3.7

What are the 4 functional areas?

Marketing

HR

Financial

Operations

What is a mission statement?

Declares the organisations purpose , aims, policy and values

What are corporate objectives?

Sets out what you need to acheive long term goals

What order leads to the mission statement?

Corporate strategies → corporate objectives → mission statement

What are external influences of mission statements?

PESTLE

Society views

What are internal influences for mission statements?

Business ownership

Short-termism

Internal environment e.g: new leader, business culture

What is short-termism?

Where a business prioritises short term rather than long term performance

What does short-termism emphasise?

Share price

Revenue growth

Growth /operating profit

What is strategy?

Medium to long term plan that details now the company intents to achieve its corporate objectives

What is tactic?

Meeting short term targets

Requires fewer recourses to implement

Maybe easy to reverse

What is at the expense of short-termism?

Market share

Quality

Innovation

Brand reputation

Employee skills

Social responsibility

What is swot analysis?

The method of analysing current situation examining strength, weaknesses, opportunities and threats of the business

What are the internal parts of SWOT?

strengths

weaknesses

What are the external parts of SWOT?

opportunities, threats

Why is SWOT analysis used?

It can be used to inform decision making and set corporate objective and strategies

What are the internal influences for finance?

Current financial position

use of budget

cash flow

financial expertise

What are the external influences for finance?

Interest rates

exchange rates

current market price

What are the internal influences for marketing?

level of creativity in staff

data on success of existing campaigns

What are the external influences for marketing?

products launched

market conditions

competition advertising

What are the internal influences for HR?

current staff abilities

abilities of managers

What are the external influences for HR?

current employment rates

unemployment rates

current rates

What are the internal influences for operations?

existing expertise and capacity

quality assurance / control

existing assets and availability

What are the external influences for operations?

customer wants and needs

rival business’

market conditions

market for new innovation

What is the statement of financial position?

A financial statement recording the assets and liabilities of a business on a particular day at the end of an accounting period

What is the income statement?

An accounting statement showing a firm’s sales revenue over a trading period and all the relevant costs generated to earn that revenue. It shows the profit or loss made in that period

What is an annual report?

It explains the companies performance over the previous year which can interest shareholders, banks and potential investors

What is profit quality?

The degree to which the profit is sustainable.

What is profit utilisation?

The way in which the profit is used, it shows if a business is short-termist

What are assets?

Items that are owned by the business or money owed to the business

What is capital?

Money that is being invested by the owner

What is liability?

Money or items that the business owes

What are examples of non current assets?

Last long (more than a year)

Costs a lot of money

Could be sold to increase money owed by the business

What are examples of current assets?

Items used and replaced regularly

Includes debtors

Money in the bank

Inventory or stock

What are examples of current liability?

Amount of money owed to pay within a year

Money the business goes to supplier

Short term loans

What are examples of non-current liability?

Money that is owed for more than a year e.g.: more than a year

Long term bank loans to buy expensive assets e.g. vehicles

What are current assets?

Asset that can be used and replaced regularly

What are non-current assets?

Assets that last longer than a year and cost a lot of money

Why are stakeholders interested in financial data?

Inter-firm comparisons with competitors

Inter-firm comparisons between branches, areas and product ranges

Trend analysis

Decision making

What are strengths of financial data?

Published accounts are valuable

Accounts have to be independently audited

Income statement is historical and should reflect an accurate picture of what has happened

What are weaknesses of financial data?

May make accounts more favourable then they actually are

A balance sheet is only accurate at one point in time

What are 4 main areas of ratio analysis?

Liquidity

Profitability

Financial

Gearing

What is liquidity?

The ability of the firm to pay its way

What is profitability?

How effective the firm is at generating profits given sales and or its capital assets

What is financial?

The rate at which the company sells its inventories and the efficiency with which is uses its assets

What is gearing?

Information on the relationship between the exposure of the business to loans as opposed to share capital

What is current ratio?

Examines whether the business has enough short term assets to pay its short term debts if immediate repayment was required

What are profitability ratios?

It measures how much profit the firm generates from sales or from its capital assets

What is gross profit margin?

Enables firm to assess impact of sales and how much it costs to generate them

What is ideal for gross profit margin?

Higher the better

What is operating profit margin?

Takes into account the fixed costs involved in production

What is ideal for operating profit margin?

Higher the better

What is return on capital employed?

Measured how well management is using its assets to genrate profits

What is ideal for ROCE?

Higher the better

What is ideal for gearing?

Lower the % the better

What is inventory turnover?

The rate at which a company’s inventory is turned over (how much they sell out of their stock)

What is receivable days ratio?

Gives a measure of how long it takes the business to recover debts

What is ideal for receivable days ratio?

shorter the better

What is payables days?

