UNIT 7 Flashcards
whats a mission statement
a business’ statement of its purpose, and why it exists
what are 3 questions a mission statement should answer
- what does your company do?
- why does your company do this?
- how does your business do this
name 4 places mission statements come from
- culture of a business
- founders values
- societys views
- industry it operates in
whats a corporate objective
shareholders values, growth etc
quantify the mission to make it measurable
CEO’S SET THIS
4 internal influences on a corporate objective
poor performance
new leadership
business ownership
business growth
name 5 external influences on corporate objective
economy performance
competitors actions
global price
social desires
technological prices
whats the difference between a strategy and a tactic
a strategy is the end goal, however a tactic is the choices a business makes to help achieve their objectives
whats a SWOT analysis
a tool that identifies the strengths, weakness’, threats and opportunities of a business
name 3 advantages of a SWOT analysis
-allows a business to focus on strategy
- improves weakness to inc sales
- can combine SWOT and PESTLE
whats a ratio analysis
tool to assess performance, profitability and liquidity if a business
whats liquidity
converting assets into cash
what does return on capital employed show
how much profit has been made compared to how much money put into the business
how to calculate return on capital employed
profit/ capital employed X100
whats an income statement
profit and losses in last 12 months
whats a balance sheet
shows what the business has spent money on and where money invested has come from
what are current assets
assets owned for less than a year
what are non current assets
owned for over 1 year and depreciates in value
what are current liabilities
debts repaid within 1 year
what are non current liabilities
long term debt, taking more than 1 year to repay
how to calcaulte equity
total assets - total liabilities
how to calculate current ratio
current assets/ current liabilities
whats the ideal current ratio
2:1
what does current ratio and acid test show
can a business pay short term debts back when due
how to calculate acid test
current assets - inventory
current liabilities
ideal acid test
1:1
5 ways to improve liquidity
- use overdraft
- delay payments
- longer credit times
- encourage cash sales
- destocking
whats gearing
shows how much of a business is financed by debt
how to calculate gearing
non current liabilities
total equity + NCL X100
whats considered high gearing
over 50%
3 characteristics of a low geared business
shareholders money
no big risks
can take a fall in profits better
3 characteristics of a high geared business
loans
need to be paid back regardless of performance
they take risks as they could loose assets secured
4 advantages of ratios
-allows comparison from previous years
-locate weakness and spot trends
-assess performance
-decision for stakeholders
6 disadvantages of ratios
- no qualitative data
- historical data
- no full picture
- external factors
- has to be compared
- no account of economic climate
define trade payable days
calculates time taken for a business to pay back creditors
how to calculate trade payable days
payables/ cost of sales X365
advantages ( 1) and disadvantages (3) of delaying payment
working capital ✅
X loss of discounts
X supplier goodwill loss
X withdrawl
define trade receivable days
calculates time taken for a business to collect debts that is OWED
trade receivable days aim
to convert debt into cash asap
ideal trade receivables days
30-45 days
why might a business increase credit terms
to attract and increase sales/ customers.
