alevel business 3.7

• What are mission statements and what are the influences on missions?

  A mission statement sets out the purpose of a business existing. The mission statement relates to all stakeholders and typically focuses on the following.

  Influences:

  -Value of the founders

  -Industry the business is in

  -Views of society

  -Size of business and ownerships

  -Culture of business
• What are corporate objectives and what are the internal and external influences affecting corporate objectives?

  The corporate objectives of a business quantify the mission of a business and set specific and measurable targets for the whole population eg innovation, sustainability, growth, shareholder value, social responsibility, profitability, market standing

  External influences:

  -Economic conditions

  -Social changes

  -Tech changes

  Global prices

  -Competitors

  Internal influences:

  -Poor performance

  -New leadership

  -Business ownership, culture and growth.
• What is a strategy and tactics?

  Strategy is a long term plan or approach that a business will take to achieve its objectives. Strategies often involve a major commitment to resources. Clear strategies guide tactical decisions. Tactics are the day to day decisions take by middle managers, they are frequent and involve fewer resources. An example is if a business has a strategy to be a market leader by having the widest range of innovative products on the market. However, a tactical decisions to support this strategy might be to divert an extra £5 million into research and development.
• What is the objectives hierarchy?

  
• What is a SWOT analysis and what are the benefits and limitations?

  A strategic tool that a business can use to analyse its current position and external factors that might affect it.

  Benefits- assists strategic thinking in a structural way, low cost (simple approach) and can be combined with their decision-making models.

  Limitations- subjective (depends on managers opinions), doesn't offer clear solutions and classification may depend on perspective.

  
• Whats an income statement?

  An income statement communicates the revenue generated by a business and then its profits at various levels following expenses and incomes.

  
• Whats the balance sheet?

  A financial document that records the assets and liabilities of a business. A balance sheet gives a snap shot of the value and financial strength of a business.

  
• What are non current assets (fixed assets)?

  Used to operate business. Tangible non current assets are land and machinery. Intangible non current assets are the brands and patents.
• What are current assets?

  Assets that the business expects to use or sell within the year, can be converted into cash to pay off liabilities.
• What are current liabilities?

  Payments that are due within 1 year
• What are non-current liabilities?

  Debts that a business doesn't expect to pay within a year
• What are net current assets?


  the working capital a business has
• Define financial ratios and give examples

  A financial ratio compares 2 pieces of information. Types:

  -Profitability ratio- provides a key measure of success for a business comparing profit to revenue and investment

  -Liquidity ratio- assesses the ability of a business to pay its debts

  -Gearing ratio- assesses the extent to which a business is based on borrowed finance

  -Efficiency ratio- provides an indication of how well an aspect of a business has been managed
• What are profit margins and how do you interpret them?

  It is a performance ratio

  Gross Profit Margin = Gross Profit/Sales Rev x 100

  Op Profit Margin = Op Profit/ Sales Rev x 100

  Profit margins are able to give an indication of the quality of the profit and how well the business is managing different areas of the business eg direct and indirect cost

  So for gross profit margin, it allows a business to understand the way direct costs affects the level of profit and for operating profit margin it allows the business to understand how indirect costs affect the level of profit
• What is ROCE and how do you interpret them?


  Its a performance ratio

  ROCE= Operating Profit/Capital Employed x 100

  Compares operating profit earned with the amount of capital employed by the business. Capital employed is its total equity plus any non-current liabilities.

  Shows how effectively the business was able to make a profit from investments placed in the business. ROCE can be improved by increasing the operating profit or by decreasing the capital employed
• What is current ratio and how do you interpret them?

  It is a liquidity ratio

  Current ratio = Current Assets / Current Liabilities

  Compares current assets with current liabilities in doing so it works out whether or not a business has sufficient working capital to pay its short term debts
• What is the acid test ratio and how do you interpret them?

  Its a liquidity ratio

  Acid Test = (Current Assets -Stock) / Current liabilities

  The acid test ratio adjusts the current ratio to eliminate certain current assets that are not in cash form so you remove inventories from the current assets total since inventories are assumed to be the most illiquid part of current assets as it is harder to turn them into cash quicker.
• Whats asset turnover and how do you interpret it?

  It's a financial efficiency ratio

  Asset Turnover = Annual Sales / Net Assets

  This ratio considers the relationship between revenues and the total assets employed in business assets include machinery inventories etc in order to make profitable sales
• What are debtor days and how do you interpret it?

  It's a financial efficiency ratio

  Debtor Days (av days for debts to be paid)

  Debtor days = Debtors /Sales x 365

  Debtor days calculates the time it takes to collect the debts that it is owed, the shorter the period the easier the firm will find to pay their short term cash needs
• What is stock turn and how do you interpret it?

