A2 Part 1: Analysing the Strategic Position of a Business - Mission, Corporate Objectives & Strategy and Financial Ratio analysis Flashcards
What is the Mission Statement?
The overriding goal of the business. A strategic perspective and vision for the future.
What are objectives?
Statements of specific outcomes that are to be achieved.
What are corporate objectives?
Those that are related to the business as a whole.
What are functional objectives?
Set for each major business function and are designed to ensure that corporate objectives are achieved.
What is a strategy?
Plan of action designed to achieve a long term or overall aim.
What is a tactic?
A means by which a strategy is carried out.
What is contingency planning?
A plan designed to take account of a possible future event or circumstance (plan B).
What is SWOT analysis?
An internal and external audit.
What are the 4 parts of the Mission Model?
- Purpose
- Contained in the mission statement
- Values and Beliefs
- Reflected in business culture
- Strategy
- The competitive position of the business
- Standards and Behaviour
- Policies and behavioural patterns expected of employers
What are the characteristics of the mission statement?
- Contains a formulation of objectives that enables progress towards them to be measured
- Differentiates the business from its competitiors
- Defines the markets or business in which the firm wants to operate
- Is relevent to all major stakeholders
- Exites, inspires, motivates and guides
- Flexible
- Communicates key values
What are the criticisms of a mission statement?
- Not always supported by the actions of the business
- Often too vague and general
- Statements of the obvious
- Regarded cynically by staff
- To mean anything they must be supported whole heartedly by senior management
What are the advantages of setting corporate objectives?
- Provide strategic focus
- Measure performance of the firm as a whole
- Inform decision making
- Set the scene for more detailed functional objectives
What are the internal factors influencing decision making?
- Strengths/weaknesses of the business
- Finances
- Staffing/expertise availible
- Operational capaability
What are the external influences influencing corporate objectives?
- Opportunities and treats
- Competitive environment
- Economic situation
- Political environment
- Technological developments
What are the factors influencing functional objectives?
Mainly, they are influenced by corporate objectives but are still influenced by internal and external factors that influence the setting of corporate objectives
What is a balance sheet?
A snapshot of the businesses assets and its liabilities on a particular day - usually the last day of the financial year
What are a businesses assets?
What the business owns or what it is owed.
Liabilities + Equity
What are the businesses liabilities?
What the business owes
What is equity?
The net amount of funds invested in a business by its owners, plus any retained earnings.
What the business owes to the owners of the business.
What are fixed assets?
A company’s tangiable, non-current assets that are used in business operations.
These assets will not be used up or sold in the current accounting year
What are current assets?
An item on the balance sheet that is either cash, a cash equivalent or can be converted into cash within the next year.
What are current liabilities?
An obligation that is payable within 1 year
What are trade recievables?
Amounts owed by customers buying on credit
What are accounts payable?
The trade payables due to suppliers, usually as evidenced by supplier invoices. Known as creditors.
What are trade payables?
Amounts owed to suppliers
What are taxes payable?
Amounts owed to the government but not yet paid
What is working capital?
Current Assets - Current Liabilities
What are long term liabilities?
Those obligations of a business that are not due for payment within the next 12 months.
Amounts that are owed, but not due to be paid in the next year.
What are retained earnings?
Net profits which have not been distributed to shareholders.
What is the income statement?
A summary of a management’s performance as reflected in the profitability (or lack of it) of an organisation over a certain period.
What is the Bottom Line?
The net income reported at the bottom of the income statement.
What are profitability ratios?
Measures the relationship between gross/net profit and sales, assets and capital employed
- Operating Profit Margin
- ROCE
- Gross Profit Margin
What is Operating Profit Margin and how do you calculate it?
Measures the relationship between net profit and the level of turnover
What is ROCE and how do you calculate it?
Return on Capital Employed
Measures the efficiency of funds invested in the business of generating profits
What is Gross Profit Margin and how do you calculate it?
Measures the relationship between the profits made on trading activities and the level of sales
What are activity ratios?
Financial analysis tools used to gauge the ability of a business to convert various asset, liability and capital accounts into cash or sales.
- Stock Turnover
- Debtors Collection Period
- Asset Turnover
What is stock turnover and how do you calculate it?
Measures the number of times in 1 year that a business turns over its stock of goods for sale
Can also establish the average length of time that stock is held by a company
What is debtors collection period and how do you calculate it?
Measures how long it takes the company to collect debts owed to by customers
What is asset turnover and how do you calculate it?
Measures a business’s sales in relation to the assets it uses to generate its sales.
Measures the efficiency with which businesses use their assets
What are liquidity ratios?
Measures a company’s ability to pay their debts
- Current ratio
- Acid test
What is current ratio and how do you calculate it?
Measures a company’s ability to pay off its short and long term debts by considering its assets relative to its current liabilities
Current Assets : Current Liabilities
What is the acid test ratio and how do you calculate it?
Examines the business’s liquidity position by comparing current assets and liabilities
What are investment ratios?
Assesses the performance of a company’s shares. Measures the return shareholders gain on their investment.
- Dividend yield
- Dividend per share
What is dividend yield and how do you calculate it?
Indicates how much a company pays out in dividends relative to share price
What is dividend per share and how do you calculate it?
Gives you the basic calculation of return per share
What is Gearing and how do you calculate it?
It is a measure of a company’s leverage and shows the extent to which its operations are funded by lenders versus shareholders
