Unit 7 - Strategic position of a business Flashcards
Average Rate of Return ARR Formula
annual profit / total years = x
(x / investment) x 100 = ARR
Payback period formula
(Debt left to pay / Years net cash flow) x 12 months = months.
Net Present Value (NPV) formula
Cash flow x discount value = NPV
Strategies and tactical decisions
Strategies are long term responses to achieve corporative objectives.
Tactics are short term responses to achieve corporative objectives.
Net current assets formula
current assets - current liabilities
Net assets formula
Non-current assets + net current assets - non current liabilities
Profitability ratio - Return on Capital Employed
Operating profit / (total equity + non current liabilities (capital employed)) x100
Current ratio
Current assets / current liabilities.
= X : 1
Figure of 1.5-2 shows they can pay off liabilities.
Gearing formulas
Non-current liabilities / (Total equity + non current liabilities) x 100
Or
Debt / Equity X 100
Above 50% is highly geared, below 20% is low.
Receivable days
Receivables / Revenue X 365
Measures how many days taken for recievables to be paid.
Payables days
Payables / Cost of sales X 365
Measures how many days it takes for payables to be paid.
Inventory turnover
Cost of sales / Inventory
Measures how many times stock is ordered each year.
Limitations of ratio analysis
Some ratios may be unreliable eg. asset valuations are subjective or lack of prudence.
Based on the past - doesn’t forecast future data.
Core competencies
Something a business does strategically well, that is difficult for competitors to replicate.
eg. technology like Apple phones.
Gives a firm competitive advantage & added value.
Kaplan & Norton’s model - Balanced Scorecard
The balanced scorecard is the idea that there are 4 different ways of measuring success, rather than just profits.
- Financial perspective eg. profit & ROCE
- Customer perspective eg. loyalty & satisfaction
- Learning and growth eg. knowledge and innovation.
- Internal process eg. levels of efficiency
Elkingtons Triple Bottom Line
TBL is the idea that there are 3 different ways of measuring growth rather than profit maximisation.
- Profit eg. income statements
- Planet eg. emissions and sustainable inputs
- People eg. corporate social responsibility
Benefits and drawbacks of Triple Bottom Line
+CSR
+ Thinking beyond profit objectives
– Hard to measure people and planet
– Green-washing - exaggerating environmental performance eg. BP’s 2010 sustainability report
3 Different types of legislation
Labour market laws:
Gender & Race discrimination - Equal Pay Act
Wage discrimination - 1998 Minimum Wage Act
Competition legislation:
Controlling merging to prevent monopolies
Preventing predatory pricing creating high barriers TE.
Environmental legislation:
Pollution permits
Plastic bag usage
Benefits of technology
Technical economies of scale
Higher quality products - less human error
Competitive advantage
Drawbacks of technology
Job insecurity due to capital intensive approach.
High initial investment & training costs.
Work can be boring and repetitive (automation)
Carrol’s CSR pyramid
A firm has four ‘social responsibilities’…
Philanthropic (being charitable)
Ethical eg. Nestle Indian rural development
Legal
Economic
Porter’s Five Forces - nature of competition
A framework for analysing an industry’s nature of competition. Competition is influenced by…
-Power of Customers
-Power of suppliers
-Threat of market entry
-Threat of Substitutes
