3.5 assessing competitiveness

• cost of sales


  costs directly linked to the production of the goods and services sold
• statement of comprehensive income

  shows income and expenditure of a business over a period of time, and calculates the profits
• statement of financial position


  contains financial information about the liquidity of the business
• non-current assets


  owned by a business for more than 12 months (machinery, buildings)
• current assets


  converted into cash within 12 months (cash, trade receivables, inventory)
• current liabilities


  money a business owes that has to be paid back within 12 months (bank overdraft, trade payables)
• non-current liabilities


  money that the business owes that doesn't need to be paid back within 12 months (mortgages, bank loans)
• net assets calculation


  total assets - total liabilities
• stakeholder interest in a profit and loss account

  - employees = job security

  - managers = financial incentives

  - owners = strategic decisions

  - customers = reliability

  - shareholders = dividends
• stakeholder interest in balance sheets

  - employees = liquidity, ability to pay wages

  - managers = annual performance

  - owners = net worth

  - suppliers = credit terms

  - shareholders = equity to debt
• ratio analysis


  involves extracting information from financial accounts to asses business performance
• gearing


  measures what proportion of s business' capital is funded through long term loans
• gearing calculation


  (non-current liabilities ÷ capital employed) x 100
• capital employed


  all the money invested in a business from share capital, reserved or long term loans
• capital employed calculation


  total assets - current liabilities
• return on capital employed


  a measure of how efficiently a business is using capital employed to generate profits
• return on capital employed calculation

  (operating profit ÷ capital employed) x 100
• return on investment


  financial benefits or profits made from an investment
• strengths of financial ratios

  - provides a tool got the interpretation of accounts

  - structure from which comparisons can be made

  - aids decision making (internal and externally)
• limitations of financial ratios


  - possibility that accounts are better than they actually are

  - need to consider reasons behind ratios

  - quantitative information only

  - only getting the ratio for the day the balance sheet was created
• human resource data


  quantifiable information that can be used to measure workforce performance
• labour productivity


  a measure of workforce performance that looks at output per worker
• labour productivity calculation


  total output ÷ number of workers
• labour turnover


  measures the proportion of employees laving a business during a specific period of time
• labour turnover calculation


  (number of staff leaving ÷ average number of staff ) x 100
• labour retention


  a measure of a firm's ability to keep it's workforce within the business, normally for more than one year
• labour retention calculation


  (number of employees serving for more than 1 year ÷ average number of staff) x 100
• threats of low staff retention

  - high recruitment, selection and training costs

  - risk of loss of important information

  - loss of talent
• absenteeism


  the number of staff who miss work as proportion of the total number of staff
• absenteeism calculation


  (number of staff absent per time period ÷ total days worked by staff per time period) x 100
• employee share ownership


  giving employees shares or the option to buy shares in the company, so they can directly benefit from the success of the business
• consultations


  seeking thoughts ad opinions of employees prior to making decisions
• empowerment


  delegating greater responsibility to employees and allowing them to use their abilities to have a say in the decision making process