PAPER 3 - Advanced info Flashcards
What are stakeholders?
Stakeholders are groups or individuals who have an interest in a business.
Stakeholders can have a considerable impact on the actions of a business, depending on their level of power and interest.
List 3 internal stakeholders and their interests.
Employees/Managers:
- good income
- safe working conditions
- opportunity for development + promotion
- meeting targets
Shareholders:
- return on investmet
- increased value of shares
- ethical business practices
- growth of the company
List 4 external stakeholders and their interests.
Suppliers:
- regular trade
- fsir prices
- paid on time
Customers:
- reliable products
- good service
- value for money/ fair prices
Local community:
- employment
- investment
- environmentally responsible e.g. no pollution
Government:
- abide by legislations
- fair and open trade
- employment opportunities
- pay tax
Describe the ‘Stakeholder Mapping’ model.
What is a disadvantage of stakeholder mapping?
They do not provide businesses with clear solutions on how to manage stakeholders.
What happens when stakeholder interests are not alligned?
Overlapping and conflicting interests
How can stakeholder conflict be reduced?
Through effective communication and in some circumstances consultation. The extent can be determined by stakeholder mapping.
What is the most important stakeholder group?
- Some people may consider shareholders to be the most important stakeholder group in a business because they finance the business activities and can influence decisions within the company.
- Other people may consider other stakeholders, such as the government or employees as being the most important to the long-term success of a business.
List some internal factors influencing stakeholder relationships.
- Management and leadership ( via Blake Mouton grid)
- Tailored objectives e.g. profit objectives more closely alligned shareholder interests.
- Size/ ownership - i.e. sole traders won’t have pressure from shareholders compared to Ltd’s.
List some external factors influencing stakeholder relationships.
- Market conditions: demand + competitiveness will change business priorities.
- Stakeholder power: major shareholders/customers will be given greater focus to influence the business.
- Government policy: e.g. employment legislation.
What are the 7 P’s?
- Product: goods/services
- Price: matches product
- Place: channel distribution
- Process: transaction
- Promotion: awareness
- People: customer service
- Physical environment: layout
What must be considered in new product development?
All products must have a balance of design, function and cost.
E.g. improving design = decreased quality
Draw a product life cycle. What are the stages?
Pros and cons of product portfolio analysis?
Pros:
- Useful for making decisions on where funds are allocated
- Predict future sales, plan production + distribution
Cons:
- Products/markets don’t usually follow a pattern
- No clear solutions provided
- Simplifies complex issues
Draw a Boston Matrix model.
What is price skimming?
Setting a high initial price then lowering the price when the product is no longer new.
What is penetration pricing?
Initial low price in order to penetrate market and undercut competitors. Over time, price increases as demand grows.
What is dynamic pricing?
Applied to products where price fluctuates with level of demand. E.g. hotel rooms.
List some promotional methods.
- Advertising - (e.g. above the line = mass ads)
- Sales promotions - (special offers)
- Sponsorship - (paid association)
- Social media - (facebook, instagram)
- Public relations (PR: media attention e.g. a blog)
- Direct marketing - (communication with customer)
What is the importance of branding?
- Adds value to product
- Builds trust
- Premium price charged
- Helps business position itself
- Makes product recognisable
List the different possible channels of distribution.
What is the importance of digital marketing/ e-commerce?
- Allows small business to reach global audience
- Business can gather customer info easily
- Easier to target specific segments
What is a budget? What’s their value to businesses?
A budget is a financial plan for the future with 4 different types:
- Revenue budget
- Expenditure budget
- Profit budget
Setting budgets helps a business acheive it’s financial objectives.
What are the disadvantages of budgets?
- A budget is only as accurate as the data on which it is based
- Past trends can be a poor indicator of what is likely to happen in the future. So, difficult to forecast sales
- Unexpected changes e.g. interest rate increases so interest paid on business loans increase.
- Budget can be unrealistic
What is vairance analysis? What do favourable/adverse variances mean?
Variance analysis compares the forecast data to the actual figures, and can be used to analyse the accuracy of the budgets to help inform future adjustments.
- Favourable: better than the budgeted
- Adverse: worse than the budgeted
Describe how you construct a Cash flow forecast.
What is the value of cash flow forecasting?
- Used to support an application for lending money (*note: window dressing of figures can happen e.g. by postponing payments to suppliers so closing balance is higher)
- Supports the budgeting process
- Identifies potential cash flow crisis (by analysing payables+receivables days)
What are the steps for constructing a break-even chart?
- Plot total revenue line (starting at 0)
- Plot fixed costs line ( doesn’t change with level of output = horizontal line)
- Plot total costs line
- Where total costs = total revenue, is the break-even point.
- If output is below break even = loss. If output above = profit.
How do you calculate break-even output?
Fixed costs ÷ contribution per unit
How do you calculate margin of safety?
current level of output - break even output
How do you calculate contrinution per unit?
Total contribution?
selling price - variable cost per unit
total contribution: total output x contribution per unit
How will raising the price by £2 affect the break even chart?
- Increased revenue line
- Lower break- even output
How will using a cheaper supplier affect the break-even chart?
- Lower variable costs = lower total costs line
- Lower break-even point
How will an increase in rent of £200 per month affect a break-even chart?
- Increased fixed costs line
- Increased total costs line
- Increased break-even point
Give some uses of break-even analysis
- Simple + easy to use
- Helps decide whether a business idea is profitable
- Identifies the level of output and sales needed to generate profit (the scale of the business)
- Analyses the impact of varying prices, costs and customers on the profit
Give some limitations of break-even analysis
- Over simplifies a complex process, since bsuinesses can have a large product portfolio
- Costs are rarely constant and presumes that costs stay the same over many levels of output
- Presumes that all businesses sell all their output at the same price
How do you calculate the gross profit margin? Why is it useful?
(Gross profit ÷ sales revenue) x 100
Useful to analyse how a business has performed in terms of direct costs incurred e.g. raw materials.
Also used to determine the success of products
How do you calculate the operating profit margin? How is it useful?
(Operating profit ÷ sales revenue) x 100
OP takes into account the direct and indirect costs(salaries/overheads), therefore analyses business performance more fully.
How do you calculate Profit of the year margin? How is it useful?
(Profit of the year ÷ sales revenue) x 100
This ratio takes into account all revenues and costs incurred by the business.
It is a good measure for annual performance.
Also may help identify potential to pay dividends to shareholders.
How is financial data important in business decision making?
Because all business decisions must be financially viable.
However, managers must also take into account the issues behind the numbers. e.g. human or ethical factors.
