing them
opportunities- better customer experience, reduced unit costs, productivity, new areas for growth
Carroll’s Pyramid of CSR
Philanthropic responsibilities
Ethical responsibilities
Legal responsibilities
Economic responsibilities
main arguments:
- societal expectations for businesses, can’t be ethical without being legal, cant be legal without survival
- main against is that some businesses do philanthropic gestures but are not ethical to staff/environment etc
Porter’s Five Forces
Barriers to entry + Buyer power + Supplier power + Threat of substitutes= Competitive environment
substitutes is a different product- not a direct competitor eg transport industry, trains are a sub for cars, bikes are a sub for cars/buses etc
