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Business > Topics 60-66 (Analysis and Change) > Flashcards

Topics 60-66 (Analysis and Change) Flashcards

1
Q

What does a statement of financial position show? And what its alternative name?

A

A statement of financial position (Balance sheet) shows the assets, liabilities and equity at a specific point in time.

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2
Q

What does a statement of comprehensive income show? And what its alternative name?

A

A statement of comprehensive income (Profit and Loss account) shows the financial figures regarding profit for a particular year.

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3
Q

List the contents of the statement of comprehensive income (profit and loss account) (8)

A
  • Revenue
  • Cost of Sales
  • Gross Profit
  • Selling Expenses
  • Administritative Expenses
  • Operating Profit
  • Finance Costs
  • Net Profit Before and After Tax
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4
Q

Why may shareholders be interested in the statement of comprehensive income (profit and loss account)

A

They will be interested in the profit made by a business so that they can assess its growth.

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5
Q

Why may managers and directors be interested in the statement of comprehensive income (profit and loss account)

A

They are likely to use it in order to monitor growth, potentially setting goals and targets to be achieved.

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6
Q

Why may suppliers be interested in the statement of comprehensive income (profit and loss account)

A

To measure creditworthiness in order to assess whether they are a profitable debtor.

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7
Q

Why may the government be interested in the statement of comprehensive income (profit and loss account)

A

To assess how much tax a business must pay to the government.

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8
Q

Things included in the statement of financial position (balance sheet) (4)

A

Current and non-current assets
Current and non-current liabilities
Net Assets
Equity

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9
Q

Why may shareholders be interested in the statement of financial position (balance sheet)

A

To analyse the asset structure of the business. It shows how funds raised have been put to use. It can also measure the solvency of the business.

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10
Q

Why may managers and directors be interested in the statement of financial position (balance sheet)

A

To be aware of the firm’s financial position. It monitors working capital to ensure no overspending.

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11
Q

Why may suppliers and creditors be interested in the statement of financial position (balance sheet)

A

To measure the solvency of a business, as they are not likely to offer credit to a business which has very limited amounts of working capital.

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12
Q

Benefits to businesses of using ratios

A

Allows them to see their returns on investments
Allows them to assess competitiveness
Aids decison making - reduces future risk

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13
Q

Limitations of using ratio analysis

A

Quickly changing
Varies between industries
Only a snapshot of time
Can be ‘window dressed’

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14
Q

Meaning of the gearing ratio

A

they show the long-term financial position by comparing debt to equity. They are useful for understanding how much of the business is financed by loans vs. shareholders.

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15
Q

Gearing Ratio formula

A

Gearing Ratio = Non current liabilities / Capital employed x 100

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16
Q

What gearing ratio suggests a business is over-reliant on loans?

A

50% and above

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17
Q

What does return on capital employed (ROCE) ratio show

A

ROCE measures the efficiency of capital use by comparing profit to the capital invested.

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18
Q

Return on capital employed (ROCE) formula

A

ROCE = Operating Profit / Capital Employed x 100

19
Q

Labour productivity

A

Labour productivity = Total output (per period of time)
———————————– x 100
average number of employees (per period of time)

20
Q

Why is labour productivity important?

A
  • Cuts costs
  • Helps price competitveness
  • Boosts profit margins
21
Q

What is a drawback of using labour productivity?

A

It is hard for comparisons to be made across industries due to different equipment or processes.

22
Q

Labour turnover formula

A

number of staff leaving per period
————————————————– x 100
Average number of staff in post during the period

23
Q

disadvantages of high labour turnover

A

Can lead to higher recruitment and training costs
Disrupts continuity and morale

24
Q

Labour retention formula

A

number of staff staying
—————————— x 100
Average number of staff in post

25
Q

Benefits of retaining staff

A

Indicates stability and satisfaction

26
Q

Absenteeism formula

A

Number of staff absent on a day
—————————————— x 100
Total number of staff employed

27
Q

Disadvantages of high absenteeism

A

Looses ouput - lower productivity
Raise costs
Demotivate staff
Customers can be lost due to delays

28
Q

Ways to improve productivity and retention and reduce turnover and absenteeism

A
  • Financial rewards
  • Employee shared ownership
  • Consultation strategies
  • Empowerment strategies
29
Q

Two causes of change

A
  • Market shifts
  • Technological shifts
29
Q

Effects of change on organisational size

A
  • Access to economies of scale
  • Improved competitiveness
  • Improved efficiency
  • Growth brings the potential of promotions
29
Q

Nigative effects of change on business performance

A

Poor perfromance can cause a competitive disadvantage.
Fall in productivity
Likely to encounter liquidity problems
Lower worker morale and investor confidence

29
Q

Definition of change management

A

The process of organising and introducing new methods of working in a business. They can be driven by internal or external factors.

29
Q

Effects of changes in ownership, such as mergers ant takeovers

A
  • increased competiteness
  • economies of scale
  • significant costs
  • job uncertainty
29
Q

Effects of changes to leadership

A
  • drives necessary change
  • stabilises and grows revenue
  • poor leadership can reduce investor confidence and worker morale
29
Q

Reasons for resistance to change

A

Fear of the unknown
Fear of being unable to carry out tasks
Fear of being separated from colleagues
Lack of understanding
Lack of involvement
General inertia - satisfaction with current way of working

29
Q

Why may customers / suppliers be resistant to change?

A

They may be unwilling to change their own practices when the business changes.

29
Q

What is the most significant driver of change to organisational culture?

A

Changes in ownership, such as mergers or takeovers

29
Q

Why may owners be resistant to change?

A

A fear of operating in unfamiliar markets and conditions, and the associated costs.

29
Q

Benefits of scenario planning

A

Reduces potential risks
Aids decison making
Understand causes and effects of change
Reduces uncertaincies - allows investment planning

29
Q

What is scenario planning?

A

Scenario planning is a strategic planning method designed to explore uncertainties, work out how to protect the business from the worst consequences and predict future events.

29
Q

Uses of risk assessments

A

Comply with health and safety
Assess risks in the business
Aids scenario planning

29
Q

What is risk assessment?

A

Risk Assessment involves examining what might cause harm to people and identifying the precautions that might be taken to protect them from harm.

30
Q

Examples of risk mitigation

A

Continuinity plans
Sucession plannning
Recovery strategies

Business (11 decks)

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