Gives a measure of how long it takes the business to pay its creditors

What is ideal for payables days?

Longer the better (however think about ethics)

What is the benefit of ratios?

It encourages systemic approach to analysing performance

What are drawbacks of ratios?

Mainly deals with numbers

Largely looks in the past not the future

Most will compare performance over a long period of time or comparable competition

Financial info can be massaged to make ratios look better

What data could be used for a business to assess their performance?

Marketing data

HR data

Financial data

Operations data

What can be used in marketing data to assess performance?

market share

market growth

social media

brand layout

customer satisfaction

What can be used in financial data to assess performance?

sales revenue

profit margins - ratios

cash flow position

breakeven

income statement

share price

What can be used in HR data to assess performance?

motivation

labour costs

employee costs as a % of revenue

labour productivity

employee turnover / retention

What can be used in operations data to assess performance?

efficiency

capacity utilisation

unit costs

supplier relationship

labour productivity

wastage

quality

What are core competencies?

the unique ability that a business possesses that provides it with a competitive advantage

What is the Elkington’s triple bottom line?

A way of assessing business performance suggesting that there are three key areas of performance that should be assessed.

What are the three areas of the triple bottom line?

People

profit

Planet

What is profit in the triple bottom line?

Identified from income statements

What is planet from the triple bottom line?

Measures impact of the business on the environment

What is people on the triple bottom line?

Measures the extent to which a business is socially responsible

What are benefits of the triple bottom line?

Encourages businesses to look beyond narrow measure of performance

Encourages CSR reporting

Supports measurements of environmental impact

What are drawbacks of the triple bottom line?

Not useful as overall business performance

Hard to reliably measure (can’t measure people as well)

No legal requirement to report it (costly)

What is the definition of PESTLE?

Political

Economic

Social

Technological

Legal 

Environmental

What is enterprise allowance?

A grant that allows funding for lending

allows banks and building societies to borrow money at a cheaper rate up to 4 year

What is infastructure?

The physical structures that allow an economy to function

What are positive impacts of BREXIT on businesses?

No taxes on goods

Can negotiate with non EU countries

Reduced competition

What are negative impacts of BREXIT on businesses?

Need to comply with regulations in each individual countries

Labour shortages in sectors that rely on EU workers

Lead times increased due to new procedures at ports

What is the effect of employment laws on businesses?

Increases labour costs 

Reduces flexability

Improves motivation and productivity 

What is employment laws?

Set of legal l rules that govern relationships between employees and employers

What is minimum wage/living wage?

Minimum amount someone must be paid

What is the effect of minimun wage on businesses?

Adds labour costs which increases prices

Reduces staff hours

What is the impact of health and safety laws on businesses?

Have to implement procedures which could involve costs for training etc

Better reputation for good safety

Higher employees retention

Accidents could disrupt operations

What are environmental laws?

Laws created to protect the environment

What are the effects of environmental laws on businesses?

Faces fines if they don’t follow the rules

Eco friendly materials are expensive

If they follow the laws it could lead to better brand reputation

What is competition laws?

Designed to create fair competition between businesses - protects consumers

What is the effects of competition laws on businesses?

It stops them from fixing prices, abusing prices and dividing mrkets

What are the negative impacts of legal controls?

Compliance of laws will increase costs

Other countries may not have to comply which gives a cost advantage

Planning laws restrict what businesses can do

May have to change to meet new rules

May have to change production lines which are costly

What are positive impacts of legal controls?

Minimum wage laws could increase incentives for low paid workers

Reduces accidents / absenteeism

Satisfies workers safety needs (Maslow’s theory)

Encourages consumers to spend

Protects environment which helps tourism for overseas firms

What are the 2 broad strategies a business could use to respond to legal controls?

Exceed the minimum legal requirements

Locate abroad in order to avoid strict legal controls

What are the impacts of exceeding minimum legal requirements?

Good publicity

Easier recruitment

Marketing advantages

Less change of fines

What are the impacts of locating abroad to avoid legal controls?

Bad publicity

Viewed as unethical

Possible consumer resistance

What are labour market laws?

Ensure that employees are being treated as fairly as possible in the workplace

What are exchange rates?

The price of foreign currency that one pound can buy

It changes daily due to changes in demand and supply of the currency

What does an increase in pound value mean?

Appreciated (gone up)

What does a decrease in the value of the pound mean?

Depreciated (fallen)

What are the effects of changing exchange rates?

Strong Pound Imports Cheap Exports Dear

It would cost less to import if the pound is strong

What are macroeconomics concerned with?

Level of spending in the economy

Levels of employment/unemployment

Total investment by businesses and government

General level of prices

Level of interest and exchange rates

What is GDP (gross domestic product)?

The value of a country’s total output of goods and services over a period of time