Unit 7 Flashcards
Analysing the strategic position of a business
Mission
-the mission of a business is its core purpose and focus
-it’s reason for existence
-normally set out in a written mission statement
Corporate objectives
The goals set for the business as a whole that will lead to the achievement of the mission
Short termism
An excessive focus on short-term results (profit) at the expense of long term interests
Pressures for short termism
-pressure from investors for short term outcomes
-the fact that directors’ positions are dependent on shareholders
-the frequency of financial reporting and scrutiny of the media
Strategy
A plan of action to achieve a long term goal. It relates to what needs to be achieved.
Tactics
Relate to the short term actions necessary to achieve the plan or strategy
Functional decision making
The decision making within functional areas of business: marketing, finance, operations and Human Resources.
Examples of strengths from SWOT analysis
-specialist marketing expertise
-a new, innovative product or service
-the location of the business
-quality processes and procedures
-any other aspect of the business that adds value to the product or service
Examples of weaknesses in SWOT analysis
-a lack of marketing expertise
-undifferentiated products or services (i.e in relation to competitors)
-the location of the business
-poor quality goods or services
-a damaged reputation
Opportunities from SWOT analysis
-a developing market such as the internet
-mergers joint ventures or strategic alliances
-moving into new market segments that offer improved profits
-a new international market
-a market vacated by an ineffective competitor
Threats from SWOT analysis
-a new competitor in the home market
-price wars with competitors
-a competitor that has a new innovative product or service
-competitors that have superior access to channels of distribution
-taxation is introduced on the product or service
What is the value of SWOT analysis?
-helps a firm to identify its core competencies, enabling it to build on its strengths
-it helps a firm to focus on the future, given its past and present condition
-it may identify opportunities that a firm can focus on to achieve maximum gains
-it is a source of strategic planning as well as marketing
-it helps the firm to redefine and set its overall objectives
Balance sheet
A report that summarises all of an organisation’s assets, liabilities and equity at a given point in time
What are assets?
Anything that a business owns, benefits from or has the use of generating income
What are tangible assets?
Physical assets such as land, buildings and machinery.
What are intangible assets?
Non-physical assets such as patents, copyrights and goodwill.
What are non-current assets?
Assets that remain at the business longer than a year. Examples include land, buildings, vehicles, machinery and equipment.
What are current assets?
Assets owned for less than a year and include inventories, receivables and cash.
What are liabilities?
What a business owes; the legal debts or obligations that arise during the course of business operations.
Current liabilities
Debts of a business that will be repaid within 1 year and include payables, overdrafts and any corporation tax or dividends due for payment.
Non current liabilities
Debts of a business that will be repaid in more than 1 year and include bank loans, mortgages and debentures
Shareholders’ equity
The money attributable to the business owners, including money invested by shareholders together with any reserves and retained earnings.
Working capital
The cash available to a day to day business for its day to day operations; it provides a measure of the business’s short term financial health, and is calculated as current assets less current liabilities
Net assets of a business
The overall worth of a business to its shareholders and is the difference between non-current assets and working capital less non current liabilities
Capital employed
The value of total equity plus non current liabilities and is the total amount of money invested into the business
Assets employed
The value of non-current assets plies current assets. Essentially the assets employed represent what the money invested into the business has been spent on and therefore its value is equal to capital employed
Income statement
A financial statement that measures an organisation’s financial performance over a specific accounting period.
Profit quality
The degree to which profit is likely to continue in the future- sustainability of profit
Return on capital employed formula
Return on capital employed (ROCE) = net operating profit / capital employed x 100
Liquidity
A measure of the extent to which an organisation can meet its immediate short term financial obligations
Current ratio formula
Current ratio = current assets / current liabilities
What is current ratio?
It demonstrates a business’s ability to pay its short term debts in the from its short term assets. A result of 2:1 indicates that the business can pay its debt twice over. 1.5:1 is recommended as 2:1 could indicate inefficient management of resources.
Gearing ratio formula
Gearing ratio = non-current liabilities / total equity + non current liabilities x 100
What is the gearing ratio?
Gearing investigates whether or not a business is at risk from increases in interest rates and falling profit. A figure above 50% is considered high gearing and could cause problems with servicing debt should profit fall or interest rates rise.
What are payable days?
The average number of days a business takes to pay its bills.
Payables days formula
Payables days = payables / cost of sales x 365
What are receivables days?
The number of days it takes to convert receivables into cash.
Receivables days formula
Receivables days = receivables / revenue x 365
What is inventory turnover?
The number of times per period a business sells and replaces its entire stock of inventories.
Inventory turnover formula
Inventory turnover = cost of goods sold / average inventories
What is window dressing?
Actions taken by organisations to improve the appearance of their financial statements.
What are core competencies?
The combination of pooled knowledge and technical capacities that allow a business to be competitive in the market place.
What should a core competency do?
-be difficult for competitors to replicate
-provide opportunities for a business to expand into new markets
-provide significant benefits to customers
Criticisms of core competencies?
-there may be problems associated with outsourcing. In order to focus on core competencies, a business may lose some control of other areas which may affect its overall performance.
-things may change over time and a business must be prepared to move with the times
What does Elkington’s Triple Bottom Line include?
-the economic value of the business in relation to the benefit to the surrounding community and society (profit)
-fair practices in labour employment and the community in which it operates (people)
-the use of sustainable environmental practices and the reduction of environmental impacts (planet)
What is a cartel?
Where businesses or countries act together as a single producer in order to influence the prices, production and marketing of certain goods or services.
What is the Competition Markets Authority (CMA)
A non ministerial government department responsible for strengthening business competition and preventing and reducing anti competitive activities.
Legislation to prevent discrimination
-the Equality Act 2010
-the Minimum Wage Act
-the Employment Rights Act
-the Health and Safety at Work Act
-the Working Time regulations 1998
Purpose of environmental legislation
Minimise the negative impact of business on the environment. The legislation in this area falls into two main categories: pollution and climate change.
