Collected Concepts Flashcards

Question

Model testing

Answer 1

* Does it make sense? * Can model be flexed to test ideas? * Is it manageable? * Does it answer the question business have?

Answer 2

* Net Cash Flow positive or negative ? * Determine main causes of problem * Identify main cash flow factors * Use the Pareto (80:20) Rule

Answer 3

For many events, roughly 80% of the effects come from 20% of the causes

Answer 4

* Cut Costs * Chase slow paying customers * Negotiate credit terms with suppliers * Check customers credit history before offering credit * Get customers to pay in advance * Reduce stock * Borrow money for property or equipment * Lease equipment * Avoid surplus staff (temps, part-time) * Avoid opulent premises and under-employed receptionists * Watch for theft, fraud, etc. * Make use of bank manager (Overdraft, lines of credit) * Capital v Revenue * In-house v Bought Out * Control Debtor period * Move fixed costs into variable costs * Sales strcuture

Answer 5

* Monitor cash flow against the Plan * Cultivate Bank Manager * Pay special attention to payment terms for a big order * Examine Balance sheet to see where cash is held

Answer 6

* Determination and implementation of strategies to overcome identified risks * Size of impact of the risk * Probability of occurrence * Cost and availability of counter measures * Identify key outputs * Select the inputs that have the greatest impact on the key outputs

Answer 7

* A resource that a business owns where: * A probable future benefit in terms of cash value * The business has an exclusive right to benefit * Benefit has arisen from a past transaction or event * Capable of being measured in cash terms * Assets = Capital + Profit/loss + (liabilities)

Answer 8

* Cash * Stock * Debtors * Shares * Property * IP / Patent

Answer 9

* Current assets (working capital) * Fixed assets * Other assets

Answer 10

* Relatively permanent resources intended for the use of the firm, appear over several years of financial statements * Value = original value - accumulated depreciation * Used to generate wealth and are held for more than one year

Answer 11

* Assets that can be converted to cash within the firm's operating cycle * Expected to be converted to cash during normal operations

Answer 12

* Patents * Copyrights * Goodwill

Answer 13

* Current liabilities * Long term liabilities

Answer 14

Liabilities that will be paid off within firm's operating cycle

Answer 15

* Debt Capital * Short-term (current) Liabilities * Long-term Liabilities

Answer 16

* Accounts payable * Accured expenses * Overdraft

Answer 17

Loans and mortgages from banks and other lenders with maturities greater than one year

Answer 18

Financing provided by a creditor

Answer 19

* If a transaction occurs, it has two aspects * e.g. if you buy a car fixed assets increase and cash decreases

Answer 20

* Be cautious, write off expected losses * e.g. from clothing line that proved to be unpopular

Answer 21

* The balance sheet doesn't include inflation, but property can change drastically in price * Can be re-valued from time to tome to give a more realistic value than historic cost

Answer 22

* Try to use fact rather that managers opinion. * If stock value falls below historic cost value (e.g. out of date technology products), then list as “net realisable value” which is selling price-cost of sale

Answer 23

* Reports wealth generated over a defined time period * Need to list Revenue and Expenses

Answer 24

* Inflow of assets to the business * Subscriptions * Fees * Interest on investments * Dividends from shares

Answer 25

* Outflow of assets from the business * Salaries * Rent * Utility bills * Cost of sales * Tax * Insurance

Answer 26

* Sales - cost of sales * Cost of sales in simply the raw material

Answer 27

Annual Percentage Rate

Answer 28

Principal + Interest

Answer 29

* All fixed assets (except land/property) are used up over time and need to be replaced * Tries to measure the amount of asset used in creating revenue over time

Answer 30

Anything it needs to make it ready for use

Answer 31

* Straight Line * Reducing Balance

Answer 32

* Divide the cost of the asset by your estimate of its useful life * Reduce its value each year to zero * (Original value - Remaining value) / Expected life

Answer 33

* Reduce the value each year by a fixed % * This will mean a high cash value in early years but will be less in later years * Factor = 1 - n \* sqr(remaining value/original value) * n = expected life

Answer 34

* More meaningful than absolute numbers * Alert to potential problems * Used for company analysis

Answer 35

* Important for investors and for share price * The level of profit in relation to money invested * To be able to consider the return on investment with respect to the risk involved * To be able to compare with other companies in the same sector

Answer 36

* Profit before tax/Capital Employed * Needs to be big enough to: * Provide a sufficient return to the shareholders * Attract new investors * Provide an increase in reserves to match inflation * Allow the business to grow

Answer 37

* Fixed assets + Current Assets - Current liabilities * Share capital + Loans + Retained profits

Answer 38

Profit before tax / Shareholders capital

Answer 39

Share capital + Retained profits

Answer 40

* Net present value of future profits * Net present value of forward order book * Companies past and predicted growth * The field the company operates * The assets held by a company * The company management

Answer 41

* Net Profit margin = PBT / Turnover x 100 * Gross PM = Fross profit / Turnover x 100 * Whole organisation or individual products * Where the main costs in your organisation * High turnover not necessarily equal to high profits

Answer 42

* Show how efficient you are compared to similar businesses

Answer 43

Average collection period = (Debtors / Credit sales) x 365

Answer 44

* Days finished good stock = (Finished good stock / Annual cost of sales) x 365 * Days raw material stock = (Raw material stock / Annual cost of raw materials) x 365

Answer 45

* Ensures you are able to meet short-term obligations from current assets * Overdraft, trade creditors, wages, VAT

Answer 46

* Current assets / Current liabilities * Should be close to 1.1 as the safe operation of a business allows * Typically 1.2 to 1.8 is good; Varies with sector

Answer 47

* (Cash + deptors) / Current liabilities * Typically 0.7 to 1.0 is good

Answer 48

* Shows how much profits can fall before a firm cannot keep up its interest payments * Profit before interest & tax / Interest expense * 1.5 considered necessary; \> 3 reccomended; \< 1 is a big proplem

Answer 49

* Ratios of Loans to Equity (Shareholders capital) * Loans(long+short term) / Share capital + Retained profits * 1:1 is about right, but wide ranges exist * Should be less than 3 * High hearing increases risks, but cal also increase profits to shareholder

Answer 50

* Sales revenue per square metre (Retail) * Revenue/profit generated per employee * Revenue/profit per fixed asset value (ROA) * Revenue/ prefot per working capital * Sales per geohraphic area * Segmented revenue/profit per product * Asset Turnover

Answer 51

* Earning available to shareholders / Number of shares in issue

Answer 52

Dividend per share / Market value per share

Answer 53

Dividends announced for the year / Earnings available for dividens

Answer 54

* Market value per share / Earnings per share * PE averages vary between industries and are often used as a basic form of company valuation

Answer 55

* Dependent on accuracy of financial statements * Don't look at absolute changes which compliment ratio analysis * Need to compare with other business but no two businesses are the same * Balance sheet ratios are also only a snapshot of the financial position

Answer 56

* Non-repayable cash * Good publicity * In-kind support * Terms and conditions vary

Answer 57

* Potential profitability * Firm return on assets \> cost of debt = owner return on investment increases as firm uses more debt * Financial Risk * If firm is not doing well, increased possibility of lower or negative returns * Voting control * Dept permits owners to retain all stock and ownership

Answer 58

* Individuals or clubs of individuals of "high net worth" * Invest in area of interest to them personally and have own criteria for investing * Normally take a board position and a percentage of the company in return * Normally invest up to £225K * Can be a valuable source of new contacts and advice

Answer 59

* Large companies interested in profitability of the company * Strict criteria * Take close interest in experience and qualifications of the management team * Important to offer an exit strategy * Take a percentage of the company and a place on the board * Investments from £250K to £2M+ * Needs an extremely thorough business plan * Normally limit to 5 years * Accept that many of the businesses they invest in will fail

Answer 60

* Build up a company for a trade sale to a competitor * Sell to new equity investors * Float on stock exchange * Management buy-in or buy-out * Failure

Answer 61

1. Initial screening * Assess experience * Management team * Projected growth * Market for future sale 2. Managment support and monitoring * Appoint a non-executive director * Involvement in strategy, marketing and accounting 3. Exit

Answer 62

* Higher risk money * Higher growth money * Maintenance borrowing ability * Flexibility * Cash with added value

Answer 63

* Resources * Network * Credibility * Funding

Answer 64

* Dilution of ownership * Loss of 'freedom' * Finance driven * Opinionated investor

Answer 65

* Given on basis of tangible assets * Most likely to be used by an expanding company rather then startup * Little interest in the venture, only that you repay the loan * Prefer low-risk companies

