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Business A Level > Analysing the strategic position of a business 7 > Flashcards

Analysing the strategic position of a business 7 Flashcards

1
Q

What is a mission statement?

A

Sets out a purpose of an organisation and gives its reason for existing.

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2
Q

What do mission statements focus on?

A

They focus on:

  • What the business wants to be
  • Values of business
  • Range of firms activities
  • Importance of different stakeholders
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3
Q

What is a vision statement?

A

What a business wants to be in the future, more long term

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4
Q

What influences a business’ mission?

A
  • Values of the founders of the business
  • Values of business’ employees
  • Industry that the business is in
  • Society’s views
  • Ownership of the business
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5
Q

What are the 8 areas of business activity where useful objectives could be set?

A
  • Market position
  • Innovation
  • Financial resources
  • Physical resources
  • Human resources
  • Productivity
  • Social responsibility
  • Profits
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6
Q

What is a strategic decision?

A

A specific commitment to action

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7
Q

What influences corporate objectives and decisions?

A
  • State of economy
  • Global prices
  • Technological changes
  • Migration
  • Business’s ownership
  • Business culture
  • New leader
  • Poor performances
  • Pressures from short termism
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8
Q

What is short-termism?

A

The pressure to deliver quick results which may harm longer term development.

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9
Q

What is the difference between strategy and tactics?

A

Strategy is long term plan to achieve the business’s vision through corporate objectives.
Tactics are short term and involve strategys

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10
Q

What is SWOT analysis?

A 
Method of strategic analysis which considers the internal and external environments of a business
Strengths
Weaknesses 
Opportunities
Threats
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11
Q

Benefits of SWOT analysis?

A
  • Low cost and straightforward technique that can be used by all business’s
  • Can assist managers to think in a structured way and focus on both the internal operations and its external environment
  • Encourages management team to develop plans that are logical in the context of the business’s current position
  • Recognise risk
  • Combined with other management techniques
  • Can be used with a business’s function
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12
Q

Limitations of SWOT analysis?

A
  • Only covers issues that can be classified as S W O T, can be hard to address uncertain or two-sided factors
  • Doesn’t provide solutions and further analysis needs to be done
  • Managers many underestimate the importance
  • Should be based on reliable data, but opinions of those collecting the data
  • If data is poor then analysis is likely to be unuseful
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13
Q

What is a balance sheet?

A

Represents a snapshot of a business’s financial position at a given time. It shows assets and liabilities

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14
Q

Benefits of a balance sheet?

A
  • Shareholders may use balance sheets to assess a business’s potential to generate goods returns in the future.
  • Suppliers use for short term analysis of a business’s position
  • Managers as an indication of performance of the business. Can use information to make decisions
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15
Q

What are assets?

A

What business uses its capital to purchase.
Current: turned into cash in less than a year (cash and inventories)
Non-Current: turned into cash in over a year (land)

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16
Q

What is a liability?

A

Debt owed by the business to organisations or individuals

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17
Q

What factors influence how much working capital a firm holds?

A
  • Volume of sales
  • Amount of trade credit offered by the business
  • Whether or not the firm is growing
  • Length of operating cycle
  • Rate of inflation
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18
Q

What is depreciation?

A

A reduction in the value of an asset over time

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19
Q

What is an income statement?

A

A financial account which includes revenues and expenditures over a period of time

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20
Q

What 2 main profits are included in an income statement?

A

Gross and Net

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21
Q

Who would be interested in income statements + why?

A 
Managers - Cost of sales/expenses
Turnover/operating profit
Shareholders - Operating and net profit 
Turnover
Retained profit
Dividends
Employees - Wage costs
Profits after tax
Retained profits
HM Revenue and Customs - Net profit before tax
Depreciation
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22
Q

How do some companies ‘window dress’?

A
  • Borrow money for short periods of time to improve their cash position just before balance sheet is made
  • Sale and leaseback improves a companies cash or liquidity position
  • Capitalising expenditure
  • On income statements sales may be brought forward to an earlier to boost revenue
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23
Q

How is gross profit calculated?

