3.7 Analysing The Strategic Position Of A Business

Question 1

What factors influence the mission of a business?

Answer 1

-Personal beliefs
-Business ownership
-Nature of the industry
-Degree of competition

Question 2

What is a mission/mission statement?

Answer 2

The main purpose of a business (the reason why it exists) which determines its strategic position and provides a common goal for employees.

Question 3

Criticisms of mission statements.

Answer 3

-too generic
-too vague
-doesn’t always match the actions of the business

Question 4

What are corporate objectives?

Answer 4

Objectives that relate to the business as a whole, providing strategic focus.

Question 6

Define payback. What is it good for?

Answer 6

Payback calculates the length of time it takes for an investment too recoup its original cost
Payback is quick and simple and is useful for firms who need a quick return and may be facing liquidity problems.

Question 7

Define Average Rate of Return ( ARR ). What is it good for?

Answer 7

Calculates the annual average return over life of an investment in order to compare the investment with other alternatives
ARR is useful because it measure the profit achieved from an investment over time, which can be compared to other investments

Question 8

What is net present value. (NPV)

Answer 8

Considers the future value of an investment by discounting the decreased future value of money.

Question 9

How do you calculate payback

Answer 9

Amount remaining to recover/amount recovered the following year

Question 10

How do you calculate average rate of return (ARR)

Answer 10

Average annual profit / asset’s initial cost

Question 11

What is net present value ( NPV). What is it good for?

Answer 11

Takes into account the discount value of money by discounting cash flows.
NPV is good for considering the opportunity cost of an investment

Question 12

How do you calculate net present value (NPV)

Question 15

What are the 6 factors influencing investment decisions?

Answer 15

• FINANCIAL
• interest rates
• ROCE - is there an expected minimum % return on the investment.
• Cost - can the firm finance the investment
• NON - FINANCIAL
• corporate objectives
• ethics - does the investment decisions support the CSR policy
• industrial relations - what will the impact be on employees?

Question 16

Risk and Uncertainty - what is risk?

Answer 16

Risk is the chance of an adverse outcome and the impact it might have.

Question 17

What factors determine the level of risk associated with an investment ?

Answer 17

• timescale
• knowledge and expertise
• is it in a new market?
• the external environment (PESTLE)