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Business > Theme three > Flashcards

Theme three Flashcards

1
Q

What is a mission statement?

A

A short passage of text that sums up an organisation’s mission. This may get displayed on walls throughout the business and placed prominently on its website.

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2
Q

What is a corporate strategy?

A

Provides a medium to long term plan for meeting company objectives.

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3
Q

What are the two ways that Porter’s strategic matrix is segmented?

A

Mass versus niche market.
Lowest cost versus highest differentiation strategies.

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4
Q

What are the four sectors of Ansoff’s matrix?

A

Market penetration - existing market and product.
Market development - new market, existing product.
Product development - existing market, new product.
Diversification - new product and new market.

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5
Q

What does repositioning mean?

A

Changing a product or its promotion to appeal to a different market segment.

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6
Q

What does diversification mean?

A

When a company expands its activities outside its normal range. This may be done to reduce risk or to expand possible markets.

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7
Q

What is a SWOT analysis?

A

Investigates current strengths and weaknesses and uses them to help foresee opportunities and threats.

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8
Q

What are internal considerations for strengths and weaknesses?

A

Like-for-like sales which compare sales revenue this year and last.
Market share.
Capacity utilisation.

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9
Q

What are external considerations for opportunities and threats?

A

Demography.
New laws and regulations.
Technological factors.
Commodity prices.
Economic factors.

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10
Q

What does lobbying mean?

A

Where electors talk to their local MP

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11
Q

What does PESTLE stand for?

A

Political
Economic
Social
Technological
Legal
Environmental

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12
Q

What are Porter’s five forces?

A

Rivalry among existing competitors.
Threat of new entrants.
Bargaining power of suppliers.
Threat of substitute products or services.
Bargaining power of buyers.

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13
Q

What problems may arise from growth?

A

Poor international communication.
Poor employee motivation.
Poor managerial co-ordination.
Overtrading - cash flow problems from quick growth

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14
Q

What is diseconomies of scale?

A

Factors that cause average costs to rise as the scale of output rises.

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15
Q

What is market dominance?

A

When a business sells a product that received a very high market share. Enabled them to raise prices without losing too many customers.

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16
Q

What are the reasons for mergers and takeovers?

A

Growth - fast growth.
Cost synergies - economies of scale.
Diversification - reduces risk.
Market power.

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17
Q

What is vertical integration?

A

When a business takes over or merges with another at a different stage in the production process, but within the same industry.

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18
Q

What are the advantages of backward vertical integration?

A
  • Closer links with suppliers aid new product development and give more control over quality and timing of supplies.
  • Having a secure customer for the suppliers may increase job security.
  • Better co-ordination between company and supplier may lead to more innovative new product ideas.
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19
Q

What are the disadvantages of backward vertical integration?

A
  • Costs might rise causing delivery and quality to slack.
  • Job losses may result from attempts to cut out duplication of support roles such as in personal and accounting.
  • Supplier complacency may lead to rising costs, passed on to customers as higher prices.
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20
Q

What are the advantages of forward integration?

A
  • Firm put in direct contact with end users/consumers.
  • Increased control over the market may increase job security.
  • With luxury products, customers like to see perfect displays and be served by expert staff.
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21
Q

What are the disadvantages of forward integration?

A
  • Consumers may resent the dominance of one firm’s products in retail outlets, causing sales to decline.
  • Staff in retail outlets may find themselves deskilled. Owner may dictate exactly what products to stock and how to display them, which would be demotivating.
  • Increased power within the market could lead to price rises.
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22
Q

What is horizontal integration?

A

When one firm buys out another in the same industry at the same stage of the supply stage chain.

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23
Q

What is conglomerate integration?

A

When one firm buys out another with no clear connection to its own line of business.

24
Q

What are the reasons for a business for staying small?

A

Product differentiation and USPs.
Flexibility in responding to customer needs.
Customer service.
E-commerce.

25
Q

What is investment appraisal?

A

Involves using forecast cash flows to estimate the value of an investment decision based on quantitative criteria, then backing up the calculations with an assessment of non-financial factors.

26
Q

What is the payback period?

A

How long it takes to get your money back for an investment.

27
Q

How do you calculate the payback period if cash flows are consistent?

A

Sum invested divided by net cash per time period.

28
Q

How do you calculate the pay back period if cash flows are no constant over time?

A

Outlay outstanding divided by monthly cash in year of payback.

29
Q

What are the advantages of using payback?

