Theme 3 Flashcards
SWOT
Strengths, weaknesses (internal)
Opportunities, threats (external)
PESTLE
The analysis of external factors affecting a business Political Economic Social Technological Legal Environmental
Competitive markets
Likely to have many buyers and sellers, the products sold are all close competitors
Uncompetitive market
Are dominated by 1 producer or a few large businesses
Monopoly
A market dominated by a single business
Oligopoly
A market dominated by a few large businesses
The impact on businesses of a changing competitive environment
> new products
new entrants
consolidation, number of firms in market falls, but ones left become stronger
Porters 5 forces
>bargaining power of suppliers >bargaining power of buyers >threat of new entrants >rivalry of existing firms >substitutes
Gearing ratio definition
Shows the long term financial position of the business
Gearing ratio formula
(Non current liabilities/ capital employed)*100
Interpreting the gearing ratio
Lower means they are not overwhelmed with debt.
Higher means more of their business finance is borrowed.
Investors want it to be lower.
Return of capital employed (ROCE)
This is the profit of the business as a percentage of the total amount of money used to generate it
ROCE formula
(Operating profit / capital employed) * 100%
Interpreting ROCE
The higher the ROCE is better but it will be needed to be compared with other businesses in the same industry.
An investor may look if it will make more than a ‘safe investment’ to see if it is worth investing.
Limitations to ratio analysis
>quality of financial accounts >limitations of the balance sheet >qualitative information is ignored >window dressing >basis for comparison ~over time ~inter firm comparisons ~other differences
