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147 Cards in this Set
- Front
- Back
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What are corporate objectives?
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The overall goals of the whole business.
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What may a business's corporate objectives include?
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Growth, diversification, profit or innovation.
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What is a SMART objective?
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Specific, measurable, achievable, realistic and time-bound.
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What is a functional objective?
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A goal persued by particular functions within a business such as finance or human resources.
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How does a functional strategy differ from a functional objective?
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A functional strategy is a medium to long term plan used by a specific business function to achieve its functional objectives.
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In what order should a business go about setting aims for itself?
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Set corporate objectives for the whole business, leading down into functional objectives for each business function for which a functional strategy can be used to allow this to be achieved.
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What is a financial objective?
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A goal or target pursued by the finandce department within an organisation.
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Name some types of financial objectives that a firm may have?
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Cash flow targets, cost minimisation, ROCE target and shareholders returns.
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Name 3 potential internal factors on financial objectives.
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The corporate objective of a business, the nature of the product (elastic = cost minimisation?) and motives of senior managers (they may hold shares?).
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Name 3 potential external factors on financial objectives.
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The actions of competitors, the availibility of external finance and the economic state of the market.
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What is a balance sheet?
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An accounting statement of the firm's assets and liabilities on he last day of an accounting period.
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Differentiate between non-current and current assets.
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Non-current assets are bought for long term use (longer than 1 year), for example machinery or vehicles.
Current assets are assets which will be converted into cash by the end of the financial year (for example inventories, raw materials and cash). |
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What are the 3 different types of business liabilities?
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Shareholders' equity or total equity (money invested in a company by shareholders), non-current liabilities (long term borrowed money, 1yr+, mortages and debentures) and current liabilities (borrowed money to be paid back in the short term >1yr... payables + bankoverdrafts).
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What are three problems with balance sheets?
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- just a snapshot of one day, can be useless months in the future
- thousands of assets may look good but the money to buy these may have been borrowed - external considerations such as the state of the economy and the existence of the competitors |
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What is working capital?
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The amount of funds available for day-to-day operations - liquid assets. Working capital = current assets - current liabilities.
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What is liquidity?
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The extent to which a business can turn its assets into cash and so is able to pay its short-term debts.
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How are non-current assets limited lifetime factored into the balance sheet?
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Depreciation; this may be brought around by wear, obsolescence or time.
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What is an income statement?
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An accounting statement showing a firm's sales revenue generated over a trading period and all costs incurred in generating that revenue, indicating the profits made by a business.
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What is gross profit?
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The difference between sales revenue and the cost of manufacturing or purchasing the products that have been sold.
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What is operating profit?
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Gross profit minus overheads and expenses (costs not directly concerned to the business' main trading activites).
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How is interest that a business receives on accounts and the financing costs shown?
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By finance income and finance expenses.
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What is profit quality?
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A measure of whether or not an individual profit source will continue.
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What are the two main ways that a business will use profits?
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They can keep them as retained profits and so keep them in the company on the balance sheet's reserves. Alternatively they can give them out as distributed profits to external parties (owners or partners) or shareholders.
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How can you make a judgement over a business' balance sheet?
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By either comparing it with previous years, with other similar businesses or against previously stated objectives.
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In which three ways can a firm window dress accounts?
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By massaging profit figures (moving sales or costs around different periods), by hiding a deteriorating liquidity position (sale-and-lease back?) and by boosting the value of assets (especially intangible ones).
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What is ratio analysis?
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A technique for analysing a business's financial performance by comparing one piece of accounting information with another.
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What is net profit margin?
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The relationship between the net profit and the level of turnover that has been made.
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What is return on capital employed?
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The efficiency of a business in using its capital to generate profits.
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What is the total capital employed?
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The sum of total equity plus non-current liabilities.
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Which four ratios measure financial efficiency?
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Asset turnover, inventory turnover, receivables' collection period and payables' collection period.
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What does asset turnover measure?
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A business's sales in relation to the assets that were used in order to generate those sales.
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What is inventory turnover?
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The number of times in 1 year that a business turns over its inventory of goods for sale.
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What needs to be acknowledged in order for ratios to be interpreted correctly?
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The industry in hand, the interest rate (with ROCE), other firm's ratios and ratios in previous years.
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What is the receivables' collection period?
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How long on average it takes a company to collect debts owed by customers.
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What is the payables collection period?
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How long on average it takes a company to pay its suppliers.