  It's a financial efficiency ratio

  Stockturn (rate of stock turnover)

  Stockturn = Sales /Av Stock value

  Measures a businesses ability to convert inventories into revenue faster sales are generated the faster the profits are reviewed. The lower the number the more efficient the business is. Perishable goods have much faster turnovers than non-perishable goods.
• What is gearing ratio and how do you interpret it?

  Gearing = Loans / Capital Employed x 100

  Assesses how a business has raised its long term finance it represents the proportion of a firms equity that is borrowed A highly geared business has more than 50% of its business in the form of loans it makes them more vulnerable to interest rate increases
• Who uses financial accounts?

  Managers- to assess performance of business

  Potential investors or lenders- to assess the security and liquidity of the business

  Shareholder- assesses the return they may receive on their investment.

  Government- to calculate tax liability of business
• What is window dressing?

  Where a business manipulates its financial accounts to make them look more favourable to stakeholders eg delaying payments to a later financial period to boost short term profits
• What are the measures of internal performance?

  Marketing- product information (may include future sales forecast, PPA and details on market share), market research data (may include customer opinions eg brand recognitions and satisfaction levels)

  HR- labour turnover and absenteeism (may give an indication of employee happiness and the motivation and effectiveness of recruitment), unit labour costs (calculates labour costs relative to output)

  Operations- quality (can be difficult to measure however factors such as customer repeat purchase, product defects or satisfaction levels), capacity utilisation levels (maximum output relative to existing output)
• What is a core competency?

  Core competencies are the unique abilities that a business possesses that provide it with a competitive advantage. Core competencies are developed over a period of time through the learning and skills developed within a business relating to the production of its goods and services.
• Benefits and drawbacks of core competencies

  BENEFITS

  gives a business uniqueness

  adds value to a businesses product

  
  

  DRAWBACKS

  outsourcing areas of the business can lead to a fragmented workforce

  they take time to develop- not all businesses have them, or they may not have the right ones
• Give some long term measures on performance

  Research and development (R&D)- investment in R&D may give an indication of the likely impact of product development and innovation in the future. However, there is no direct link between R&D spending and the level of innovation within a business.

  Profit quality- firms may choose to focus on sustainable profits not on net profits as it doesn't give a good indication as exceptional items are included.

  Employee engagement- high levels of employee engagement are likely to return rewards in the future and lead to greater levels of productivity and innovation.

  Sustainability- sustainable approach can be conducted in the long run you can measure this through a CSR report.
• Give short term measures of performance?

  Cash position

  Revenue

  Productivity

  Profit
• Explain Kaplan and Nortons balanced scorecard.

  This is a planning and management tool used to match a businesses activities to its vision and strategy. It aims to improve internal and external communications and monitor organisation performance against strategic goals

  
• Explain Elkingtons triple bottom line

  The triple bottom line looks at the impact of a business against 3 key areas.

  
• What are factors that are influenced by the political environment?

  -Regulating markets

  -Enterprise

  -Environmental issues

  -International trade

  National infrastructure
• How are enterprises encouraged?

  -Making finance accessible for small businesses

  -Providing funding for research and development

  -Support on establishing new businesses

  -Guidance on running a business
• How will enterprise benefit from government spending on infrastructure?

  -Speeding up communication

  -Making transportation of goods faster and cheaper

  -Allowing access to new markets

  -Attracting new business to the UK
• What are regulators?


  Regulators aim to support businesses with compliance and conducting business in an appropriate way. They focus on:

  -Promoting free competition between businesses

  -Regulation of specific industries

  -Regulators of privatised monopolies
• What is the international trade and give examples?

  Where governments implements policies to support their exporters as it brings in revenue and employment opportunities. Some initiatives include:

  - UK trade and investment

  - World trade organisation

  - Open to export initiative
• What are the factors influenced by the legal environment?

  -Environment

  -Labour

  -Competition
• What is competition legislation?

  Competition legislation is put together to protect the interests of consumers and businesses. In particular legislation aims to control:

  -Cartel activity- businesses working together to manipulate the market and limit competition.

  -Abuse of market power- such as imposing unfair conditions on small suppliers

  -Anti competitive practices- such as anti competitive merger and acquisitions
• What is the labour market?

  Labour laws aim to prevent exploitation level and at a collective level. They legislate for issues such as pay, working conditions and grievances. Legislations also governs the powers of trade unions and has diminished those powers over the past 30 years. Consequently, trade union membership has fallen considerably eg equality act 2010, trade unions act 1984 etc
• Explain environment legislation?


  Environmental legislation aims to internalise any negative externalities associated with business activity. Therefore, businesses are made to pay for the full cost of production eg costs to clean up or repair damage caused by pollution eg environmental act 1995
• What is the political and legal impact on business decision making?

  Can impose costly changes to adapt products or services to meet legal standards. If a business fails to do this this could limit businesses competitiveness as reputation is damages.