A
  • Easy to calculate and understand.
  • May be more accurate as it ignores long term forecasts.
  • Takes into account the timing of cash flows.
  • Important for a business with weak cash flow, may only be able to invest if it has a quick payback.
30
Q

What are the disadvantages of payback?

A
  • Provides no insight of profitability.
  • Ignores what happens after the payback period.
  • May encourage a short-termist attitude.
  • Is not very useful on its own (because if ignores profit), therefore is used together with ARR or net present value.
31
Q

What are the steps of calculating Average Rate of Return (ARR)?

A
  • Calculate the total profit over the lifetime of the investment, total net cash flows minus the investment outlay.
  • Divide the number of years of the investment project, to give the average annual profit.
  • Apply to formula:
    Average annual profit / initial outlay times by 100.
32
Q

What are the advantages of using average rate of return?

A
  • Uses all the cash flows over the project’s life.
  • Focuses on profitability.
  • Easy to compare percentage returns on different investments, to help make decisions.
33
Q

What are the disadvantages of average rate of return?

A
  • Because later years are included, the results will not prove as accurate as payback.
  • Ignores the timing of the cash flows.
  • Ignores the time value (opportunity cost) of the money invested.
34
Q

What are the advantages of Net Present Value?

A
  • Takes the opportunity cost of money into account.
  • A single measure that takes the amount and timing of cash flows into account.
  • Can consider different scenarios.
35
Q

What are the disadvantages of Net Present Value?

A
  • Complex to calculate and communicate.
  • The meaning of the result is often misunderstood.
  • Only comparable between projects if the initial investment is the same.
36
Q

What are decision trees?

A

Diagrams that set out all the options available when making a decision, plus an estimate of their likelihood of occurring.

37
Q

What are the advantages of using a decision tree?

A
  • Logical approach using quantitative data.
  • Justifiable to stakeholder buy in.
  • Includes cost of each course of action
38
Q

What are the disadvantages of using a decision tree?

A
  • Doesn’t account for any qualitative data, impact on stakeholders.
  • Only as good as the predictions
39
Q

What is a critical path analysis?

A

A network diagram that sets out which activities within a project can be done simultaneously and which must be done consecutively. Helps to identify the critical path - the activities that require the most careful management scrutiny.

40
Q

What is float time and how do you calculate it?

A

Any spare time that arises between the completion of an activity and the starting time for the next.
LFT - duration - EST

40
Q

What are the advantages of CPA?

A
  • Find critical path, focus on it and use float for support, this will increase efficiency and decrease waste.
  • Introduce JIT which will help cash flow.
  • Suits delegation.
41
Q

What are the disadvantages of CPA?

A
  • Time/costs of creation.
  • Estimates could be wrong.
  • Obsession on CPA could be costly.
42
Q

What are corporate influences?

A

Internal factors affecting business decisions including short versus long term horizons and scientific versus intuitive approaches to decision making.

43
Q

What is corporate culture?

A

Sums up the spirit, the attitudes, the behaviours and the ethos of an organisation. It is embodied in the people who work there via traditions that have built up over time.

44
Q

What is a person culture?

A

An organisation such as a legal practice, where common training practices mean everyone is trusted to get on with their jobs with minimal supervision.

45
Q

What is a power culture?

A

Every decision goes through the boss. Power kept at the top.

46
Q

What is a role culture?

A

Where the job role is treated as of more importance than the individual; this will be a bureaucratic, risk avoiding culture.

47
Q

What is a task culture?

A

Making the task or project the focus, with staff brought in to form a temporary team empowered to get the task completed successfully.

48
Q

What are business ethics?

A

Ethics are the moral principles that should underpin decision-making. A decision made on ethical grounds might reject the most profitable solution in favour of one of greater benefit to society as well as the firm.

49
Q

What is whistleblowing?

A

When an employee decides they can’t accept a moral dilemma, and exposes the unacceptable practice - perhaps first to senior management and then - if nothing is done - to the media.

50
Q

What are non-current assets?

A

Long term assets such as:
- Land and buildings.
- Plant/machinery/equipment.
- Vehicles.

51
Q

What are current assets?

A

Short-term assets such as:
- Inventories
- Receivables

52
Q

What is the formula for current ratio?

A

Current assets divided by current liabilities

53
Q

Formula for acid test ratio?

A

Current assets (excluding stock) divided by current liabilities.

54
Q

What is the gearing formula?

A

Non current liabilities divided by capital employed multiplies by 100.

Business (5 decks)

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