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Why is a short payables collection period not necessarily a good thing?
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Because although you may have kept your relationship with your supplier healthy, you could have made use with the extra cash flow, even if it was just bank interest.
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Is it best to have a high or low liquidity?
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High liquidity is useful in paying financial commitments but holds an opportunity cost of lost income (long-term bonds?).
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What is the generally accepted preferable current ratio?
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2:1, as it leaves enough current assets to ensure that a liquidity crisis should never happen.
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Why is the acid test ratio often better than the current ratio?
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The acid test ratio doesn't take into account inventories (stock), which is far from as liquid as cash in the bank as it may not be able to be sold.
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What does gearing show and what is considered a high gearing ratio?
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Gearing shows the proportion of the capital invested that is derived from long-term lenders in relation to the amount invested by the owners.
50% is considered high risk to investors... interest rates can cripple a highly geared business. |
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What are 3 advantages of ratio analysis?
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Allow you to compare multiple figures for a more accurate reflection, applicable to vital parts of a business's finance and so allows all stakeholders to make informed decisions.
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Name 5 disadvantages of ratio analysis.
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It is retrospective, different accounting policies may be used, it is purely quantitative, it does not take into account inflation with sales figures and when comparing no two firms are alike.
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What is a financial strategy?
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A medium to long term plan designed to achieve the objectives of the finance function or department of a business.
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What are the three main ways of raising finance?
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Borrow, selling shares or selling non-current assets.
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What is a profit centre?
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An area, department, divison or branch of an organisation that is allowed the control itself separately from the larger organisation. It makes its own decisions, following corporate objectives and produces its own income statements.
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What are four advantages of profit centers?
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- Specifying costs and profits in regards to particular areas makes for more accurate decision making.
- Monitoring of budgets, targets and performance easier - Decentralised decision making is quicker and more flexible - Delegated power and authority improves motivation |
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What are 5 disadvantages of profit centres?
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- Profit centres may lose sight of overall business objectives and may compete against each other than with competitors
- Communication may be slow - Coordination from the top may be very difficult - May be hard to properly assess the different profit centres considering changing factors - Allocation of costs may be disputed or innacurate |
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How might a business implement a cost minimisation strategy?
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By either minimising labour costs, relocating or by using technology.
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What 3 factors make forecasting future earnings easier to calculate?
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The stability of the market, the predictibility of the competitors and the quality of the data available.
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What does payback calculate?
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Payback calculates the inidivudal investment projects in terms of the time taken to recover the original investment.
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What is the formula for average rate of return?
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(average annual profit / initial investment) x 100
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What is the use of the average rate of return?
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It assesses the worth of an investment by calculating the yearly percentage return on the sum invested.
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What are the main opportunity costs of investing in a business?
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Putting money in savings accounts (depends on interest) or other businesses.
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What are four qualitative influences on a firm's investment decisions?
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The business's objectives, the image of the business, industrial relations and the business's attitude to risk (mostly down to the managers).
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What are 4 potential marketing objectives?
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To increase brand recognition, to increase market share, to broaden the product range or to break into a new market.
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Name 4 internal factors that will have an influence on marketing objectives.
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The business's corporate objectives, the size & type of the firm, the financial position of the business and whether the firm has a USP (makes brand recognition/market share objectives more likely).
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What 3 external factors would have an influence on a firm's marketing objectives?
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The business's position in a market (established business may have more power to break into new markets), the expected response by competitors and the state of the economy.
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What are the two main ways to make marketing decisions?
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Via scientific methods or by hunch/instinct.
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What is a trend?
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An underlying pattern of growth or decline within a series of data.
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What is extrapolation?
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Analysation of past performance of a variable such as sales and the extension of this into the future.
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What are the two main problems with extrapolation?
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It assumes the future will be similar to the past and so it is not suitible for environments subjects to rapid change.
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What do moving averages do?
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They are a series of calculations designed to show the underlying trend within a series of data whilst smoothing out the impact of random vairations.
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What is correlation?
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A statistical technique used to establish the extent of the relationship between two variables.
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How can firms use I.T in order to collect market research?
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Online surveys, assessing online purchasing patterns and by in-store loyalty cards.
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What are some problems in analysing marketing data?
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- The samples used may be unrepresentative or too small
- The market may have changed since the research was done - Unprecendented change might happen affecting the purchasing patterns of consumers (interest rates, recession?). |
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What are the two main points of Ansoff's matrix?
