Theme 3 - Assessing competitiveness Flashcards

1
Q

Statement of comprehensive income (profit and loss account)

A

Shows if a business has made a profit or a loss during the year showing a firms revenue, costs and profit
* Part of the legal documents that must be published each year by LTD or PLC companies
* Indicates if a firm is profitable, profitable firms have a positive net profit

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2
Q

Key information on SOCI

A
  • Sales revenue = QS x SP
  • Money into the business through ordinary training
  • Cost of sales = the total expenses a business incurs to manufacture the products it sells
  • Gross Profit = revenue - cost of sales
  • Used by managers to judge which products or services are most profitable
  • Expenses = costs to the business that has noting to do with stock or production process
  • Operating profit = a true measure of how much profit/loss the business has made
  • OP= GP - Other operating costs
  • Used by investors to see how hard their money would work if it was invested into the business
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3
Q

Shareholders interest in SOCI

A
  • Want to see how profitable the business is, higher profitability the higher the dividends
  • Look at final profit figure
  • Trends in net profit overtime show how risky their investments are - how much is spent on dividends
  • Good firms increase revenue without increasing costs too much
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4
Q

Investors interests in SOCI

A
  • Show how profitable the business is
  • Is it worth investing
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5
Q

Employees and managers

Interest in soci

A
  • Interested in the revenue and expenses of the firm overtime to see if theyre changing - need to work out why there are changes
  • SOCI for each department so managers compare between departments to help identify costs to be reduced
  • Compare soci with competitors see where it is performing
  • Employees are interested in the profitability
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6
Q

Loan providers SOCI

interest in soci

A
  • Operating profit where interest on loans is paid
  • Unwilling to loan with a low op as business wont pay interest
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7
Q

Suppliers SOCI

interest in soci

A
  • Revenue in past is it enough to pay suppliers on time
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8
Q

Statement of financial position ( balance sheet)

A

Shows the assets and liabilities of a firm on a particular day of the year
* Needs to be published by ltd and plc
* Comparing from same date allows firms to pick out trends and evaluate financial performance
* Shows how much a firm is worth

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9
Q

Key information

A
  • Current assets = items that the business owns that will pay the business in under 1 year
    *E.g. stock sold and turned into cash within a year, Debtors those who owe the business pay within a year
  • Non current assets = items that the business owns that will pay the business back after 1 year
  • Current liabilities = items business own that need to be paid by the business within a year e.g. trade payables
  • Long-term liabilities = items that the business needs to pay but not due for more than 1 year e.g. a loan, mortgage
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10
Q

Liqiuidity

A

the ability of a business to turn assets into cash

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11
Q

Solvency

A

businesses ability to pay its debts (current assets larger than liabilities)

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12
Q

Managers and owners interest in soci

A

Managers and owners look at firms solvency and liquidity to see if its going bankrupt and make changes to this happening

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13
Q

Suppliers interest in soci

A

Suppliers look to see how liquid firms assets are as well as solvency better paying bills on time and whethet to offer credit

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14
Q

Loan providers interest in soci

A

Loan providers will want to know firms ability to pay back loans and and interest and firms with assets larger than liabilities is less of a risk

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15
Q

Governments interest in soci

A

Governments use sofp to calculate amount of tax (VAT or Corporation tax) that a company has to pay

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16
Q

Shareholder interest in SOCI

A

Shareholders will analyse the accounts and decide whether their investment is being used effectively

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17
Q

Potential investors interest in soci

A

Potential investors will analysie accounts to determine whether the company will make a good investment

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18
Q

Creditors interest in soci

A

Creditors will use accounts to check companys ability to pay their bills

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19
Q

More info on soci

A
  • A= L+C
  • A=ASSETS, L= LIABILITIES, C= CAPITAL
  • Two sides must balance as money hasnt dissolved
  • Comparing from same date allows stakeholders to pick out trends in a firms finance and evacuate its financial position
  • Stakeholders can use sofp as indicator of whether firms profit is likley to increase or decrease
  • Increase in reserves suggests an increase in profit
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20
Q

