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Business > Unit 7 > Flashcards

Unit 7 Flashcards

1
Q

Give two benefits of mission statements

A

-sense of cohesion

-Starting point of strategic planning

-helps investors know where £££ is going

-customer understanding

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2
Q

What is short-termism

A

seeking short-term financial rewards = little opportunity for long term growth

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3
Q

What do some businesses seek short term reward

A

typically done to appease / pressured by shareholders

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4
Q

Give 2 long or short term influences on objectives and influences

A

-financial crisis = firm focuses on short-term survival rather than growth or market share

-firm may have long-term obj of improving profitability, but in short -term profitability may be sacrificed to try eliminate a competitor.

-changes in gov policy = org adopts diff short-term priorities

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5
Q

Define strategy

A

the medium to long-term plans to attain objs
(Strategy is about ‘what’ an org is going to do)

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6
Q

Define tactics

A

the means by which a strategy is carried out; a range of diff tactics may be used as part of a single strategy

(tactics is about ‘how’ it’s going to do it)

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7
Q

Give me 2 characteristics of a strategy

A

-established at a senior level (board of directors) but have an impact at functional levels

-often involves major commitment of resources e.g. staff, finances

-corp strategies involve decisions about broad issues such as what precise market the org is in implemented over sevral yrs

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8
Q

Give me 2 characteristics of tactics

A

-tend to be decided by functional heads of departments / junior managers

-decisions less critical & easier to reverse

-fewer resources needed

-enables an org to reach milestones / interim targets

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9
Q

define strategic decision making

A

concerns over the general direction a overall policy of an org. They have signifiant long-term effects a require detailed consideration

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10
Q

TRUE or FALSE tactics can be high risk bc outcomes are unknown and will remain so for some time

A

FALSE - that refers to strategies

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11
Q

What does SWOT stand for

A

strengths, weaknesses, opportunities & threats

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12
Q

What is a SWOT analysis

A

a technique that allows an org to assess its position and it forms part of an orgs strategic planning process

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13
Q

What are the 4 stages of a SWOT analysis

A
  1. internal analysis
  2. external analysis
  3. prepare SWOT
  4. generate strategic plan
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14
Q

Give me 2 advantages of a SWOT analysis

A

-provides structured approach to assessing internal & external influences on org’s performance

-Linking the present position & future potential of an org to the market & the competitive firms helps inform decisions about the strategy.

-encourages outwards-looking approach

-comparing SWOT analysis with that of a major competitor can help Identify true strengths

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15
Q

Give me 2 disadvantages of a SWOT analysis

A

-time consuming; business envronment constanty changing = analysis
may be outdated by time of use

-only as good as the person who made it - could be bias

-oversimplification

-highlight areas of concern but doesn’t provide specific solutions/ strategies to address them

-identifies various factors but doesn’t prioritise them = difficult to determine which issues most critical to address first

-should be used alongside other methods of analysis - not useful on its own e.g. decision trees

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16
Q

Give me 2 people that would want to use company accounts and why they would use them

A

managers:
-to record financial activity & control use of resources
-analyse & evaluate effectiveness of actions /decisions in financial terms

investors:
want to compare financial benefits of their investment w/ alternatives e.g. shares in a diff company or saving in a bank.

Government:
wants to know orgs are fufilling legal requirements & has paid certain level of taxes

Customers:
business customers want to establish whether its advisable for them to draw up long-term supply contracts w/ this company.

