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a-level business > 7 - Analysing Strategic Positions 📍 > Flashcards

7 - Analysing Strategic Positions 📍 Flashcards

1
Q

Define balance sheets

A

Provide a snapshot of the assets and liabilities of a business

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2
Q

What are assets?

A

What a business owns

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3
Q

What are liabilities?

A

What the business owes

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4
Q

Give examples of current assets

A
  • cash in the till
  • stock
  • debtors
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5
Q

Gives examples of non-current assets

A
  • machinary
  • van
  • warehouse
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6
Q

Give examples of current liabilities

A
  • tax bill
  • overdraft
  • creditor
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7
Q

Give examples of non-current liabilities

A
  • bank loan
  • mortgage
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8
Q

Define working capital

A

The amount of money available day to day

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9
Q

How do you calculate net assets?

A

NC assets + C assets - C liabilities - NCL

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10
Q

What is capital employed equal to?

A

Net assets = capital employed

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11
Q

How do you calculate gross profit?

A

Sales revenue - cost of sales

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12
Q

How do you calculate operating profits?

A

gross profit - expenses

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13
Q

How do you calculate net profit?

A

Revenue - all costs

(Same as profit for the year)

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14
Q

Define an income statement

A

A financial statement showing revenue costs and profits

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15
Q

Formula for current ratio

A

Current assets / current liabilities

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16
Q

What should current ratio always be higher than?

A

1:1

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17
Q

What does a current ratio below 1.5:1 suggest?

A

A liquidity problem

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18
Q

Define liquidity

A

A firms ability to pay their short term debts (liabilities)

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19
Q

What does a ratio of above 2:1 suggest?

A

Poor management of resources with capital tied up elsewhere

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20
Q

Define gearing

A

Investigating a firm’s reliance on borrowing and what proportion of capital invested has come from bank loans

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21
Q

What is gearing measured in?

A

%

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22
Q

Formula for gearing

A

NCL / capital employed X 100

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23
Q

How do you calculate capital employed?

A

Total equity + NCL

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24
Q

What is a high gearing value?

A

above 50%

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25
Q

What is a low gearing value?

A

Less than 25%

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26
Q

What does a low hearing value suggest?

A

A firm has raised most of its capital through alternative sources of finance (retained profits/selling shares)

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27
Q

What is the negative effect of a low gearing figure?

A

Company may miss out on potential opportunities and may not be investing in growth

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28
Q

Benefit of high or low gearing?

Implies business is heavily investing in growth

A

High

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29
Q

Benefit of high or low gearing?

Lower interest and loan repayments, positively impacting liquidity

A

Low

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30
Q

Benefit of high or low gearing?

Less need to raise finance through share capital, so less shareholders, so more control

A

High

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31
Q

Benefit of high or low gearing?

Makes the business a more attractive investment

A

Low

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32
Q

Benefit of high or low gearing?

Less dividend payments will be required as share capital isn’t needed

A

High

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33
Q

Benefit of high or low gearing?

Bank loans are a cheap source of finance when interest rates are low

A

High

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34
Q

Benefit of high or low gearing?

If shares are sold as an alternative, share capital doesn’t need to be repaid

A

Low

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35
Q

What does return in capital employed show?

A

Shows investor how efficient the business is at producing profit based on the capital invested

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36
Q

Formula for ROCE

A

Operating profit / capital employer X100

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37
Q

What is a good figure for ROCE

A

the higher the % the better

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38
Q

What does ROCE give an idea of?

A

How successful management is at running the business and controlling costs

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39
Q

Define a debtor

A

Someone owes you money

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40
Q

Define a creditor

A

Money you owe

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41
Q

Formula for inventory turnover

A

Cost of goods sold / average inventory held

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42
Q

What is inventory turn over measured in?

A

How many times

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43
Q

Define inventory turnover

A

The number of times the average stock held is sold

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44
Q

What factors could influence inventory turnover?

A
  • popularity
  • type of product
  • type of business
  • change in trends
  • quality of research
  • product portfolio
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45
Q

What figure is wanted for inventory turnover and why?

A

The higher the figure the better as it implies they’re selling goods and shifting stock fast

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46
Q

Formula for receivables days

A

Receivables / revenue X 365

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47
Q

What is receivable / payables days measured in?

A

Days

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48
Q

What causes high receivables days?

A

Offering long credit periods

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49
Q

What causes lower receivable days figures?

A

Dealing mainly in cash, or not offering credit sales

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50
Q

Formula for payable days

A

Payables / cost of sales X 365

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51
Q

What will cause lower payable days figures?

A

Businesses paying in cash

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52
Q

Why will a firm want a higher payable days figure than a receivable days?

