Unit 7 Flashcards
Analysing the strategic position of a business
What is a strategy?
A set of long term competitive actions that a company uses to achieve it’s objectives
What is a tactic?
Short-term actions that support a strategy
What is short-termism?
The business focuses on quick results (usually profit) at the expense of long-term success. eg. a business may make 100 employees redundant to minimise costs and increase profits in the short term, but in the long term the company’s output/productivity may decrease leading to lower sales etc.
What is SWOT analysis?
A business decision-making tool that helps a company investigate its strengths, weaknesses, opportunities, and threats.
What is a balance sheet and what does it contain?
It’s a statement of financial position and it lists assets and liabilities.
What is an income statement?
A profit and loss account, states the company’s income and expenditure.
What is a non-current asset?
Things that will stay with your company for more than a year, such as property or a company car.
What is a current asset?
Something that will change value within a year e.g. stock, debtors. (need to be used up in one year)
What are current liabilities?
Short-term debts (under a year)
What are non-current liabilities?
Long-term debts (over a year)
What is the formula for net assets?
Total assets - Total liabilities
What is total equity?
Amount invested into the business
ROCE formula
Operating profit / Capital employed (TE+NCL) x 100
What is ROCE?
A profitability measure ratio.
- The higher the ROCE figure the better
- Demonstrates how hard the business has made the money that was invested into the company work
Current ratio formula
Current assets / current liabilities (both found on a balance sheet)
What does the current ratio formula tell us?
- Known as the working capital ratio
- The ideal ratio is around 1.5:1 and 2:1
- Below 1.5:1 and the business may not have enough working capital to cover all their bills, this could be over-borrowing or trading.
- Above 2:1 and the money is tied up, not being used efficiently.
What are benefits of using ratios?
- Useful analytical tools
- widely used and understood
- Identify issues - but don’t solve problems
- part of a range of indicators of business performance
Gearing ratio
Non-current liabilities / capital employed x 100
(expressed as a percentage)
What does the gearing ratio look at?
- Looks at the long-term finance of the business and where it comes from
- A result of over 50% means they are highly geared, most of the money comes from loans, which is risky for a potential investor
- A result of below 50% means they are low geared and most of the money comes from the owners/shareholders, a better risk for an investment
Payable days formula
Payables/cost of sales x 365 (how quickly a business pays their debts)
Receivable days formula
receivables / revenue x 365
Inventory turnover formula
Cost of sales / average inventories held (shows how many days its taken to sell its inventory)
What is a core competency?
Any area of expertise in a business which can contribute to added value for the customer and is also hard to imitate eg Coca Cola’s global distribution, Amazon’s supply chain efficiency
What is benchmarking?
When one business compares itself against a similar business in the same industry
What is Prahalad & Hamel’s theory?
The suggested businesses should:
- Focus on core competencies
- Outsource non-core activities
What are some criticisms of core competencies?
- Over-zealous outsourcing has damaged business competitiveness
- Difficult to identify genuinely unique core competencies
- Possible for a business to become complacent about its core competence eg Blockbuster.
What are KPI’s?
Key Performance Indicators
Examples of KPI’s?
- Labour productivity levels
-Sales growth - Customer satisfaction
- Monthly traffic on the business website
What is Elkington’s Triple Bottom Line?
- A way of assessing business performance based on three important areas: Profit, People, Planet
What is the traditional ‘Bottom Line’?
- Businesses assume to be profit maximisers
- Traditional measure of success
- Closely linked to business value (share price)
Benefits of Elkington’s Triple Bottom Line?
- Encourages businesses to think beyond narrow measures of performance
- Encourages CSR reporting
- Supports measurement of environmental impact and extent of sustainability
Drawbacks of Elkington’s Triple Bottom Line?
- Not very useful as an overall measure of business performance
- Hard to reliably and consistently measure People and Planet bottom lines.
- Not a legal requirement to reportt it
How does the UK Gov support /encourage enterprises?
- They offer NEA (New Enterprise Allowance) to encourage more people to become self employed as a way of getting back to work
What are the role of regulators?
- There to supervise laws and make sure that UK businesses adhere to them
What is government policy on infrastructure?
- The government has a new infrastructure and projects authority (IPA)
what are the centres of expertise for infrastructure and major projects - they support the successful delivery of all types of infrastructure
What is government policy on the environment?
The government has a Department for Environment, Food and Rural Affairs (DEFRA)
They are the UK government
department responsible for
safeguarding our natural environment,
supporting our world-leading food and
farming industry, and sustaining a
thriving rural economy
What is government policy on international trade?
Free and fair trade is fundamental to the prosperity of the UK and the world economy
Leads to higher wages and ensures more people can access a wide choice of goods and services at a lower cost
What are all the labour market laws?
- Employment Rights Act
- National Living Wage
- Working Time Regulations 1998
- Pensions Act 2008
- Equality Act 2010
- Environmental legislation
- Competition policy
What is an economy?
The state of a country in terms of the production and consumption of goods and services and the supply of money
What is meant by GDP?
Gross Domestic Product
- The sum of the value of goods and services produced in the economy
What is taxation and what does it do?
The Uk gov requires its citizens and businesses to pay a variety of taxes
- These taxes are used to pay for education in state schools, armed forces, NHS, etc.
What is the HMRC?
His Majesty’s Revenue and Customs.
- Department in the UK that Is responsible for collecting tax from businesses in the UK
eg. corporation tax, capital gains tax, VAT
What is fiscal policy?
Relates to government taxation and government spending (revenue collection and spending decisions)
-It includes things like adjusting tax rates and government spending to help boost economic growth or control inflation. In simple terms, it’s the government’s way of managing the economy by using money.
What is monetary policy?
Action that a central bank or government can take to influence how much money is in the economy and how much it costs to borrow
What is CPI?
Consumer Price Index
- measures the average change over time in the prices paid by consumers for a basket of goods and services, like food, clothing, and housing. CPI is often used to assess inflation, showing how much prices have increased or decreased, which helps to understand the cost of living.
What is Excise duty?
Excise duty has to be paid by customers on products which are considered to have a negative impact on society (sin tax), e.g. fuel, tobacco, beer, wine and spirits.
What is appreciation and depreciation?
Appreciation means there is a rise in the pound against other currencies, this means the pound can buy more foreign currency.
Depreciation is when the pound falls against other currencies
- Imports will be more expensive as the pound buys less foreign currency.
What does GDP stand for and what does it mean?
Gross Domestic Product - The measure of a nation’s overall economic activity and represents the value of all finished goods and services produced within a country.
What is infrastructure?
The basic physical systems of a country that allow the economy to run smoothly, such as transportation, communication and utilities. For example, roads, bridges, airports, water supply.
What is Carroll’s CSR pyramid? (Bottom to top)
- Economic responsibility (breaking-even, satisfying shareholders)
- Legal responsibility (Obeying the law)
- Ethical responsibility(considering communities)
- Philanthropic responsibility (helping people)
What is greenwashing?
A business making false or misleading claims about their environmental practices.
What is bluewashing?
A business makes misleading claims about its social responsibilities.
Eg their labour practices
ARR formula?
Average Annual Return / Initial investment x 100
NPV formula?
Cash flow x discount factor
What is a discount factor?
It adjusts the value of future money to account for the time value of money.
