Gearing Roce And Analysing Ratio Flashcards
Limitations of using an accounting ratio
Internal strength does not take into consideration the quality of the employee within the business
Economic climate aren’t reflected in the figure of roce has decreased than a business might need to look at competitors roce to identify an economic downturn
Future changes such as technology advances or change in interest rate can’t be predicted
What is window dressing
When a business manipulates figures to present a different financial picture
Why would business do window dressing
To pay lower taxes
To attract potential investors
To seek finance
Labour productivity formulae
Output per period / number of employees
Labour turnover formulae
Number of staff leaving business / number of employee employed
X100
Labour retention formulae
[Number of employees hired - leaving
/ hired] x100
Absenteeism rate formulae
(Number of staff absent in a time period / number of staff employed x time period ) x100
Internal factors that could lead to a change in business
Change in organisational structure
New ownership
Poor business performance
Transformational leadership
Why are transformational leaders recruited
If the business is performing badly or condition of business is worsening
The leader may change the ethos of the business
The leaders may change the performance if a business by motivating employees or coming up with new strategies and tactics to improve sales however there may be resistance within the workforce as the workers might not be happy with the changes
So leaders might offer financial incentives to change this view
Why does poor business performance affect a business
A business may surfer if it’s operating expenses are increasing or it’s not making enough sales
A business may increase prices inorder to meet the targeted revenue this would mean that demand for product couldn’t decrease if it’s price elastic or the business is not being competitive
The value of shares may decrease due to poor business performance so shareholder might not want to invest in the business if profits are not stable so the business might be viewed as risky
Difference between incremental and disruptive change
Incremental change is gradual and involves lots of small changes over time to minimise disruption
Disruptive change is sudden change and forces a quick response for example cutting prices to increase demand
Why are employees resistance to change
They are unable to understand the overall outcome of the change or they are unable to identify how the change could benefit them
They are happy with their current working condition and don’t want to change
Fear that they are unable to develop the skills required
How can employees overcome resistance
Offer financial and non financial incentives
Threaten with job redundancy
Involve key stakeholders in decision making if they agree than they are less likely to resist and they may also bring in their opinions as well which may motivate them and make them less resistance