A

So they aren’t paying their debts too quickly, and not before they receive revenue

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53
Q

What factors affect the mission statement?

A
  • business size
  • nature of business
  • external factors
  • competitors
  • stakeholders
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54
Q

What are internal influences on corporate objectives?

A
  • ownership
  • power of stakeholders
  • ethics
  • culture
  • resource constraints
55
Q

What are external influences on corporate objectives?

A
  • PESTLE
  • pressure for short-termism
56
Q

Define strategy

A

long term plan of action to achieve objectives

57
Q

Define tactics

A

Short term plan involving day to day activities

58
Q

What does SWOT stand for?

A

Strengths weaknesses opportunities threats

59
Q

Which of SWOT is internal?

A

S W

60
Q

Which of SWOT is external?

A

O T

61
Q

Pros to SWOT analysis

A
  • supports decision making
  • can counter threats
  • build a competitive advantage
62
Q

Cons to SWOT analysis

A
  • time consuming
  • based on opinion
  • external factors can change rapidly
63
Q

Why is high staff turnover a problem?

A
  • increases recruitment costs
  • bad publicity
  • worsens customer service
  • disruption to production
64
Q

Non-financial data to analyse marketing

A
  • market capitalisation
  • market growth
  • market share
  • sales growth
  • portfolio analysis
65
Q

Non-financial data to analyse operations

A
  • capacity utilisation
  • output per period
  • FC + VC
  • unit costs
66
Q

Non-financial data to analyse HR

A
  • absenteeism
  • labour productivity
  • employee costs
  • labour turnover
67
Q

Define core competences

A

The unique strengths of a business that can’t be easily replicated by a competitor

68
Q

What are difficulties of non-financial data?

A
  • can’t predict trends
  • usually quantitative
  • difficult to judge
69
Q

Core competences of Apple

A
  • branding
  • aesthetics
  • iOS software
  • adaptability of product
70
Q

What does short-termism focus on?

A

focuses on share price, revenue growth, unit costs, ROCE, productivity

71
Q

What does short-termism ignore?

A

Staff, quality, sustainability, innovation, brand reputation

72
Q

What does long-termism focus on?

A

Quality, innovation, staff, market share, core competences, social responsibility

73
Q

What is long-termism good for?

A

Focusing on long-term gains

74
Q

Elkington’s Triple Bottom Line

What are the 3 focuses?

A

Profit, people and planet

75
Q

Elkington’s Triple Bottom Line

What three dimensions of performance does it account for?

A

Social, environmental and financial

76
Q

Elkington’s Triple Bottom Line

What is a problem with the model?

A
  • Hard to measure planet and people
  • make cause conflict as shareholders want a focus on profit only
77
Q

Kaplan and Norton’s Balanced Scorecard

What is in the middle of the model?

A

Vision and strategy

78
Q

Kaplan and Norton’s Balanced Scorecard

What are the 4 indicators?

A

Customer
Financial
Learning and growth
Internal business processes

79
Q

Kaplan and Norton’s Balanced Scorecard

What is each indicator measured by?

A

KPI’s =

Objectives
Measures
Targets
Initiatives

80
Q

Kaplan and Norton’s Balanced Scorecard

What does the model not include?

A

Sustainability

81
Q

Why are core competences so important?

A

Add value to a business based on internal success

82
Q

Porter’s 5 Forces

What are the 5 forces?

A

Barriers to entry
Buyer power
Supplier power
Rivalry
Substitute threat

83
Q

Legal changes can cause what opportunities to arise for a business?

A
  • attracts environmental customers
  • improves reputation
  • retains employees
84
Q

Legal changes can cause what threats to arise for a business?

A
  • increase prices to cover increasing costs
  • competitors may meet laws better/faster
85
Q

What is the political environment?

A

The govt actions that impact on the strategic and functional decisions made by businesses

86
Q

What does competition stop businesses from doing?

A
  • agree prices with competitors
  • limit production to reduce competition
  • partition markets between each business
87
Q

How is competition policy achieved?

A
  • preventing monopoly power
  • restricting mergers
  • driving innovation and productivity
88
Q

What does competition policy mean?

A

Improving competitive nature to alleviate market failure

89
Q

What are the benefits of competition policy?

A
  • lower price
  • improved quality
  • increased choice
  • innovation
  • competitive advantage
90
Q

What is the environmental protection act?

A

Businesses must improve the control of pollution

91
Q

What is the environment act?

A

A business must clean up any contaminated sites it owns

92
Q

What are the 4 factors of production in enterprise?

A
  • land
  • labour
  • capital
  • entrepreneurial skills
93
Q

What is de-regulation?

A

Opening up of markets to new competition through the removal of rules and regulation that created barriers to entry

94
Q

What does a pollution permit allow?

