HL Business TEST overall

Improving debtor days

• reduce the length of credit offered to customers

• encourage earlier payment

• Make it easy to pay - links, invoices, portals etc.

—> 1 mark to define + 1 mark in context of case study

Improving creditor days

• negotiating longer payment terms with suppliers

• Find alternative vendor with better conditions

Improvements for better stock turnover results

• get rid of old/obsolete stock

• narrow down product range

• implement just in time management

How to improve liquidity position

• re-negociate payment terms to shorten trade credit period. This will improve the cash flow

• Converting inventory into cash by focusing on high demand goods and reducing excess in low demand stuff. Again reduces costs and increases cash flow.

Issues associated with gearing ratio >50%

indicates that a significant portion of RC's capital structure is financed through debt

• Must meet debt servicing obligations which can cause stress and insolvency

• high gearing ratio might make it hard to secure additional financing

• Limited financial flexibility hinders growth

budget variance

A variance in budgeting is the difference between a business’s planned (budgeted) financial performance and what actually occurred.

Key Features:

• Difference between budgeted and actual results

• Can be favourable or adverse

• Helps assess financial performance

• Identifies areas needing action

• Found in variance analysis tables

Cost vs. profit centre

• Focuses on controlling spending

• Find ways to operate efficiently, manage expenses, cut unnecessary cost

• Identify overspending

• Helps in preparing accurate budget

The role of profit centres includes:

• Focus on maximizing returns

• Performance is measured by their ability to meet sale targets, thus contributing to the profits

• Example: Sales departments

budgeting adv vs. disadv

Advantages of using budgets:

• Planning/resource allocation

• Anticipate problems

• Control

• Accountability: Helps managers to be held accountable for their actions and spending.

• Efficiency

• Motivational

Disadvantages of using budgets:

• Unpredictable

• Overestimation

• Seasonal fluctuations

• Time-consuming

Sales forecasting methods

• Time Series Analysis: Uses historical sales data to identify trends and seasonal patterns to predict future sales.

• Market Research: Collects information about customer needs, preferences, and market trends to estimate future sales.

• Extrapolation: Predicts future sales by extending past sales trends and growth patterns into the future.

Globalisation key features

• integration and connecting between different countries and their economies

• trying to suit to local tastes and preferences

why enter a new market ? why not?

• economies of scale —> expanding operations on a larger scale can increase production volume and more sales

• Risk spreading —> instead of relying on a singular economy

• May face cultural differences (etiquette and language)

• Face restrictions from authorities /regulations etc.

Marketing mix

The marketing mix refers to the set of seven controllable variables (the 7 Ps) that a firm uses to satisfy its customers’ needs and achieve its marketing objectives.

Methods of depreciation

• Straight line method -value of an asset decreases at a constant amount

• units of production methods of depreciation

Price elastic demand

• demand changes as the price changes

• ADV: low price can rapidly expand market share

• DIS: price increase can decrease demand

Price inelastic demand

• demand remains steady even when prices fluctuate

• ADV: business can raise prices while still keeping their customer base (resilient and safe)

• DIS: burden upon lower income households to pay the steady high price

Debt and equity ratio

The debt-to-equity (D/E) ratio is a financial metric that compares a company's total liabilities to its shareholders' equity to measure how much it relies on borrowed money versus its own resources.

1 = equal debt and equity

below 0.5 = minimal financial risk

1.5-2+ = too much reliance on debt to fund growth

gearing ratio

percentage of capital employed coming from external sources

share capital

money raised through the selling of shares

Cost of sales

refers to the direct costs of producing or purchasing stock that has been sold to customers.

concentration ratio

degree of competition in an industry. Calculated by adding the market shares of the largest few firms in the industry. .

why market share vs. why leadership

• shows where they stand in respect to competitions

• greater influence over market

• more sale revenues

• VS.

• strong brand recognition

• economies of scale

• bargaining power

contribution pricing

Covers variables costs and contributed towards variable costs.

ADV and DIS sales forecasting

Adv

• helps plan productions and finance

• sets targets and budgets

• reduces risks of overproduction or shortage

Dis

• past trends dont determine future

• human errors can affect the forecast

• no certainty

• time consuming