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Business > Analysing the strategic position of a business > Flashcards

Analysing the strategic position of a business Flashcards

1
Q

What is a mission?

A
  • The overall reason for a business’s existence
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2
Q

What is an objective?

A
  • The goals that are set by the business to achieve their overall mission
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3
Q

What is a mission statement?

A
  • A qualitative description about an organisation
  • It states the overall reason for a business’s existence
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4
Q

Why is a mission statement important?

A
  • It helps stakeholders to understand the intentions of the business
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5
Q

What are corporate objectives?

A
  • The overall objectives of the business
  • They are driven by the business’s mission statement
  • They help to drive the objectives of individual departments within the business (the functional objectives)
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6
Q

What are functional objectives?

A
  • They are the objectives of each department within a business (e.g. the objectives in the finance, HR, operations or marketing departments)
  • They are driven by the corporate objectives
  • They are helpful to ensure that the business’s overall strategy is being implemented so they can achieve their mission
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7
Q

What is a strategy?

A
  • A medium to long term high risk plan of action to achieve the business’s objectives
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8
Q

What is a tactic?

A
  • A short term low risk plan for implementing a strategy
  • They focus on the day to day business activities
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9
Q

What are the distinctions between strategies and tactics?

A

tactics:
- short term
- take action (on the strategy)
- low risk
- reactive to changes in strategy
- flexible

strategy:
- long term
- action plan
- proactive
- rigid

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10
Q

Give some ways that ownership could impact a business’s objectives

A
  • the type of business
  • Style of management used
  • shareholders
  • is it a profiting or non-profit business?
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11
Q

What is short terminism?

A
  • An approach taken by businesses that prioritises short term goals and profits at the potential expense of sustainable long term success
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12
Q

Give 3 reasons why short-terminism might occur?

A

1) Pressure from shareholders to get a quick return on their investment
2) Legal requirements to publish financial reports every 3 months (they might want to make the business look good)
3) The CEO or BOD bonuses are linked to the share price performance which incentivises them to boost short term performance so share price increases, meaning they can get more bonuses

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13
Q

How might you spot short terminism?

A
  • If not much money is being invested into research and development
  • If there are frequent changes in a business’s strategy
  • If the business is buying back their own shares to it appears as though demand for shares rises so that the share prices rise meaning share price performance improves (allowing CEO or BOD to recieve more bonus’s)
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14
Q

What is the risk of short- terminism?

A
  • poor innovation due to lack of investment in research and development
  • poor profits in the long-term
  • employee disengagement
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15
Q

Give some ways that the internal environment could impact a business’s objectives

A
  • the size of the business
  • culture within the business
  • resources the business has available
  • views of leaders and managers
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16
Q

Give some ways that the external environment could impact a business’s objectives

A
  • political factors
  • ecomomic factors
  • social factors
  • technological factors
  • legal factors
  • environmental factors
    -competition
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17
Q

What is SWOT analysis?

A
  • A strategic planning tool that is used to consider a business’s individual circumstances
  • It considers the internal factors that are in the business’s control (S & W) as well as the external factors that are outside the business’s control (O & T)

S = strengths
W = weaknesses
O = opportunities
T = threats

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18
Q

What are the key things to remember about SWOT analysis?

A
  • it is different for every business
  • it is dynamic (constantly changing)
  • must be regularly updated
  • not a guarentee of success
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19
Q

What is a balance sheet?

A
  • It tells you what the business owns, owe and are owed, tells you all of their assets and liabilties
  • It gives information from a particular point in time
  • It tells you where the business is getting its capital from
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20
Q

What are non-current assets?

A
  • Non-liquid assets (meaning they CAN’T be turned into cash easily within 1 year)
  • They are the assets that will be owned or last for more than one year (long- term)
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21
Q

Give some examples of non-current assets

A
  • land and buildings
  • motor vehicles
  • computers
  • furniture
  • machinery
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22
Q

What happens to the value of non-current assets over time?

A
  • Their value depreciates
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23
Q

What are current assets?

A
  • More liquid assets (meaning they CAN be turned into cash easily within 1 year)
  • They are the assets that are expected to be sold, used or exhausted within 1 year
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24
Q

Give some examples of current assets

A
  • Bank loans
  • Cash
  • Recievables
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25
Q

What are current liabilities?

A
  • The money that a business owes in the short-term
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26
Q

Give some examples of current liabilties

A
  • payables
  • loan (short-term)
  • overdraft
27
Q

What are non-current liabilities?

A
  • The money that a business owes in the long-term
28
Q

Give an examples of a non-current liability

A
  • Long-term bank loan
29
Q

How do you calculate net assets?

