Theme 3 - Assessing competitiveness Flashcards
Statement of comprehensive income (profit and loss account)
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
Key information on SOCI
- 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
Shareholders interest in SOCI
- 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
Investors interests in SOCI
- Show how profitable the business is
- Is it worth investing
Employees and managers
Interest in soci
- 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
Loan providers SOCI
interest in soci
- Operating profit where interest on loans is paid
- Unwilling to loan with a low op as business wont pay interest
Suppliers SOCI
interest in soci
- Revenue in past is it enough to pay suppliers on time
Statement of financial position ( balance sheet)
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
Key information
- 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
Liqiuidity
the ability of a business to turn assets into cash
Solvency
businesses ability to pay its debts (current assets larger than liabilities)
Managers and owners interest in soci
Managers and owners look at firms solvency and liquidity to see if its going bankrupt and make changes to this happening
Suppliers interest in soci
Suppliers look to see how liquid firms assets are as well as solvency better paying bills on time and whethet to offer credit
Loan providers interest in soci
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
Governments interest in soci
Governments use sofp to calculate amount of tax (VAT or Corporation tax) that a company has to pay
Shareholder interest in SOCI
Shareholders will analyse the accounts and decide whether their investment is being used effectively
Potential investors interest in soci
Potential investors will analysie accounts to determine whether the company will make a good investment
Creditors interest in soci
Creditors will use accounts to check companys ability to pay their bills
More info on soci
- 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
Cost of Sales
SOCI
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
Gross profit
SOCI
GP =Revenue - Cos
Used by managers of business to judge which products or services are the most profitable
Expenses
SOCI
Costs to the business that have nothing to do with stock or the making of the product
E.g. administration, advertisting, petrol and insurance
Operating profit
SOCI
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
Non current fixed assets
Items that a business owns that will pay the business back after 1 year e.g. machinery, vechiles, property
Current liabilities
Items a business owes that need to be paid by the business within 1 year
e.g. trade payables - payment to suppliers
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
Ratio analysis
Key info
Gearing ratio
Formula for gearing ratio
What does it show? GR
Rewards for a business
Risks for a business
Risk & Reward for investors
Return on capital employed
ROCE formula
Advantages of ROCE
Disadvantages of ROCE
Labour productivity
Key info Lab productivity
Labour productivity formula
Output per period/ number of employees
Labour turnover
Key info labour turnover
Labour turnover formula
Number of staff leaving/average number of staff employed x 100
Reasons for high lab turnover
Problems and opportunities with high labour turnover
*
Absenteeism
Absenteeism = the habitutal non prescence of an employee at work
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
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
Ways to reduce absenteeism
- Flexible workforce
- Interesting and challenging jobs
- Improving working conditions
- Improving work relationships
- Attendance bonuses
Formula for absenteeism
Absenteeism = Number of staff absent in time period / No of staff employed x time period X 100
Labour retention
Labour retention is a measure of a businesses ability to keep employees
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
Formula labour retention
Labour retention = number of staff employed at start- number of leavers/ number of staff employed at start X 100
Stratergies to improve HRA
Financial rewards
Employee share bonus
Consultation stratergies
Empowerment stratergies
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
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
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
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