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Staying with what you know (market penetration) is the least risky option and moving into new markets with new products is very risky.
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What is market development?
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A medium-risk marketing strategy whereby the range of products for a firm stays the same but they chase a different market.
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What is product development?
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A medium-risk marketing strategy whereby a new product is marketed to the existing customers of a firm, in a market that it is already established in.
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What is market penetration?
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A low-risk marketing strategy whereby a business chooses to market existing products to its existing customers more strongly.
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What is diversification?
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A very high risk marketing strategy to sell completely new products to new customers.
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What is a marketing plan?
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A document setting out the strategy a business will use to achieve its marketing objectives.
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What elements are contained within a marketing plan?
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Marketing targets, the marketing mix elements, the timescale and details of the resources needed to fund the the marketing plan.
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What factors affect a marketing plan?
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The financial position of a business, the actions of competitors and the business's marketing objectives.
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What are sales forecasts made on?
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The sales of products, the costs for a forthcoming period, cash flow and key economic variables.
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What are the main influences on marketing plans?
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Finance available to the business, operational issues (productive capacity?) and competitor's actions.
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What are the 3 main benefits of marketing planning?
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Gives direction to employees (motivation?), can be used to guide managers and encourages forward & careful thinking.
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What are two problems of marketing planning?
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It takes time & resources as well as enforcing a degree of ridgidity upon managers and staff.
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What are the nature of operational objectives?
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Quality (quality standards - ISO900?), cost, volume, innovation, efficiency and environmental targets.
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What are the three types of efficiency?
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Cost efficiency, resource efficiency (little waste) and time efficiency.
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Name three internal influences on operational objectives?
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Corporate objectives, the financial position of the business and the nature of the product.
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What are three external influences on operational objectives?
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Competitor's operational objectives, legislation and taste & fashions.
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What are the four main internal economies of scale?
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Purchasing economies, production economies, financial economies and marketing economies.
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Name four external economies of scale (that aid the whole industry)?
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A network of suppliers, skilled labour, education and transport infrastructure.
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Name 3 diseconomies of scale.
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Over-use of existing machinery (maintenance), communication problems and marketing problems.
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What factors allows a business to determine whether it should be capital or labour intensive?
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The size of the business, the type of product and the finance available to a business.
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Name 3 benefits of innovation.
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Gives a competitive advantage for the business of bringing out a new product, improves a business's image and patents can allow money can be made from selling licenses.
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What are 4 disadvantages of innovation.
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It can be expensive, can take a long time, can be copied for less money by competitors and innovation-led markets can lead to a constant need for investment.
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Why is innovation risky?
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Because the innovative product may fail or others may copy an innovative product.
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In what ways can a business protect their innovation?
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Patents (for products & processes which last up to 20 years), Copyright (for books, music and cartoons. This lasts 70 years) and Trademarks (which grant legal ownership of recognisable signs and symbols for an indefinite period).
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What 5 factors does the location of a business depend upon?
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The proximity of resources, the local infrastructure, the whereabouts of the market, government actions (grants etc.) and qualitative factors (such as how pleasant / safe the area is).
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What is multi-site location?
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Where a business operates in more than one location.
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What are the 3 major advantages of multi-site location?
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- Can allow a business to be closer to its market or resources
- Can give a business a prestigious address for less cost - Can prevent large businesses from having diseconomies of scale (communication) |
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What are the 3 major disadvantages of multi-site location?
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- Communication may be more finicky
- Business may have to incur extra transport costs in moving materials around sites - Moving locations around could meet resistance from staff as less convenient or away from family ties (demotivational?) |
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What 6 major factors affect location businesses outside the UK?
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- Taxation on profits
- Availibility of grants - Trained and productive labour at competitive pay rates - The political stability of a country - The stability of exchange rates - Whether trade barriers or tariffs exist |
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What is lean production?
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A production goal of using fewer inputs and resources. This includes just in time production, kaizen, time based management and simultaneous engineering.
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What is time-based management?
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Management which endeavors to shorten all aspects of production to reduce costs and meet the needs of customers.
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What are the four major advantages of time-based management?
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- More efficiency can reduce costs
- Customers may be more willing to order items which are not produced yet as they are made more quickly - Getting a product to the market quicker gives a competitive advantage and brings in revenue/ROCE quicker - Quality, efficiency and having a competitive edge as a firm can motivate employees |
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What is simultaneous engineering?
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Simultaneous engineering manages the development of new products in the shortest possible time, often by carrying out some aspects of production development at the same time.