A

Net assets = current assets - current liabilities

30
Q

What is equity?

A
  • The value of shares issued by a company
31
Q

What is total equity the same as?

A
  • Net assets
32
Q

Give some examples of equity

A
  • shareholder funds
  • retained earnings (reserves)
  • drawings (money or assets taken out of a business)
33
Q

What is working capital?

A
  • The value of a business’s liquid assets left after their short-term debts have been paid
34
Q

What is working capital the same as?

A
  • Net current assets (current assets - current liabilities)
35
Q

What does more capital employed mean?

A
  • The business is more liquid
36
Q

Why doesn’t a business want too much of its capital employed tied up in inventory or recievables?

A
  • They can’t use it to pay of debts
37
Q

What is capital employed?

A
  • The amount of capital a firm uses to operate (the capital they have available to pay its day to day debts)
38
Q

How do you calculate capital employed?

A

Capital employed = non-current liabilities + equity

39
Q

What is fixed capital expenditure?

A
  • Money used to buy non-current assets (fixed assets, those that are used over and over again to produce good and services)
40
Q

Why does a business need capital expenditure?

A
  • To start up
  • For growth/expansion
  • to replace worn out equipment
41
Q

Why might a supplier be interested in the liquidity of a business?

A
  • Because the more liquid a business is the better it will be at paying its debts, helping suppliers to decide whether to offer a business trade credit and if so how much
42
Q

When considering data from a balance sheet what should you compare to?

A
  • previous years of the business
  • business’s in the same industry
  • business’s in a different industry
43
Q

What might a quick increase in a business’s non-current assets imply?

A
  • Perhaps they have invested in property or machinery meaning they could be investing in a growth strategy
44
Q

What does an increase in reserves imply?

A
  • An increase in profits
45
Q

What is an income statement?

A
  • It describes the income and expenditure of a business over a given period of time (usually 1 year)
  • They can contain data from previous years too for easy comparisons between the years
46
Q

How do you calculate gross profit?

A

Gross profit = revenue - cost of sales

47
Q

What does gross profit show?

A
  • The efficiency of sames, how efficiently a firm is manufacturing and selling their product
48
Q

How do you calculate operating profit?

A

Operating profit = gross profit - operating expenses

49
Q

What does operating profit show?

A
  • The efficiency of a firms operations
50
Q

How do you calculate profit before tax?

A

profit before tax = operating profit - finance income

51
Q

How do you calculate profit for the year?

A

profit for year = operating profit + profit from other activities - net finance income - taxation

52
Q

How do you calculate gross profit margin?

A

GPM = (GP/revenue) x 100

53
Q

How do you calculate operating profit margin?

A

OPM = (OP/revenue) x 100

54
Q

How do you calculate net profit margin?

A

NPM = (NP/revenue) x 100

55
Q

What is a cash flow statement?

A
  • A statement recording the cash coming into (cash inflows) and going out (cash outflows) of a business over time (usually is it a forecast of what will occur in the future)
56
Q

How do you calculate net cash flow?

A

Net cash flow = cash inflows - cash outflows

57
Q

If the closing balance for January is £10,000 then what is the opening balance for February?

A

£10,000
- Because the closing balance is the opening balance of the next period (e.g. the next month)

58
Q

What is financial analysis and what do you use to do it?

A
  • The process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability
  • You can use you balance sheet, income statement and cash flow statement
59
Q

What kind of things doesn’t financial analysis consider?

A
  • quality of your staff
  • market share
  • future targets for sales
  • productivity of the business
  • customer satisfaction
  • legislation
  • the economy
  • the market environment
  • competitors
  • technological change
60
Q

What are the problems with using a balance sheet?

A
  • It is a statement at one point in time, so may not help predict the future
  • It doesn’t tell you about any external factors
  • They don’t value some intangible assets such as the skilll of the workforce
  • If debts are included as an asset it can be misleading
61
Q

What are the problems with using an income statement?

A
  • It doesn’t take into account any external factors
  • Doesn’t consider some internal factors such as staff morale
  • Inflation can distort the true value of revenue, affecting its usefulness
  • It can be deliberately distorted, by bringing forward sales from the next trading period and including them in this one
62
Q

What are the problems with cash flow statements?

A
  • It is unable to account for changing costs (could result in miscalculations)
  • It doesn’t anticipate changes in the external environment or things outside the business’s control
  • The data that’s internal to the business may not be accurate
  • Doesn’t work without goals or a vision in place for the business
63
Q
A

Business (10 decks)

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