Cost of Sales

SOCI

A

The total expenses a business incurs to manufacture the products it sells
The accumulated total of all costs used to create a product/service that has sold

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21
Q

Gross profit

SOCI

A

GP =Revenue - Cos
Used by managers of business to judge which products or services are the most profitable

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22
Q

Expenses

SOCI

A

Costs to the business that have nothing to do with stock or the making of the product
E.g. administration, advertisting, petrol and insurance

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23
Q

Operating profit

SOCI

A

OP = GP-EXPENSES
A true measure of how much profit/loss the business has made iver the year before tax is deducted
Used by investors of the business to see how hard their money would work if it was invested into the business

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24
Q

Non current fixed assets

A

Items that a business owns that will pay the business back after 1 year e.g. machinery, vechiles, property

25
Current liabilities
Items a business owes that need to be paid by the business within 1 year e.g. trade payables - payment to suppliers
26
Long term liabilities
Items that business needs to pay but is not due for 1 year Loan e.g. 10 year payments Retirement provision e.g. penision fund monthly payments
27
Ratio analysis
28
Key info
29
Gearing ratio
30
Formula for gearing ratio
31
What does it show? GR
32
Rewards for a business
33
Risks for a business
34
Risk & Reward for investors
35
Return on capital employed
36
ROCE formula
37
Advantages of ROCE
38
Disadvantages of ROCE
39
Labour productivity
40
Key info Lab productivity
41
Labour productivity formula
Output per period/ number of employees
42
Labour turnover
43
Key info labour turnover
44
Labour turnover formula
Number of staff leaving/average number of staff employed x 100
45
Reasons for high lab turnover
46
Problems and opportunities with high labour turnover
*
47
Absenteeism
Absenteeism = the habitutal non prescence of an employee at work
48
Causes of absenteeism
* Job dissatisfaction * Physical/mental illness * High levels of stress * Bullying in workplace * Using it to increase holidays - bad reputation can lose their job
49
Problems with absenteeism
* Costly for business cover sick pay and temporary staff * Need to consider how to reduce to reduce costs * Output will be reduced * Consult with staff * Compare with competitors * Some is natural and temporary e.g. catching the flu
50
Ways to reduce absenteeism
* Flexible workforce * Interesting and challenging jobs * Improving working conditions * Improving work relationships * Attendance bonuses
51
Formula for absenteeism
Absenteeism = Number of staff absent in time period / No of staff employed x time period X 100
52
Labour retention
Labour retention is a measure of a businesses ability to keep employees
53
Key info labour retention
* Higher turnover, lower retention rate - keeps only small proportion fo employees * Increase retention by improving induction process * Highlight opportunities avaliable to all employees
54
Formula labour retention
Labour retention = number of staff employed at start- number of leavers/ number of staff employed at start X 100
55
Stratergies to improve HRA
Financial rewards Employee share bonus Consultation stratergies Empowerment stratergies
56
Financial rewards
* Motivate employees to work harder to increase their profitability ubcrease staff retention * E.g. commision in sales rewards * Bonuses on salary * Piece rate pay * Bonuses for lack of absenteeism
57
Employee share bonus
* Reward staff - SAYE schemes, can use sacings to buy company shares * Reduce staff turnover as they will lose right to obtain shares * Increases motivation and productivity
58
Consultation stratergies
* Involve employees in the decision making process * Improve morale of staff as they feel more valued - reduce absenteeism and increase lab productivity and retention rates
59
Empowerment stratergies
* Empower employees by giving them more control and responsibility * Giving employees more authority to make decisions and suggest improvements (quality circles) * Employee recognition of abilities and trustworthiness to motivate them * Managers who dislike employees will struggle with empowerment * Can be seen as an excuse to cut costs, delayer and make managers redundant