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17
Q

Give 2 features of an income statement

A

-based on historical data

-helps managers review progress

-allows sharehoders to assess if investment is beneficial

-enables ppl to see if profit is utilised in sensible way

-legal requirement (companies Act)

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18
Q

What does expenses in an income statement show

A

Expenses shows efficiency of a firm in controlling spending

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19
Q

What does a high gross profit show in an income statement

A

cost of sales kept low / org is achieving a
high value added

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20
Q

What does finance income/costs indicate in an income statement

A

how much the org borrows / lends money & efficiency with which it handles these financial operations

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21
Q

Define profit quality

A

How sustainable a source of profit is in the long-term

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22
Q

Give 2 uses of a balance sheet

A

-helps SH to assess the financial strength of a business

-helps gain understanding of nature of the business

-used to identify a orgs liquidity position

-shows sources of capital

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23
Q

Explain one accounting scandal

A

FTE NetworKs (2021)
company inflated its revenues by as much as 108%
former CEO & CFO misappropriated millions or dollars for personal use

Tesco (2014)
overstated profits by £250 mill which later grew to £326 mill
SFO launched criminai investigation & fined Tesco £129 mill & 3 executive were prosecuted but later acquitted

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24
Q

What are the 4 types of comparisons you can make with company accounts

A

-inter-firm comparisons (with other orgs)
-over time (trend analysis)
-Intra-firm comparisons (within me org)
-to a standard

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25
Q

Give 3 users of ratios and their uses

A

investors - value of dividends, repaying debts, compare value of investments

suppliers - liquid funds (to pay debts), to know payment terms offered to others.

competitors - benchmark

employees - profitability for job security & possible pay rises

customers (B2B) - how long they have to pay.

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26
Q

What type of ratio is ROCE and how do you calculate it

A

Profitability ratio

(operating profit or profit before tax = capital empioyed) X 100

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27
Q

What is ROCE

A

the operating profit as a percentage of capital employed; capital employed equates to the value of the capital the firm has at its disposal

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28
Q

What’s the effect of a low value of ROCE

A

a low value could harm confidence in current management & might result in a falling share value = org vulnerable to takeover

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29
Q

Give two ways to improve ROCE

A

-reduce capital employed e.g. repayment of debt

-raise operating profit e.g. reduce supplier costs

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30
Q

Give 2 reasons for a low ROCE

A

-capital investment

-economic downturn = lower level of sales
revenue

-expensive advertising campaigns

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31
Q

What does liquidity ratios measure

A

A firm’s cash position

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32
Q

How do you calculate the current ratio

A

current assets ÷ current liabilities

(Expressed as x:1)

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33
Q

What’s the issue of having a really high figure for your current ratio

A

the opportunity cost of holding too many current assets is the lost opponunity to purchase NCA e.g machinery (not making efficient use of resources)

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34
Q

Give 2 possible reasons for having a high level of current assets

A

-Too much cash in bank

-firm allows debtors to increase & many of there debtors could fail to pay = bad debt

-inventory levels rise = cost of storage & security & rise of inventory perishing

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35
Q

What does gearing examine

A

the capital structure of a firm & its likely impact on the firm’s ability to stay solvent in the long run.

36
Q

What’s considering a low, average & high gearing

A

Low = 25%
Average = 25-50%
High = 50%

37
Q

Give 2 benefits of high gearing

A

-relatively few shareholders = easier for existing shareholders to keep
control

-can benefit from cheap source of finance when interest rates low

-in times of high profit, interest payment = lower than dividend payments

38
Q

Give 2 benefits of low gearing

A

-most capital is permanent share capital = less risk of payables forcing firm
into liquidation

-avoid paying high interest on borrowed capital when interest rates high

39
Q

The best gearing percentage depends on what

A

The circumstances of the firm

40
Q

The best gearing percentage depends on what

A

The circumstances of the firm

41
Q

What are the 3 financial efficiency ratios

A

Payable days
Receivable days
Inventory turnover

42
Q

What is payable days and how do you calculate it

A

the number of days it takes to pay back any payables owed by an org

payable days = (payabies ÷ cost of sales) x 365

43
Q

What is receivable days and how do you calculate it

A

the number of days it takes to convert recievables into cash (ideally want low value)

recievable days = (receivables ÷ revenue) x 365

44
Q

What is inventory days and how do you calculate it (2 equations)

