7 Mission, corporate objectives, functional objectives and strategy

Question 1

mission

Answer 1

overriding purpose of business
determines the strategic position of business

useful for communication between stakeholders and giving overall strategy

Question 2

tactics

Answer 2

short term achievable

Question 3

strategy

Answer 3

medium to long term plan to meet corporate objectives

Question 4

SWOT

Answer 4

use: identify SWOT to help with business decision makings

internal factors: strength and weakness
external factors: opportunities and threats

Question 5

financial ratio analysis

Answer 5

• profitability (ROCE- return on capital employed)
• liquidity (current ratio)
• gearing
• efficiency ratios: payables days, receivables
  days, inventory turnover.

Question 6

balance sheet

Answer 6

shows the financial position of business
snaptshot of CA, CL, non-CL,equity and debt on a particular day

Question 7

current assets

Answer 7

-cash in hand
-receivables
-inventory

Question 8

current liabilities

Answer 8

-overdraft
-payables

Question 9

non-current liabilities

Answer 9

money owned for more than 12 months

Question 10

equity

Answer 10

amount of investment by owners (using internal source of finance like retained profits and shared capital)

Question 11

debt

Answer 11

finance borrowed from external sources

Question 12

liquidity

Answer 12

use: the ease and cost which assets can be tuned into cash and used immediately

formula: CA/CL : 1
(ratio to CL is always 1)

acceptable range of ratio: 1.5-2.5

Question 13

gearing

Answer 13

use: measure financial health of business by focusing on the debt created from investment

formula 1: non-CL / (total equity+non-CL) 100%
formula 2: (debt/equity) 100%
acceptable ratio: 20%-50%

Question 14

inventory turnover

Answer 14

Cost of sales/inventories

Question 15

payables days

Answer 15

(trade payables/ cost of sales) x 365

Question 16

receivable days

Answer 16

(trade receivables/ revenue) x 365

Question 17

ROCE

Answer 17

(operating profit/capital employed )*100

Question 18

investment appraisal

Answer 18

predict the financial outcomes of potential capital investment

calculations:
-Payback period
-Average rate of return
-Net present value

Question 19

payback period

Answer 19

time takes to repay the project’s initial investment

->initial investment - cumulative net cashflow

Question 20

ARR

Answer 20

average rate of return

Step 1: Total net cash flow/ number of years

Step 2: (step 1/initial investment) *100 %

Question 21

NPV

Answer 21

net present value- take consideration of discount factor

Step 1: net cash flow * discount factor of every year

Step 2: sum up all of the NPV of each year

Question 22

Elkington’s Triple Bottom Line

Answer 22

profit, people, planet

Question 23

FISCAL

Answer 23

government spending on taxation

Question 24

Monetary policy

Answer 24

Bank of England setting on the interest rates

Question 25

Business legislation

Answer 25

-labour market (employee rights and industrial relations)
-competition (competition policy: merger control, market liberalisation, state aid control, anti trust)
-environment (pollution and waste disposal)

Question 26

stakeholder and shareholder concept

Answer 26

• stakeholder concept: argues that the purpose of a business is to create value for stakeholder not just shareholders
• shareholder concept: decision should be taken based on the effect of those decisions on shareholders rather than the wider group stakeholder groups

Question 27

Carroll’s corporate social responsibility pyramid

Answer 27

Philanthropic
Ethical
Legal
Economic
(PELE)