Assessing competitiveness 3.5

Question 1

What in the income statement?

Answer 1

Measures a businesses performance (income & costs) and profits or losses, over a given period of time, usually one year

Question 2

What is a balance sheet?

Answer 2

A snapshot of the businesses assets and liabilities on a particular day

Question 3

What is a cash flow statement?

Answer 3

Shows how the business has generated and disposed of cash and liquid funds during a period of time

Question 4

What does an income statement consist of?

Answer 4

Revenue, costs of sales, gross profit, other expenses, operating profit, interest/taxes, net profit

Question 5

What does a balance sheet include?

Answer 5

1) Net assets
2) Capital and reserves

Question 6

What are capital and reserves?

Answer 6

Share capital and reserves (equity)

Question 7

Some of examples of non-current assets and current assets

Answer 7

Non-current assets - land and buildings, machinery, Goodwill
Current assets - Cash balances, debtors (receivables), inventory)

Question 8

Some of examples of non-current liabilities and current liabilities

Answer 8

Non-current - Long-term borrowings and others
Current - Trade creditors (payables), short term borrowings (overdraft)

Question 9

What is the order of a balance sheet?

Answer 9

Non-current assets
Current assets
Current liabilities
Net assets
Non-current liabilities
Total equity

Question 10

What is ratio analysis?

Answer 10

Measures the financial performance of a business which can be used o compare between other businesses

Question 11

What does a gearing ratio calculate?

Answer 11

How much of a businesses investments is borrowed

Question 12

What would be considered a good gearing ratio? Why

Answer 12

A low geared ratio because this means that the business has borrowed less than a quarter than the total capital employed in the organisation
The business may not have as much liquidity problems because less is being borrowed

Question 13

How do we calculate gearing ratio?

Answer 13

(Long term liabilities/capital employed) x100

Question 14

How to calculate capital employed and what does it show?

Answer 14

Total equity + non current liabilities or total assets - current liabilities
How many assets have been used in an investment to make earnings

Question 15

What does ROCE show?

Answer 15

Return on capital employed is a financial ratio that measures a company’s profitability in terms of all of its capital.

Question 16

How do you calculate ROCE?

Answer 16

(Operating profit/capital employed) x 100

Question 17

What are 2 things that operating profits depend on?

Answer 17

1) One offs that may have occurred that year causing a spike in OP.
2) Leasing’s. Capital employed won’t be as large as someone purchasing assets meaning ROCE may appear higher

Question 18

What are 3 limitations of ratio analysis?

Answer 18

1) Over-time - Businesses can change in size and diversify over time
2) Differences between businesses - A business may operate in two different industries will require different capital ratios
3) Financial years - A business may have a different financial year to another business so could be misleading

Question 19

What is the formula for labour producitivity?

Answer 19

Output per period/number of employees

Question 20

What is labour productivity?

Answer 20

This is the total output per worker, which shows how productive they are

Question 21

What are the benefits and costs of labour productivity?

Answer 21

• Increased output means benefit from economies of scale
• Performance related pay
  Costs:
• quality of the goods may not be as good

Question 22

What is the formula for labour turnover?

Answer 22

(Number of staff leaving/average number of staff employed) x 100

Question 23

How to calculate average number of staff employed?

Answer 23

Staff at the beginning of the time period + staff at the end / 2

Question 24

What is labour turnover?

Answer 24

This is the total number of staff that leave the business. This number should be as low as possible.

Question 25

What are the benefits and costs of labour turnover?

Answer 25

• May only be temporary, such as seasonal demand
• if a firm is creative, it may bring in new skills.
  Costs:
• Can increase costs to recruit and train new staff
• Fewer people who understand the business

Question 26

How to you calculate staff retention?

Answer 26

Number of people employed at the beginning - number of leavers / number of people employed at the start x 100

Question 27

What is staff retention?

Answer 27

This is how many people remain in the business

Question 28

What are benefits and costs of staff retention?

Answer 28

• Less costs from recruitment and selection
• Better brand rep if workers want to stay
  Costs:
• no new skills

Question 29

What is the formula for absenteeism?

Answer 29

Number of days staff are absent in a time period/number of staff employed x 100

Question 30

Benefits and costs of absenteeism?

Answer 30

• If it is temporary it may not be a worry for firms
  Costs:
• Some people may have a genuine reason for not being in
• Can be costly to get new staff and pay sick

Question 31

What are the 3 ways human resources strategies can be used to to reduce turnover and absenteeism and increase productivity and retention?

Answer 31

• Financial rewards
• Employee share ownership
  -Empowerment strategies
• Consultation strategies

Question 32

The benefits and costs of financial rewards?

Answer 32

• Productivity may increase if workers work towards a bonus
• Increase staff retention as people want to earn the incentive
• Some people may be leaving their jobs for other reasons

Question 33

Employee ownership scheme benefits and costs

Answer 33

• They get shares under market value which may increase loyalty to benefit from shares
• Their success will increase profits and therefore dividends
• Depends on if people leave of productivity is low because of other factors
• Depends on the number of shares each employee receives and divided they receive for each

Question 34

Consultation strategies benefits and costs

Answer 34

• Increase staff morale so productivity may increase - more valued workers - asset not a cost
• Decision making becomes longer and costly so employees higher up the hierarchy may be demotivated

Question 35

Benefits and costs of empowerment strategies

Answer 35

• Giving them more responsibility and control
• More decisions being made
• More training so better skilled workforce
• Some may leave jobs for other reasons
• some may want a financial incentive if they do more tasks