Strategic position of a business Flashcards
Mission of Business
defines the organisation what it is , its core purpose and focus - set out in a written mission statement
Environment in which it operates
related to external environment in which business operates , factors like state of economy
Corporate objectives
goals set for business as a whole that will lead to achievement of mission. this will lead to development of strategies in each functional area .
Internal factors of corporate objectives and decisions
Business ownership - sole traders and ltd companies will not be subject to pressures of short-termism and focus on long term value creation of business .whether the business is profit making or not have an impact on objectives and decisions.
Business culture- refers to beliefs and attitude within a business. must align with organisational culture.
Business performance - impact on decision making as this has an effect on resources available.this is associated with finance available and access to finance , but can be related to other resources such as human resources. A poorly performing business struggle to employ and keep its employees whereas a strongly performing business is more likely to be able to attract and keep the best employees.
External Factors
Pressures for short termism- excessive focus of decision makers on short term goals at the expense of longer term objectives . focus tend to be short term profit and return to shareholders with little attention to strategy and long term value.
causes of short termism :
pressure from investors for short term outcomes
fact that directors position dependent on shareholders
frequency of financial reporting and scrutiny of media.
Distinction between Strategy and tactics
Strategy - plan of action to achieve long term goal .relates to what needs to be achieved . impossible to reverse it if goes wrong .
Tactics - relates to short term actions necessary to achieve the strategy or plan. responses to opportunities or threats.
Links between mission , corporate objectives and strategy
Once a business has set its overall mission or purpose, it is in a position to
set long-term targets that will enable it to achieve or fulfil its mission. Once
targets have been set, strategies or plans can then be devised aimed at
meeting those targets and therefore fulfilling the mission.
Functional decision making
decisions made within functional areas . decisions made by functional managers and represent action necessary on behalf of that function . all the functional area must work together to acheive the strategy:
. The marketing department had to decide where
exactly to set the ‘affordable’ prices and how best to
promote the new Chinese stores.
2. The finance function had to decide what budget
could be afforded each year for the Chinese
strategy.
3. The operations department needed to decide how
much warehousing was needed for stock and for
efficient deliveries to the stores (and New Look’s
online presence in China).
4. The HR function needed to start hiring and training
regional managers to supervise the work of local
Chinese store managers.
SWOT ANALYSIS
examines internal strength and weakness of a business as well as the external oppurtunites and threats.
result of this gives organisation a idea of what is good and opportunities that might exist and idea of weakness and threats .
Value of swot analysis:
It helps a firm to identify its core competencies, enabling it to build on its
strengths.
✚ It helps a firm to focus on the future, given its past and present condition.
✚ It may identify opportunities that a firm can focus on to achieve
maximum gains.
✚ It is a source of strategic planning as well as marketing.
✚ It helps the firm to redefine and set its overall objectives.
Balance sheets
summarises all of an organisations assets ,liabilities and equity at a given point in time.shows what a business owns (assets ) and what it owns (liabilities including shareholders equity )
the two must balance out: Value of assets in a business will always be equal to the value of money put in the business
Assets
listed from top to bottom in order of their liquidity at the top and most liquid at the bottom as follows :
Non current assets: land , building ,vehicle and equipment . remain in a business fro longer than a yr.
Tangible vs intangible assets : non current assets listed above are tangible assets as they can be physically touched . however business has intangible that have real value to business but dont have physical presence such as patents , trademarks , brand names. they will be included in balance sheets if paid for in takeover.
Current assets: these are assets owned fro loss than yr and include inventories , receivables and cash. receivable represents money owed to business for goods sold which have yet to be paid for.
Liabilities
On the balance sheets start with most liquid and finish with the least liquid :
Current liabilities - debts of a business that will be repaid with a yr and include parables , overdraft and any corporation tax on dividends due for payment
Non current liabilities - debts of a business that will be repaid in more than 1 yr including bank loans and mortgages .
Shareholders equity : money accountable to business owners ( shareholders) including money invested by shareholders together with any reserves and retained earnings
Usefulness of balance sheets - what does it provide
working capital of business - shown in the balance sheet as net current assets and is the difference between current assets and current liabilities . Amount of money available for day to day operations such as payment of wages and purchase of inventories .little of this , business may struggle to make payments and run into cash flow problems but too much of this is cash sitting in a bank account and not earning anything for business.
Net assets- shows overall worth of a business to its shareholders and difference between non - current assets and working capital less non-current liabilities
✚ Capital employed. This is the value of total equity plus non-current
liabilities and is the total amount of money invested into the business.
✚ Assets employed. This is the value of non-current assets plus current
assets. Essentially, the assets employed represent what the money
invested into the business (capital employed) has been spent on and
therefore its value is equal to the capital employed.
Income statement
Financial statement that measures an organisations financial performance over accounting period - shows expenditure and income over the period and resultant profit or loss made.
Main elements of income statement
Revenue - amount of money received from sale of goods and service
Cost of goods sold -direct cost of producing goods sold (material)
gross profit-revenue - cost of goods sold
Expenses - costs not directly related to production such as marketing or admin cost
Operating profit: a measure of the profit or loss resulting from the day-to-
day operations of the business. It is also known as earnings before interest
and tax (EBIT).
✚ Finance income and expenses: this relates to interest received on accounts
that are held and interest paid out on loans.
✚ Profit before tax: arrived at after adjusting operating profit for finance
income and expenses.
✚ Taxation: corporation tax paid to the government.
✚ Profit after tax: the final profit (or loss) figure, often referred to as the
bottom line.
