GoConqr has a new look! Let us know what you think.

Sign up free

Flashcards

Untitled

jack_button English 73 cards

Cards in this deck (73)

  1. 1Globalisation - Advantages- More attractive markets overseas
    - Increased customer base
    - Larger economies of scale
  2. 2Globalisation - Disadvantages- Exposed to more competition
    - Large investment may be required
    - Legislation differences
    - Language barriers
    - Cultural differences
  3. 3High Quality Profit- A high quality profit is one which can be repeated or sustained
    - In other word the profit does not contain any unusual one-off items of income or profit
    - Shareholders can have some confidence in the profit trend
  4. 4Low Quality Profit- A low quality profit is one which is difficult to repeat
    - The profit is likely to benefit from one or more "exceptional items" which will not be repeated e.g. sale of assets
    - Shareholders may have to adjust the profit figure to establish the profit trend
  5. 5Solvency- Is when the assets of a business exceeds its liabilities
    - If liabilities (debts) are greater than the values of its assets it is classed as insolvent
  6. 6Liquidity- Is the ability of a firm to meet its short term debts
    - As these debts can only be paid with cash, liquidity is about the availability of cash or assets that can be turned into cash, for example, debtors and stock
  7. 7Net/Operating Profit- This is the profit that a limited company earns on its normal business activities. It excludes any extraordinary, exceptional or finance income and expenses
    - It's the profit made after taking the running costs (overheads/expenses) off of the gross profit
    - Operating profit is considered the best measure of performance because it focuses on only the main trading activities of the business (and not profit made from one off activities such as sale of assets)
  8. 8Extraordinary Items- Extraordinary items are not part of a company's ordinary business activities
    - They are infrequent and unusual e.g. lost revenue due to a natural disaster
  9. 9Exceptional Items- Exceptional items are part of the normal business dealings e.g. debtor goes broke and they have to write the debt off
    - Others include selling property, plant, equipment, land also money from an insurance claim
  10. 10Limitations of Ratios1. Ratios are only useful when compared with others, but no 2 years or businesses the same
    2. Ratio analysis only looks at quantitative data and not qualitative (quality, customer satisfaction
    3. Different methods of depreciation generate higher value of assets
    4. Accounts can be manipulated to look more favourable (window dressing)
  11. 11Mission Statements- The vision, values and long term aims of the business
    - Explains what the company is trying to achieve and so help make the right decisions
    - Try to motivate staff and convince customers
    - Gives the firm a sense of direction
  12. 12Mission Statements - Advantages- Gives staff a focus point to encourage them to work towards the same idea
    - Gives staff and customers a clear idea of the company's values (can create a strong culture)
  13. 13Mission Statements - Disadvantages- Businesses don't have to prove what's in them so they are often used as a PR tool
    - Too short to sum up what an organisation is ALL about
    - Mission statements can be "lip service" > never actually put into practice
    - Changes to the business > Updated mission statements
  14. 14Corporate Aims- Long term targets of a business
    - Provide the direction for the business
    - Business performance is measured against them
    - Broken down into corporate objectives
  15. 15Corporate Objectives- