Evaluation of strategies and performance measurement

Question 1

What should be considered when asked to evaluate a strategy in an exam question?

Answer 1

Benefits/risks
Strategic, operational, functional implications
Quantitative/Non-quantitative
Viewpoints of stakeholder groups
Finish with conclusion - what I think

Question 2

What should you do when tackling a data analysis question?

Answer 2

Prepare relevant calculations
Use other info to provide explanations
Apply judgement and evaluate

Question 3

What are common calculations used for measuring performance?

Answer 3

Revenue growth
Profits margins
Increase in profit or costs
Revenue per store/employee
ROI & RI

Question 4

What are common calculations used for measuring competitive position?

Answer 4

Market share
Average selling price per unit
Average profit or cost per unit
Revenue growth vs. market competitor

Question 5

How do you calculate Gross profit margin and what does it assess?

Answer 5

(Gross profit ➗️ Revenue) x 100%
Profitability before taking overheads into account

Question 6

How do you calculate Operating margin and what does it assess?

Answer 6

(Operating profit ➗️ Revenue)x 100%
Profitability after taking overheads into account

Question 7

How do you calculate Return on capital employed and what does it measure?

Answer 7

Operating profit ➗️ (Equity+debt)
x 100%
How effectively resources are used to generate profit

Question 8

How do you calculate Current ratio and what does it assess?

Answer 8

Current assets ➗️ Current liabilities
The ability to pay current liabilities from current assets

Question 9

How do you calculate Quick ratio and what does it assess?

Answer 9

Current assets exc. inventory ➗️ Current liabilities
The ability to pay current liabilities from reasonably liquid assets

Question 10

How do you calculate Gearing ratio and what does it assess?

Answer 10

Debt ➗️ Equity (or Debt + Equity)
Reliance on external finance

Question 11

How do you calculate Trade receivables collection period and what does it assess?

Answer 11

(Trade receivables ➗️ Revenue) x 365
The average time taken to collect cash from credit customers

Question 12

How do you calculate Trade payables collection period and what does it assess?

Answer 12

(Trade payables ➗️ Purchases) x 365
The average time taken to pay suppliers

Question 13

How do you calculate Inventory holding period and what does it assess?

Answer 13

(Inventory ➗️ Cost of sales) x 365
The average length of time inventory is held

Question 14

What are some limitations of financial performance measures?

Answer 14

Historical information - can’t predict
Mostly internal - don’t consider external factors
Can encourage short-term thinking at expense of long-term objectives
Can be easily manipulated
Does not consider whole picture

Question 15

What does the balanced scorecard consider?

Answer 15

Financial perspective
Customer perspective
Internal business perspective
Innovation and learning perspective

Question 16

What are Key Performance Indicators (KPIs)?

Answer 16

Performance measure which are selected to monitor and organisation’s ability to achieve its CSFs

Question 17

What is benchmarking?

Answer 17

It compars the results internally or against other organisations to identify where improvements can be made

Question 18

What are the four main categories for benchmarking?

Answer 18

Internal - against prior year or divisions
Competitive- against competitors or industry
Activity- comparisons made with best practice
Generic - against conceptually similar process