we can compare to past months or years to look for trends and progress
define inventory turnover
measures a company’s success at converting inventory into revenue
calculate inventory turnover
cost of goods sold/
average inventory
ALL DIVIDED BY 365
name 7 external factors on a business
social
technological
environmental
economic
legal
ethical
political
difference between import and export
import- money flows out of UK and goods come in
export- money flows into UK, goods go out
define exchange rate
the value of one currency expressed in terms of another
give 2 ways exchange rates can affect a business
price of exports in international markets
cost of goods bought from overseas
advantage and disadvantage of a strengthening exchange rate
- lower prices to limit impact
- inc promotion in foreign markets when weak
may switch international suppliers must bulk stock and materials when weak
strength and weakness of a weak exchange rate
increased exports, more revenue
- imcreased costs for imported stocks
acronym to remember exchange rates effect
S P I C E D
strong
pound
imports
cheap
exports
dear
how does the change in strength of £ affect exporters
exporters must lower prices to limit impact
of expense and inc promotion in foreign markets
how does weakening exchange rate affect importers
may switch international suppliers
stockpile stock and materials
name 5 factors affect significance of exchange rates on a business
- how much the business exports
- competition from overseas
- reliance on importing
- PED for business’ products
name 3 things that may cause an increase in exchange rate
speculation- traders may bet they will ride
increase in interest rates
foreign direct investment
define inflation
sustained increase in general level of prices ( a fall in the value of money )
whats the CSI ( consumer price index )
a weighted basket of goods, which measures the monthly change in price of over 700 different goods and services
define disinflation
a period of slower inflation
define deflation
decrease in general level of prices
prices are set by supply and demand explain
lots of supply, little demand - DEC
lots of demand, little supply- INC
causes of inflation ( PUSH AND PULL )
costs PUSH up prices
demand PULLS up prices
cost- push factors
rising cost of raw materials forces producers to charge higher prices to avoid not making any profit
demand pull factors
rising demand of goods and services- sellers inc prices
reduced tax- inc disposable income
fast growth in other countries
3 effects of inflation on a business
inc cost of supplies
cut back on investments
consumers have less disposable income
effect of inflation on consumers
fall in value of their money
( loans dont increase ) ✅
effect of inflation on firms
costs increase, prices increase, creates uncertainty
effect of inflation on government
less export, less economic activity, less GDP
define the fiscal policy
refers to the use of government spending and taxation to influence economy
name 4 taxes for small businesses
- VAT- value of sales, 20%
- INCOME TAX- tax on income
- NIC- tax on earnings
- CORPORATION- tax on profits
define progressive taxation
as income rises, a larger % of income is paid in tax
define proportional tax
the % of income paid in tax is constant, regardless of income
define regressive tax
a smaller % of income is paid in tax as income rises
expansionary fiscal policy
tax decrease
gov spending increase
contractionary fiscal policy
gov spending decrease
tax increase
define interest rates
cost of borrowing money or the reward for saving money
who sets the interest rates
the bank of england
they promote and maintain the monetary and financial stability in the economy
whats the MPC
the monetary policy commitee
an increase in interest rates means…
an inc in loan costs
borrow less
define aggregate demand
the total demand for goods and services within a country
how to bring price down using interest rates
inc incterest rates
people spend less
demand decrease
price decrease
define protectionism
the act of protecting a country’s business from foreign competition, by imposing restrictions on free trade
name 5 protectionism goals
protect domestic business
protect infant industries
raise tax revenue
prevent entry of undesirables
improve balance of payments
3 ways gov protects businesses in their country
tarifs
quotas
subsidy
whats a tarif
a tax that raises price of imported goods
define dumping
exporting at a price lower than cost of production
seen as unfair
inc unemployment in countries
TARIFFS DETER DUMPING
define quotas
a physical limit on imports
define a subsidy
a payment by the government to help domestic businesses become more competitive eg: lower prices
name 2 other forms of protectionism
undervaluing exchange rate
safety standards
3 short term effects of protectionism
protect domestic businesses
increase prices for individuals raise tax revenue
GDP growth
3 long term affects of protectionism
businesses might not be as innovative due to less competition
less choice for consumers
GDP decline as not benefitting from other specialisation
whats a trade bloc
an agreement between a group of countries that promotes trade between member states
3 advantages of trade blocs on a business
increased business due to no tarifs
economies of scale
labour easier to recruit
2 disadvantages of trade blocs on a business
increased competition
pressure to increase efficiency
what are supply side policies
policies that focus on increasing supply of goods and services in an economy with the aim that the economy will grow and become more productive
4 examples of supply side policies
tax cuts: more money to invest
deregulation: reduce costs
education and training: inc skills and productivity
infrastructure investment
define globalisation
companies operating internationally or on a global scale.
