Exam qs

Question 1

Outline Porter’s five forces:

Answer 1

Porter’s five forces framework is concerned with: the intensity of rivalry
(competition) within the industry, the threat of new entrants (barriers to entry), the threat of substitute products, the bargaining power of customers and the
bargaining power of suppliers.
Porter suggested that the interaction and influence of these 5 forces will
determine the behaviour of businesses and the likely levels of profitability for a
business within a particular industry.

Question 2

Outline capital employed?

Answer 2

Capital employed is the amount of money that is used to finance a business in the long
term. This finance has been either invested by shareholders or borrowed long term.

Question 3

Outline working capital?

Answer 3

Working capital shows the financial strength of a business over the short term – the
higher the level of working capital, then the more able a business is to meet demands
from creditors for payment.
 Working capital is also used to pay day-to-day expenses like wages, salaries, overheads
and other operating expenses.

Question 4

Outline what is meant by depreciation?

Answer 4

The decrease in value of fixed (1) assets over time. (1).
Could be caused by wear and tear, obsolescence, lack of
maintenance or replaced with new technology (1)
Identified in the balance sheet of a firm (1) to show the net book
value of the asset (1)

Question 5

Explain why scientific decision making is used to make strategic decisions?

Answer 5

Strategic decisions are long term and will affect the direction the business takes. They
affect the whole business and will be made by owners or senior management. They are
often complex, require large financial commitment and may create major organisational
change.

Scientific decision-making tools are based on logic, quantitative data and evidence and
should reduce the risk of failure. The process considers alternative options and so a full
analysis is made before making any decisions.

Therefore, as strategic decisions carry a much higher level of risk, it would be better to use
scientific decision-making tools so the outcome is more likely
to be favourable and successful.

Question 6

Outline what is menat by SMART objectives

Answer 6

Objectives that are written using the SMART model should make them
clearer and more meaningful to understand and achieve. (1)
SMART objectives are more precise (1) than normal objectives, and are
more quantifiable (1), therefore can be used more easily to monitor
progress.
SMART objectives also enable feedback and learning within the
organisation, so that management can monitor achievement and make
changes where necessary. (1)
They should be Specific, Measurable, Achievable, Realistic and Time
Limited. (1)

Question 6

Outline the purpose of an investment appraisal?

Answer 6

Investment appraisal is a technique used to evaluate planned investment
by a business and measure its planned financial value to the business.
It covers several techniques of appraising an investment and uses
quantitative data such as the cost of the investment and the predicted
inflows it will generate. It will then mostly compare one investment
opportunity against another to decide which offers the best overall value to
the business.

Question 7

Define the term m-commerce?

Answer 7

M-commerce is the buying and selling of goods and services online (1)
through wireless handheld devices such as mobile phones. (1)

Question 8

Outline what is meant by a tactical decision

Answer 8

Tactical decisions tend to be short to medium term and should aim to
implement strategic decisions. They are usually carried out by middle
management and are less complex and more flexible than strategic
decisions.

Question 9

Explain one way in which a business could window dress its accounts?

Answer 9

Window-dressing is the manipulation of financial accounts by a business to improve the
appearance of its performance.
Ways of window-dressing include:
* Manipulating the presentation of data to include when to record a sale onto the profit
and loss account or making a special effort to dispatch all outstanding orders at
financial year end.
* Changing the value of assets e.g. property.
* Overstating the value of intangible assets such as a brand.
* Hiding the cost of poor investments.
* Reducing the cost of depreciation e.g. instead of depreciating an asset such as a
building over a 10 year period, could depreciate over 25 years instead.