Assessing competitiveness

Question 1

What is a statement of financial position and what does it show?

Answer 1

A snapshot of what assets and liabilities a business had

Question 2

How do you calculate net assets?

Answer 2

Non-current assets + current assets - current liabilities - non-current liabilities

Question 3

How do you calculate capital and reserves?

Answer 3

Share capital + revenues

Question 4

What do receivables mean?

Answer 4

consumers who owe the business

Question 5

What is a financial statement of comprehensive income and what does is show?

Answer 5

A measure of a businesses performance over a given period of time, usually one year. It shows profits and loss

Question 6

How do you calculate gross profit?

Answer 6

Revenue - cost of sales

Question 7

How do you calculate operating profit?

Answer 7

Administrative expensive - gross profit = operating profit

Question 8

What is a gearing ratio?

Answer 8

Explores the capital structure of a business by comparing proportions of capital raised by debt and equity

Question 9

How do you calculate gearing ratio?

Answer 9

Non - current liabilities
——————————— x100
capital employed

Question 10

How do you know if a business is high geared or low geared?

Answer 10

50 % = high gear (high risk)

25% = low gear (low risk)

Question 11

What is return on capital employed? (ROCE)

Answer 11

Profit of a business as a % of total amount of money used to generate it.

Question 12

How do you calculate ROCE?

Answer 12

operating profit (current liabilities - total assets)
———————————————————————- x100
capital employed

Question 13

How can a business improve ROCE?

Answer 13

higher the % the better, so they can increase operating profit without increasing capital employed or lower capital employed but maintain operating profit.
(sell off unprofitable assets, pay off debt, improve inventory management)

Question 14

What are the limitations of ratio analysis?

Answer 14

• basis of comparison (over time nah, inter firm nah, other companies nah)
• quality of final accounts (monetary values change bc inflation)
• limitations of balance sheet (not representative of whole year)
• qualitative info is ignored
• window dressing (legal manipulation of accounts by a business to present a financial picture that is to its benefit) (eg: low tax by increasing level of revenue received, or write off unprofitable activities)

Question 15

How do you calculate labour turnover?

Answer 15

No. of employees leaving

• ————————————————– x100
  av. no. of employees during period

Question 16

What are the disadvantages of high labour turnover?

Answer 16

• recruitment costs
• reflects poor morale of workforce
• training costs
• loss of productivity while new worker settles in

Question 17

What are the advantages of high labour turnover?

Answer 17

• chance for new people

- specialists can be employed rather than training

Question 18

How can a business improve retention?

Answer 18

• Financial incentives
• non financial incentives
• research
• improve recruitment process

Question 19

How do you calculate labour productivity?

Answer 19

number of employees at work

Question 20

Why should a business measure its productivity?

Answer 20

• Labour costs are a significant part of total costs
• remain competitive by keeping unit cost low
• business efficiency and profitability closely linked

Question 21

What influences productivity?

Answer 21

• external factors (reliability of suppliers)
• methods of production and organisation
• skills, ability and motivation
• extend and quality of fixed assets

Question 22

How can a business increase productivity?

Answer 22

• measure productivity and set targets
• invest in training
• streamline product process
• invest in capital (automation)

Question 23

How can a business measure absenteeism?

Answer 23

Number of staff absent
———————————————- x100
total number of staff employed

Question 24

Why might a workforce be absent?

Answer 24

• low motivation
• over supervision
• culture
• low pay
• bullying
• lack of commitment

Question 25

How might a business decrease absenteeism?

Answer 25

• more teamwork
• rewards for attendance
• decentralisation of power
• back to work interviews
• adoption of lean production techniques

Question 26

What strategies can a business have to increase productivity and retention along with lowering turnover and absenteeism?

Answer 26

Financial rewards: 
- piece rates
- bonus systems
- loyalty bonus 
- attendance target met = rewards
share ownership schemes: 
- savings related share option. Employees can put aside part of their monthly pay for a fixed number of years and buy shares at a price fixed at the outset.

Question 27

What are some consultation strategies?

Answer 27

• Pseudo consultation (Management makes a decision and informs employees)
• quality circles
• integrative (discuss and explore)

Question 28

What are some empowerment strategies?

Answer 28

• training
• provide feedback
• inspire confidence
• provide necessary resources
• give authority