define international trade
flow of goods and services between countries
5 reasons why international trade has increased
improvement in transport infrastructure
improvements in communication technology
growing influence of global countries
trade liberalisation ( reducing barriers to trade so countries can free trade )
different policies
impact of globalisation on government and countries
- rising income, rising tax collected
- increased migration
impact of globalisation on consumers
- lower prices
- cheaper production allows firms to lower prices
- increased choice
impact of globalisation on producers
lower costs ( can access products from a range of countries )
increased competition
tax avoidance
impact of globalisation on workers
higher economic growth, rising employment, increased wages
impact of globalisation on environment
resource depletion- greater production of goods requires the use of finite sources
higher CO2 emissions from inc transport
define emerging economy
a market where there is rapid growth, but a lot of risk eg: BRICS and MINTs
emerging economy description
x5
moving away from primary sector
inc productive secondary sectors
rising levels of capital investment
often in collaboration w MNCs
attractive as production location
define MINTS
Mexico, Indonesia, Nigeria, and Turkey, which are considered smaller economies that may succeed the BRICS
define BRICS
BRICS is an acronym for Brazil, Russia, India, and China, which are considered emerging-market economies that have driven strong growth worldwide.
5 impact of a rise in interest rates on economy
- interest rate increase
- cost of borrowing inc
- aggregate demand dec
- prices decrease
- inflation decrease
define a social change
relates to changing demand of society for goods and services- business must keep up with these to remain competitive
name 5 social factors of change
demographic issues
urbanisation- moving from rural to city
migration
changes in lifestyle and buying habits
growth of online businesses
name 5 changes in lifestyle
use of technology
urbanisation
time
single occupancy
health conscious
demographic change affecting businesses
ageing population will provide inc opportunities for businesses targeting older consumers
define technological change
technological change which can create oppourtunity for new goods and services and how businesses produce these goods
4 technological change
opportunities for small businesses
access to global market
fraud through commerce sites
growth of direct delievery
define CSR
the extent to which a business addresses the concerns to its wider stakeholders
whats the CSR PYRAMID
philanthropic- give back to society
ethical- be ethical
legal- obey law
economic- be profitable
‘THE 4 RESPONSIBILITIES’
name 4 other words for ‘CSR’
- corporate citizenship
- sustainable business
- social responsibility
- corporate responsibility
3 strengths of CSR
- easy to understand
- simple message ( more than 1 element )
- emphasises importance of profit
weaknesses of CSR
too simplistic?
dont always do what they claim
strengths of doing CSR on a business
- good publicity
- attract ethically orientated customers
- attract ethically orientated customers
- attract motivated employees
disadvantages of CSR on a business
cost
shareholders may withdraw as they see it as waste of funds
whats the STAKEHOLDER concept
businesses should recognise they depend on society
they rely on inputs from society
social contract
3 arguments for CSR from stakeholder concept
- ethical thing to do
- improves image
- attracts investors
whats the difference between shareholder and stakeholder concept
stakeholder: management take into account views of different stakeholder in decision making
shareholder: management should only aim to meet their responsibilities to shareholders
define the competitive environment
the number and strength of competitors in the same market as a business
what are porters 5 forces
supplier power
threat of subs
threat of new entrants
buyer power
competitive rivalry
competitive rivalry
competition is fierce if
- easy to enter market
- little differentiation
LOWER COSTS
power of suppliers
supplier power is high if
- few suppliers
- supply is essential for production
- not many subs
buyer power
- little difference in products compared to other markets
- product is price sensitive
customers buy in bulk
threat of subs
threat high
- alternative products exist
- price fall
define investment appraisal
refers to techniques used to judge whether an investment is worthwhile
payback calculation
amount remaining/amount next year
ALL TIMES 12
4 strengths of payback
- simple and easy to calculate
- easy to understand results
- emphasises speed of return
- straightforward to compare
4 drawbacks of payback
- ignores cashflow after payback recieved
- no account of time value of money
- may encourage st thinking
- doesn’t create decision
how to lower inflation from interest rates
heighten interest rate
higher borrowing cost
low spending
low demand
lower prices
ARR calculation
annual profit ( total profit/ years)
cost of investment
ALL TIMES 100
define ARR
the average rate of return expected on investment as compared to initial investment cost
strengths of ARR
simple method
easy calculation
drawback of ARR
doesnt show which year return occurs due to average
define net present value
calculates monetary value now of a projects future cash flow
calculation for NPV
cash flow x discount value= PV
strength and weakness of NPV
considers future cash flow
choosing discount can be difficult
name 3 influences in investment appraisal
- management appraisal
eg: want to grow - non financial factors
eg: reputation, skills - risks
eg: natural causes