A

How quickly inventory is converted into actual sales

cost of sales ÷ average inventory

(average inventory ÷ cost of sales) x 365

45
Q

Give 2 factors that influence the rate of inventory turnover

A

-nature of product
-the importance of holding inventory
-length of product life cycle
-the variety of products

46
Q

Give 3 limitations of financial ratios

A

firms have many diff aims/objs so financial performance isn’t only measure of success

ratio value on their own = meaningless - need to be compared

only as good as the data they’re based on (may be unreliable)

some figures e.g. asset valuation, are subjective to some extent

account show what happened, rather than why - only serve to point out problems

different accounting methods may be employed

company performance VERY dependent on external factors e.g. inflation

47
Q

Give 2 limitations of financial performance indicators

A

backward looking - describes what has happened, rather than what’s likely
to happen in the future

limited focus

short - term

internal perspective - success of org depends on is anticipation of external
factors

48
Q

Give a reason why benchmarking is beneficial for businesses

A

enables org to identify key strengths/weaknesses of rivals

data can be compared w/ previous yrs to assess improvement /deterioration in system/running of org

49
Q

Give 2 difficulties in using non-financial methods of performance

A

There’s no standardisation of measure to use

where there is use of standardisation e.g. labour turnover, there’s not always widespread agreement on what considered a desirable level

non-financial = qualitative = subjective opinion of a senior management

non-financial measures often interdependent = achievement of one
measure automatically measures achievement of another

reflect what happened rather than what will happen.

the desire for objectivity may encourage firms to use quantitative measures when qualitative may be more useful, albeit harder to measure

50
Q

Give 2 difficulties in using non-financial methods of performance

A

There’s no standardisation of measure to use

where there is use of standardisation e.g. labour turnover, there’s not always widespread agreement on what considered a desirable level

non-financial = qualitative = subjective opinion of a senior management

non-financial measures often interdependent = achievement of one
measure automatically measures achievement of another

reflect what happened rather than what will happen.

the desire for objectivity may encourage firms to use quantitative measures when qualitative may be more useful, albeit harder to measure

51
Q

Define core competence

A

the unique abilities of a business in the market that enables it to achieve a competitive advantage

52
Q

Name 2 features of core competencies

A

not easy to copy e.g. patented design

provides benefits to end-consumer

provides access to wide range of markets

able to deliver superior product/services

53
Q

Give an advantage of having a core competency

A

provides clear means of acquiring a competitive advantage

helps firm add value to goods & services

54
Q

Give an example of a business with a core competency, what is it and an impact

A

Apple: ability to design

Impacts:
-led to considerable level of brand loyalty
-design skills have been applied across a wide range of products & provided access into new markets
-able to prevent replication through patents & copyright laws

55
Q

Give a criticism of core competencies

A

outsourcing non-core competences = loss of control

core competencies liable to change (holding same one long-term = outdated)

some companies find it difficult to maintain quality of a core competence

56
Q

What is an action of businesses that indicate short-termism

A
  • large scale job losses
  • lack of investment in research
  • focus on shareholder return
57
Q

What is a cause of short-termism

A
  • fear of a takeover
  • financial performance measures
  • Uk managers often come from accounting record
58
Q

What are some long-term concepts businesses can follow (name 2)

A

-research and development
-high quality sources of profit
-customer satisfaction
-sustainability

59
Q

What are some long-term concepts businesses can follow (name 2)

A

-research and development
-high quality sources of profit
-customer satisfaction
-sustainability

60
Q

Explain Elkington’s tripe bottom line

A

a way to measure performance in a balanced way by considering 3 diff factors: financial returns (profit), social responsibility (people) and environmental values (planet)

61
Q

TRUE or FALSE elkington’s TBL doesn’t measure the full cost to society of business activity

A

FALSE - it does

62
Q

What is greenwashing

A

a deceptive business practice where a company makes false or misleading claims about its environmental impact