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What is critical path analysis?
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CPA is a type of network analysis, calculating and illustrating how complex projects can be completed as quickly as possible.
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What does critical path analysis show?
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- The sequence that tasks must be undertaken in
- The earliest time which each stage must be completed - The length of time taken by each task |
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What is contained within a CPA node?
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Nodes contain a number, an earliest start time (EST) and a latest finish time (LFT).
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What are the 4 predominant advantages of CPA?
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- Time can be saved by performing certain activities simultaneously
- Resources can be bought only when they are needed (aiding cashflow and working capital). - It encourages managers to forward think and plan which is turn irons out many potential problems - Well informed, time efficienct decisions can be made by managers. |
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What are the 3 most notable disadvantages of CPA?
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- CPA can be extraordinarily time consuming for complex sequences of activities
- CPA relies on potentially inaccurate time estimates for tasks - To follow a CPA still requires large amount of management and coordination, which if wrong can be very difficult to rectify considering the complexity of the CPA in hand |
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What is Just-in-time manufacturing?
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It is a Japanese management philosophy which involves having the right items of the right quality in the right place at the right time.
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What are the 4 main characteristics of just-in-time manufacturing?
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- It allows an organisation to meet consumer demand at whatever level as it is based on demand-pull production.
- Suppliers of components and other materials must be very prompt to manufacturers orders - Employees are given high amounts of training to increase their skills and efficiency and allow them to engage in self-inspection. - Continuous improvement is integral to JIT |
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What is kaizen?
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Kaizen means 'continuous improvement' and is concerned with continual and small advances in production techniques each minutely improving productivity.
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What are the 4 main characteristics of kaizen manufacturing?
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- Each improvement implemented costs very little but can have significant efficiency increases
- Kaizen invites people from all levels to contribute, which is motivational - Training is an important component as employees need new skills if they are to fulfill a number of roles - Employees work in teams in order to best provide ideas and solve problems |
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What are human resource objectives?
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Human resource objectives are the targets pursued by the HR function/department of the business.
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What are the 3 main HR objectives?
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- Matching the workforce's skills to the needs of the business
- Making full use of the workforce's potential, which includes ensuring there are less untapped skills and that employees are not under utilised - Maintaining good employer-employee relations |
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Why are good employer/employee relations important to a business?
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It prevents expensive labour strikes and disputes. It motivates employees and attracts more high caliber staff. In addition it also boosts the firm's image, thus improving sales.
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What are 3 internal influences on HR objectives?
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- Corporate objectives
- Attitudes and beliefs of senior management (soft/hard) - Type of product (service or labour intensive firms may need better employer/employee relations) |
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What are the 3 main external influences on HR objectives?
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- Price elasticity of demand for the demand (more price elastic product will lead firm towards reducing labor costs)
- Corporate image (maintaining good employee relations can be essential for a good image) - Employment legislation (UK/EU laws may make it difficult to hire and fire employees, making training more attractive) |
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What are the two broad HR approaches?
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Hard and soft.
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What do 'hard' HR strategies entail?
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Hard HR strategies treat staff as a resource that needs to be used as efficiently as possible. Employees are hired for the cheapest cost possible and made redundant when no longer required.
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What do 'soft' HR strategies entail?
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Soft HR strategies regard employees as the most valuable business asset, making it in the business's interest to maximise staff to their fullest potential as so to stay competitive.
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What does a workforce plan do?
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The method by which a business forecasts how many and what type of employees it needs now and in the future, and matches the right type of employees to the needs of the business.
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What are the 5 main influences on workforce plans?
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- Sales forecasts (estimating sales can help the business to identify the quantity and type of labour they will require)
- Demographic trends (gives information on changes to potential changes to the labour force) - Wage rates - Technological developments (replace workers with capital?) - Changes in legislation |
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Name 4 potential issues in workforce planning.
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- Employer / employee relations (lack of being in the loop may be demotivational)
- Changes in technology - Migration (eastern Europeans emigrating back to their countries?) - Markets are subject to wide fluctuations in costs, price and demand. |
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What are 2 advantages for a business in workforce planning?
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- Allows a business to have the right employees available, in the right place with the right skills. (better customer service and efficiency)
- It encourages managers to look forward |
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What is a functional structure?
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A functional structure operates a series of separate departments under the leadership of a senior manager.
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What are the 3 main advantages of a functional structure?
