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