63
Q

What are the problems with Elkington’s TBL

A

How can a firm put an accurate cost upon everything they do?

orgs have become more data driven = tendency for orgs to focus on profit

64
Q

Give an example of a business that follows Elkington’s TBL

A

Ben and Jerry’s:
Profit:
Source ingredients from fair trade suppliers - farmers & workers paid fair

People:
known for its progressive employee policies - generous benefits a promoting positive work environment

Planet:
support farmers that use environmentally friendly practices

65
Q

Who is legislation and regulations intended to protect

A

Those with weaker bargaining power

66
Q

Law causes a less ordered and uncertain business environment

TRUE OR FALSE

A

FALSE - law ensures a more ordered & predictable environment

67
Q

What are the main aims of government in terms of their principle economic aims

A
  • low a stable inflation
  • low levels of unemployment
  • economic growth (GDP)
68
Q

Give 3 benefits of economic stability

A
  • job creation
    • business confidence
    • high tax revenues
    • higher consumer spending
    • economic growth.
69
Q

What are the UK laws that relate to competition (2)

A

Competition Act 1998

Enterprise Act 2002

70
Q

Competition law prohibits 3 main types of anti-competitive behaviours

A
  • anti-competitive behaviour
  • abuse of dominant market position
  • merger control
71
Q

Who is responsible for enforcing the competition law

A

CMA (competition markets authority)

72
Q

What is the aim of competition

A

encourage greater investment & improve levels of efficiency

73
Q

What is individual and collective labour law

A

individual labour law - the rights & obligations of individual employees

collective labour law - the activities of trade unions & industrial relations

74
Q

Give 2 benefits of promoting equality for employers and 2 benefits of promoting equality for employees

A

Employers:
can recruit top talent if applications open to all
increased creativity
employee turnover reduced (ppI feel comfortable & valued)

Employees:
feel empowered
more motivation = higher levels of productivity
more engaged & value their time with the org

75
Q

Give 2 laws that relate to individual labour law

A
  • equalities act 2010
  • employment act 2010
  • national minimum wage act 1998
  • working time directive 1998
76
Q

What is the aim of the national minimum wage act

A

lift low earners out of poverty & eliminate exploitation

77
Q

What is an impact of the national minimum wage act on employers

A

pressure to maintain wage difference adding to costs

Increased costs = less price competitive

78
Q

What is an impact of the national minimum wage act on employees

A

greater incentive for unemployed to find work

helped raise some of poorest out of poverty

79
Q

What does the health and safety act outline

A

employers legal obligation to provide safe working environment and potential safety hazards and risks that could cause accidents/fatalities

80
Q

Name a regulation outlined in Trade Union & Labour Relations (consolidation) Act 1992

A
  • TU must hold secret ballot before calling a strike
  • employers can apply for work notice requiring a minimum level service during strike action
  • employers required to inform employees of right to join TU & engage in collective bargaining
81
Q

What is green taxation and give and an example

A

taxes to encourage firms to adopt more environmentally friendly approaches e.g. landfill tax, plastic packaging tax

82
Q

What are subsidies

A

sum of money granted by gov to help an industry/org keep costs & prices
low = encourages consumption

83
Q

Give a benefit and a drawback of subsidies

A

benefits:
-increased supply to market at lower cost = lower price
-financial support can promote sustainable practices that conserve water, soil (natural resources)

drawbacks:
-gov has to be strict - subsidies might be allocated to projects that aren’t the most efficient /effective in achieving environmental goals
-orgs may become reliant; hinders innovation & self-sufficiency

84
Q

What are the 2 legislations linking to the environment

A
  • climate change act 2008
  • environment act 2021
85
Q

What is the purpose of the climate change act and the environmental act

A

Climate change act - reduce greenhouse gas emissions

Environmental act - improve air & water quality, tackle waste, increase recycling
etc.

Business (9 decks)

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