Unit 7 - Analysing the strategic position

Question 1

Current ratio cal?

Answer 1

Current asset / Current liabilities..

(written in ratio).

Question 2

Gearing ratio cal?

Answer 2

Non-current liabilities / Capital employed x 100.

capital employed = total equity + non-current liabilities.

Question 3

Profit margin cal?

Answer 3

Profit (gross, operating or net) / revenue x 100.

Question 4

RoCE ratio cal?

Answer 4

Operating profit / capital employed x 100

Capital employed = total equity + non-current liability.

Question 5

Non-financial methods for motivation?

Answer 5

Herzberg:

• motivators = recognition, responsibility, meaningful work, involvement, e.g.
• hygiene factors ( only when such factors are properly met can motivators begin to operate positively) = salary, e.g.

Maslow (will tasks allow them to achieve….):

• Basic needs (security, physiological)
• Higher level needs (socially accepted, respected, fulfillment of one’s potential)

Leadership style:

• Democratic

Question 6

Financial methods for motivation?

Answer 6

Taylor (money sole motivator):

• piece-rate pay
• Commission

Question 7

Analyse why a business might choose to use labour intensive processes rather than capital intensive.

Answer 7

1. Cost Considerations: In some cases, labor-intensive processes can be more cost-effective, especially in industries where labor is relatively inexpensive compared to the cost of capital equipment.
2. Flexibility and Adaptability: Labor-intensive processes can be more adaptable to changes in demand or product variations. If a business anticipates frequent shifts in market demand or product specifications, relying on labor allows for quicker adjustments compared to inflexible, capital-intensive machinery.
3. Market Niche and Quality: Labor-intensive processes can be associated with a higher level of craftsmanship and attention to detail. This can be a competitive advantage for businesses seeking to position themselves as premium or luxury brands.

Question 8

Inventory (stock) turnover ratio cal?

Answer 8

Cost of sales / inventory = number of times per year (the stock is replenished).

Question 9

Breakeven formula

Answer 9

Fixed costs / contribution per unit *

*selling price - variable cost per unit

Question 10

What does ARR (average rate of return) calculate?

Answer 10

ARR calculates the average annual profit as a % of the initial investment.

Question 11

How do you calculate ARR?

Answer 11

Step 1: Calculate the overall profit generated from the investment

Step 2: Divide by the number of years of the project to obtain the average annual profit/return

Step 3: Calculate what % this is of the initial investment

ARR (%) = Average annual return X 100
/Initial cost of project (£)

Question 12

What does Payback calculate?

Answer 12

Payback calculates the number of years &
months it takes to recover the cost of an
investment from its earnings.

Question 13

How do you calculate payback?

Answer 13

Months of payback = Balance (before year of expected payback) x12
/ Income generated next year ( in expected payback year.

Question 14

What does NPV (next present value) calculate?

Answer 14

The current value of a future stream of payments from a company, project, or investment.

Question 15

How do you workout NPV?

Answer 15

Calculation:

Step 1: Take each Net cash flow Return X the given discount factor

Step 2: Add up all the new Net present values

Step 3: Take away initial cost
= Investment NPV

Question 16

Eval: Payback?

Answer 16

+ Good for businesses focusing on Liquidity.

• Only focuses on payback, not further returns.