A

Allows businesses to produce a legal level of pollution every year

95
Q

How are pollution permits a financial incentive for a business to reduce pollution?

A

Permits are tradable on the market, so if a business doesn’t use them all, they can sell them

96
Q

What is GDP?

A

Measures the value of all goods and services produced in an economy over a period of time

97
Q

What are some positives of economic growth?

A
  • higher revenues
  • economies of scale
  • sustained growth
98
Q

What are negatives of economic growth?

A
  • shortages of raw materials
  • shortages of skilled workers
  • can lead to a recession if growth is too rapid
99
Q

What should GDP grow per year?

A

2.4%

100
Q

What determines UK exchange rates?

A

Supply and demand

101
Q

What must a business consider when moving in/out of countries?

A
  • ethics
  • morals
  • laws
  • culture
  • investment
102
Q

What strategies might a business take if they are uncertain of exchange rates?

A
  • have less business confidence
  • consider outsourcing
  • leave countries
103
Q

What is fiscal policy?

A

Use of govt spending, borrowing and direct/indirect taxation to impact the economy

104
Q

What are the two parts to fiscal policy?

A
  • taxation
  • govt spending
105
Q

What are the three main areas of govt spending?

A

Transfer payments, current payments, capital payments

106
Q

What is monetary policy?

A

The use of interest rates and changes to the monetary supply to achieve relevant economic objectives

107
Q

What has been the main objective of monetary policy?

A

Keeping inflation low and stable

108
Q

What factors have contributed to greater globalisation?

A
  • containerisation and easier shipment
  • economies of scale
  • technological advancements
  • less protectionism
109
Q

Define investment appraisal

A

Analysing whether investment projects are worthwhile to minimise risk

110
Q

What are some risks of investment?

A
  • market may change
  • fixed assets may be faulty
  • higher opportunity cost than thought
  • technology may develop faster than expected
111
Q

Payback period

What is payback period?

A

The time it takes for a business to pay back it’s initial investment

112
Q

Payback period

How do you calculate the year of payback?

A

Identify the net cash flow for each period and keep a running total in a table

113
Q

Payback period

What are the advantages?

A
  • easy to understand
  • focuses on cash flow
  • easy to compare
114
Q

Payback period

What are some disadvantages?

A
  • monetary value may be less in 3 years than today
  • encourages short-term thinking
115
Q

Payback period

How do you calculate the specific month it is paid back?

A

Divide cumulative cash flow from last no year by net cash flow of first yes year. Then times by 12

116
Q

Net Present Value

What does NPV mean?

A

The net return on an investment when all revenues and costs are converted to present value

117
Q

Net Present Value

How do you calculate?

A

Multiply all NCF by discount factors, then add then all up and minus year 0

118
Q

Average Rate of Return

Determines the profitability of an investment

A
119
Q

Average Rate of Return

What is the method for ARR?

A
  • Add up all positive cash flows
  • Subtract cost of investment
  • Divide by lifespan of investment
  • Calculate the % this is of initial investment
120
Q

What should firms do to account for risks and uncertainties?

A
  • make contingencies and allowances
  • calculate alternative results
  • set more demanding targets
121
Q

What does it mean if GDP rises?

A

more goods and services produced = economy is growing

122
Q
A
123
Q

What is CSR?

A

Companies achieving success whilst at the same time respecting and positively impacting its stakeholders, the environment and society in general

124
Q

Give some examples of good CSR and ethical behaviour

A
  • free healthcare
  • fair trade suppliers
  • health and safety
  • charitable
125
Q

Give some examples of poor CSR and unethical behaviour

A
  • child labour
  • high emissions
  • avoiding corporation tax
126
Q

Carroll’s CSR pyramid

What are the 4 layers from top to bottom?

A

Philanthropic responsibilities
Ethical responsibilites
Legal responsibilities
Economic responsibilities

127
Q

Carroll’s CSR pyramid

What does economic responsibilities involve?

A

Being profitable

128
Q

Carroll’s CSR pyramid

What does legal responsibilities involve?

A

Obeying legislation

129
Q

Carroll’s CSR pyramid

What does ethical responsibilities mean?

A

Going beyond what is required

130
Q

Carroll’s CSR pyramid

What does philanthropic responsibilities involve?

A

Being a good corporate citizen

131
Q

What are the pros of CSR?

A
  • brand reputation
  • loyalty
  • staff impact
132
Q

What are the cons of CSR?

A
  • higher costs
  • stakeholder conflict
  • supply chain management
133
Q

What are some different social changes?

A
  • global population changes
  • population movements
  • urbanisation
  • growth of e-commerce
  • changers in consumer lifestyle

a-level business (10 decks)

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