A

Revenue - COGS = Gross Profit

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24
Q

Gross profit margin?

A

Gross profit / Sales revenue x 100

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25
Q

Operating profit?

A

Gross profit - indirect costs = operating profit

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26
Q

Operating profit margin?

A

Operating profit / Sales revenue x 100

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27
Q

Net profit?

A

Operating profit - remaining costs = net profit

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28
Q

Net profit margin?

A

Net profit / Sales revenue x 100

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29
Q

What is ROCE showing?

A

Compares the amount of profit earned with the amount of capital employed by the business.

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30
Q

How is ROCE calculated?

A

operating profit / capital employed x 100

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31
Q

Current ratio?

A

Current assets / current liabilites

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32
Q

What do gearing ratios show?

A

Measure the long term liquidity of a business of a business. How firms have raised their long term capital.

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33
Q

Gearing?

A

non-current liabilities / total equity + non-current liabilities x 100

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34
Q

What does inventory turnover ratio show?

A

Measures the companies success in converting inventories into sales

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35
Q

Inventory turnover ratio equation?

A

costs of goods sold / average inventories held

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36
Q

Receivable days?

A

receivables / revenue x 100

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37
Q

Payable days?

A

payables / cost of sales x 100

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38
Q

What do businesses need to be aware of with ratio analysis?

A
  • Comparisons
  • Historical
  • Window dressing
  • Limited focus
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39
Q

What is good about ratio analysis?

A
  • Gives insight to business performance
  • Comparisons from previous years
  • Comparisons with other businesses
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40
Q

What is bad with ratio analysis?

A

Only considers financial aspects not:

  • market
  • position of firm in the market
  • quality of workforce and team
  • economic environment
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41
Q

What is the political environment?

A

Comprises actions taken by local, national or international authorities that affect the activities of a business.

42
Q

What is included in the political environment?

A
  • Encouraging enterprise
  • Regulation of market
  • Country’s infrastructure
  • Issues relating to the environment
  • International trade
43
Q

What financial support is available from the government?

A

Enterprise allowance - a grant and a loan
Funding for lending - banks to borrow BofE at cheaper than market rates for 4 years
Enterprise finance guarantee - allows small businesses to get normal commercial loans

44
Q

What non-financial support does the government offer?

A

Advice on:

  • Finance and cash flow
  • Recruiting and developing staff
  • Improving leadership and management skills
  • Marketing, attracting and keeping customers
  • Making the most of digital technology
45
Q

How else does the government support enterprise?

A
  • Reducing the number of regulations
  • Reducing tax for small businesses
  • Supporting innovation through £4.6billion
  • Range of schemes to develop new products and processes
  • Recruits young business owners to volunteer as enterprise champions
  • Works directly with schools and colleges to encourage the use of schemes
46
Q

What are the intended effects of the policies for businesses?

A
  • Encourage enterprise and innovation in small organisations but can help all
  • Influence decision to start or expand a business
  • Functional decision making
47
Q

What is regulation?

A

The enforcement or principles or rules that result from the passing of a law or series of laws

48
Q

What are regulators?

A

There to support those to regulate to comply with the rules in a variety of different business activities

49
Q

How does regulation affect businesses?

A
  • Create free and fair competition between businesses
  • Regulate high profile industries
  • Privatised monopolies to protect consumers and other businesses
  • Self regulation by businesses
50
Q

How can regulation create free and fair competition?

A
  • ‘Windfall’ taxes
  • Controlling prices
  • Restricting rates of return on capital invested by businesses
  • Unbundled access
51
Q

What impact will regulation have on UK businesses?

A
  • Stops them maximising profits by charging higher prices
  • Adverse publicity if fined
  • Take a range of functional and strategic decisions to reduce impact of threat
  • Opt out of tightly regulated markets
  • Provides a stable long term environment to operate
  • Can facilitate investment
  • Reduces barriers to entry
52
Q

What is infrastructure?