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- It allows a business to be coordinated from the top and have direction
- Provides clear lines of communication and authority for all employees - Allows specialists to operate and thrive in specific areas (R&D) |
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Why might a functional structure give way to problems in a business?
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- Senior managers may become remote as the business grows (poor communication + demotivation = bad decisions?
- Long lines of communication can be inefficient - Can provide little direction to those lower in the organisation (demotivational?) |
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Define matrix structure.
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A matrix structure combines the traditional departments of a functional structure with project teams.
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How can a matrix structure aid a business?
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- It can break down departmental barriers, increasing communication and allow all members of the firm to be well-informed
- Can allow for employees to use untapped skills as a more dynamic working atmosphere - It avoids the need for timely inter-departmental meetings |
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What are two problems that may be derived from the implementation of a matrix structure?
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- Unclear lines of accountability
- Specialist staff in teams may be halted in thought by not being able to communicate as freely with other specialists |
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What are entrepreneurial structures?
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Entrepreneurial structures are where few key workers at the core (usually the owner) of an organisation make the decisions.
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What are informal structures?
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Informal structures are those where the organisation does not have an obvious structure.
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What four factors determine the choice of organisational structure?
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- The environment in which the business is operating
- The size of the business - The skills of the workforce - Attitudes of managers and business fashion/culture |
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What is delayering?
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Delayering is where one or more levels of hierarchy are removed from an organisational structure.
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Name three advantages of delayering.
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- It offers opportunities for delegation, empowerment and motivation as more authority can be given to lower staff
- Fewer levels of hierarchy means more efficient communication - Reduces cost (long-term at least, redundancies cost short-term) |
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What are three disadvantages that may occur after delayering?
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- Some organisations with many low-skilled workers may find a flatter structure difficult to achieve effectively
- Job losses can cause massive motivation decreases as employees worry for their jobs - Efficiency may be halted in the short term as people have to take on new responsibilities and roles. |
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Define flexible workforce.
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A flexible workforce is one that is adaptable to changing conditions and demands.
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What four forms can flexible workforces take?
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- Part-time or temporary contracts, allowing business's to adapt with demand
- Employees may be on fixed short-term contracts - Employees may work flexible hours on flexitime or annualised hours - The hiring or training of multi-skilled workers |
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What does delegation entail?
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Delegation is the passing of authority to a subordinate within an organisation.
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Why does delegation require trust to work effectively?
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Because the manager is still responsible for the subordinate's actions and so must feel comfortable handing down the task. Similarly, the manager must trust the subordinate enough to allow them to do the work with little interference.
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What is centralisation?
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Centralisation occurs when most decisions are the responsibility of a few people at the top of an organisation.
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What is decentralisation?
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Decentralisation is when control has shifted horizontally (note this is different from delegation where control is moved vertically.)
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What is the main advantage of decentralisation?
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The empowerment for worker's gaining greater independence in their working lives. This leads to motivation, meaning more efficiency and so lower costs.
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What is communication?
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Communication is the exchange of information between people within and outside organisations.
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What are the three main communication techniques used by employers?
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- Meetings
- Presentations - Technology |
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What is a trade union?
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A trade union is an organised group of employees that aims to protect and enhance the economic position of its members.
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What do trade unions offer to their members?
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- Negotiation of pay and conditions on their behalf (collective bargaining)
- Protection from unsafe working practices - A range of associated services, including financial and legal advice |
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What is industrial democracy?
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Industrial democracy gives employees the means of influencing the decision-making processes within a business and a chance to represent their views to employers.
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What are the two main methods promoting industrial democracy?
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- Having worker directors (directors who work on the shop-floor)
- Setting up a works council (provides basis for management and employee meetings) |
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What are the two main methods of resolving industrial disputes?
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- Arbitration
- Concilitation |
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What is arbitration?
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Abitration resolves a dispute by appoint an independent person or panel to decide upon a way of settling a dispute.
There are two types of abitration. Non-binding abitration whereby the third party only offers a solution that needn't necessarily be followed. There is also binding arbitration where solutions must be followed. |
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What is the job of the Advisory, Conciliation and Arbitration Service (ACAS)?
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ACAS has the responsibility to prevent or resolve industrial disputes. More recently however, ACAS has been involved in rectifying business practice as to reduce the possibility of disputes.
They advise employers, trade unions and employers' association on topics such as reducing absenteeism, employee sickness and payment systems. They also investigate cases of unfair discrimination and dismissal. |