Answer 66

* Asset-based loan * Factoring company buys your debts * Company takes over day to day work * Types: * Recourse - cost of bad debt retained by customer * Non-recourse - bad debt protection * Cost: service fee (1-2%); interest charge

Answer 67

* Up to 80% of your invoice value in advance * Allows management to concentrate on growing the business *

Answer 68

Costs 0.5 to 3.5% of turnover

Answer 69

1. Operational (lack of skills, loss of assets, product failures, etc.) 2. Financial (shortage of cash, interest rates, exchange rates, etc.) 3. Strategic (market changes, tech changes, loss of IP, etc.) 4. Hazards (health and safety, environmental damage, etc.)

Answer 70

A plan for leaving a business

Answer 71

1. Raise money for growth 2. Raise profile of company 3. Motivate employees (share options) 4. Easier to buy other businesses (By offering shares) 5. Reassure customers of your long term plans

Answer 72

1. The cost 2. Needs army of accountants and lawyers to prepare prospectus 3. Regulation is very strict 4. Loss of control of the company 5. Need to consider shareholders as priority 6. Vulnerable to market fluctuations and external uncontrollable events

Answer 73

1. Book Value (Assets - Liabilities) 2. Market Capitalisation (number of shares X share price) 3. Sales to price ratio (sales / share price) 4. Share price to earnings ratio (P/E)

Answer 74

1. Degree to which a change in price affects the quantity demanded 2. Elastic demand changes significantly when there is a change in the price of the product 3. Inelastic demand does not change significantly when there is a change in the price of the product

Answer 75

1. Low prices selected to introduce a new product into the market or increase market share. 2. Suitable for long life cycle mass market products such as household goods.

Answer 76

1. Selected for high price low volume products where money needs to be made as soon as possible before a patent runs out.

Answer 77

Products are sold at a low price to force rivals with lower resources out of business.

Answer 78

Products sold below the cost price to attract peoples attention

Answer 79

Charging a price in line with customer expectations of an exclusive product

Answer 80

Looks at rivals prices and sets prices similarly

Answer 81

This is done when the same product or service is priced differently to different sections of the market, such as pricing train tickets higher during peak times

Answer 82

Setting a range of several distinct merchandise levels

Answer 83

1. The average throughput time for a manufacturing operation is proportional to the inventory held within that operation 2. Long term average customers in a stable system (L) = Long term average arrival rate (ʎ) x long term average time (W)

Answer 84

* A key method of controlling costs, quality and throughput speed of materials to products * Functional * Based on a commonality of process (but could be working on different products) * Cellular * All the people and process needed to make a single product

Answer 85

1. Supports wide product range 2. Can be flexible 3. Good for specialist expertise 4. Can cope with minor stoppages

Answer 86

1. Complex flow path for materials/WIP 2. High levels of WIP in the system 3. Long/unpredictable throughput times 4. Inefficient materials handling 5. Complex process control

Answer 87

1. Good for high volume /low variety products 2. All familiar with the working of the cell 3. Better control of WIP and quality 4. Throughput times more predictable

Answer 88

1. Difficult to change between products 2. Inflexible

Answer 89

* The art of continual improvement * Encompass whole company * Everyone has a say in how to improve * Reducing waste to improve quality * Flexible workplace practice * Punctuality * Empowerment of staff to make decisions

Answer 90

When a firm makes above average profits for that particular industry

Answer 91

A competitive advantage which cannot be imitated/copied by competitors or eliminated by environmental changes

Answer 92

* Efficient Business model e.g. JIT method * Locate cheaper suppliers * Outsourcing processes outside of your core skills (e.g. Manufacturing in Asia) * Cheaper premises (e.g. not Central London) * Optimum number of staff (Contract staff) * Not always lower prices for customers – could mean higher margins if there are few competitors!

Answer 93

* Fixed cost of each unit spread over more units e.g. rates, utility bills, rent of premises etc. * Fixed cost of research/development is lower * Able to buy raw materials in bulk, lowering variable costs. * Lower cost of deliveries per unit. * Avoid marginal customers

Answer 94

* As workers practice making units, they become better at it, lowering costs by creating fewer poor quality units and making them faster. * Your researchers will improve with experience * Experience in a consultancy role – a template for future work (Next time you are quicker and better)