A

Transport, communication and energy supplies that allow us to do things

53
Q

What opportunities have investment in infrastructure created?

A
  • Construction industry

- Rail industry

54
Q

What threats have investment in infrastructure caused?

A
  • New businesses mean other businesses being worse off
  • May cause unemployment
  • Wind farms are an eyesore
55
Q

What are implications of international trade?

A
  • Revenue and employment
  • Competition
  • Easier to sell abroad
  • Larger market
  • Economies of Scale
  • Offshoring
  • Takeover
56
Q

How has UKTI helped?

A
  • organising trade fairs overseas to promote UK exports to potential buyers
  • open to export initiative
  • financial support for UK exports
  • assist businesses and enterprise ensuring that exporters receive integrated support from the UK government by working with other agencies
  • political ties
57
Q

What are the 3 elements of the legal environment?

A

Competition
Employment of Labour
Environmental Issues

58
Q

What are the 3 competition laws?

A

Competition Act 1998
Enterprise Act 2002
Enterprise and Regulatory Reform Act 2013

59
Q

What does the competition law look at?

A

Cartel Activity - agreements between businesses not to compete with each other, working together to limit the extent of competition
Abusing a dominant market position - unfair prices, limiting production, unfair and inconsistent terms on different trading partners
Other anti-competitive practices

60
Q

When can an employee be dismissed fairly?

A

Where a job no longer exists
Gross misconduct
Failing to carry out duties in a satisfactory manor
Ending of a contract

61
Q

What are the 2 environmental acts?

A

Environmental Protection Act 1991 - minimise pollution

Environment Act 1995 - control pollution, conservation or environment and restoring contaminated land and mines

62
Q

EU and international environmental laws?

A
  • Climate change
  • Air, water and land pollution
  • Waste management
  • Protection of nature, species and biodiversity
  • Noise pollution
63
Q

What is GDP?

A

Measures the value of a country’s total output of goods and services over a period of time

64
Q

What is the exchange rate?

A

The price of one currency expressed in terms of another

65
Q

What uncertainties can arise from the exchange rate? for businesses?

A
  • Uncertainty over revenue
  • Uncertainty regarding quantities likely to be sold
  • Uncertainty regarding competitors responses
66
Q

What’s inflation?

A

Inflation is the average change in prices

67
Q

What’s deflation?

A

The average rate of decreasing prices

68
Q

How is inflation measured?

A

CPI, in the basket of goods and services

69
Q

What is the impact of inflation and deflation on a business?

A

Managers may anticipate prices and make decisions based off of these, which may actually fuel the price changes

70
Q

What are the different taxes that businesses pay?

A 
Income tax
Corporation tax
VAT
National insurance payments
Customs and excise duties
71
Q

What influences taxation?

A
  • Raise sufficient revenue to cover government expenditure
  • Encourage customers and businesses to increase consumption of some products such as renewable resources or discourage others
  • Fiscal Policy
72
Q

How do taxes impact businesses?

A
  • Try to minimise tax payments within the law through specialist tax lawyers to increase profit margins and dividend payments
  • Places with low taxes can encourage foreign investment
  • Reducing national insurance may encourage employment or reduce capital investment
73
Q

What is quantitative easing?

A

When the central bank buys assets usually financial assets such as government and corporate bonds using money it has created to boost money supply

74
Q

What is forward guidance?

A

When the government communicates its own forecasts and expectations of future levels of interest rates in order to influence business and consumer confidence and decision making

75
Q

What is privatisation?

A

Transferring organisations from state to the ownership and control of individuals

76
Q

What is protectionism?

A

A government policy which favours the use of measures intended to prevent the free entry of imports into a country which can be done in the following ways

77
Q

How can protectionism be done?

A
  • Tariffs
  • Quotas
  • Subsidies
  • Soft loans
  • Technical barriers to trade
  • State procurement policies
78
Q

What does protectionism cause businesses to do?

A
  • Use more expensive suppliers
  • Establish production facilities within countries that impose restrictions
  • Lobby governments and international bodies to persuade countries to remove barriers to trade
79
Q

What is globalisation?

A

Trend for markets to become worldwide

80
Q

Why has globalisation occured?

A
  • Support from governments and major businesses
  • Falling cost of international and transport communications
  • Growth of global trading blocs and the reduction of barriers to trade
  • Growth of multinational companies
  • Increasing global incomes and growing demand for goods and services
81
Q

Whats good and bad about globalisation?

A
  • Increased sales, revenue and profit
  • Cheaper resources
  • Economies of scale
  • Developing different products for different markets
  • Downward pressure on prices
  • New producers
  • Increased need for investment
  • Threat of a takeover
82
Q

What is an emerging economy?

A

A country with low incomes per head but one which is enjoying high rates of economic growth

83
Q

Why are emerging economies important?

A
  • Labour resources
  • Large markets
  • Rapid growth rates
  • Natural resources
84
Q

What is the risk of emerging economies?

A
  • Economic risks (inflation)
  • Political risk
  • Risks to brand or corporate image
85
Q

How can businesses be affected by social change?

A
  • Demand of different goods and services

- The way businesses produce goods and services

86
Q

What impact does technology have on behaviour?

A
  • Development that synchronise home appliances and control domestic appliances from outside the home
  • Wearing technology that monitors factors such as blood pressure
87
Q

What are the implications of online growth?

A
  • Decrease in store numbers
  • Share of online retail sales will increase
  • Decreasing employment
  • Increase in companies that cease trading
  • Lower costs
  • Amount of consumers that can be reached by all businesses
  • Easy and cheap to start up
88
Q

What is CSR?

A

A business philosophy that emphasises that firms should behave as good citizens, they should consider their acts on society as a whole

89
Q

What are the 4 levels of carroll’s CSR pyramid?

A

Philanthropic Responsibility
Ethical Responsibilities
Legal Responsibilities
Economic Responsibilities

90
Q

What is the shareholder concept?

A
  • Meet the responsibilities of shareholders through maximising profits
  • This should increase share price and dividend payments
  • Encourages short termism and increased risks to generate profits
91
Q

What is ESV?

A

Enlightened shareholder value - the idea that companies should pursue shareholder wealth with a long-term orientation that seeks sustainable growth and profits based on responsible attention to all relevant stakeholder interests.

92
Q

What information do CSR reports include?

A
  • Using sustainable sources of raw materials
  • Ensuring suppliers trade responsibility
  • Operating an extensive health and safety policy
  • Engaging in a continuous process of environmental management and monitoring the effects of production on the environment
  • Trading ethically and taking into account morals in decision making
93
Q

What are the pressures for socially responsible behaviour?

A
  • Consumers expect it and are more aware of business behaviour
  • Social media
  • Attract employees
  • Build a stronger brand
  • Support in accessing new markets
  • Support growth
  • Improve revenue
94
Q

How has technology impacted businesses?

A
  • Marketing
  • Production (CAD/CAM)
  • Communication within a business
  • HR
95
Q

4 key elements of digital technology?

A
  • Social Media
  • Mobile Technology
  • Data analysis
  • Cloud computing
96
Q

What affects the competitive environment?

A
  • Power of rivals and potential rivals
  • Customers
  • Suppliers
97
Q

What’s porter’s 5 forces?

A 
Competitive rivalry
Bargaining power over suppliers
Bargaining power of customers
Threat of substitutes
Threat of new entrants
98
Q

When will competitive rivalry be greater?

A
  • Entry to an industry is straightforward
  • Easy for customers to move to a substitute
  • Little differentiation between products
  • Competitors are of similar size
  • Competitors have similar corporate strategies
  • Costly for a competitor to leave
  • Market is not growing
99
Q

How do firms react to rivalrly?

A
  • Competitive pricing
  • Use of promotional deals
  • Innovation
100
Q

What impacts do changes in competitive environment have?

A
  • Seek new markets
  • Develop new product ranges
  • Seek alliances or mergers
  • Suppliers
  • Power of buyers
  • Substitutes

Business A Level (11 decks)

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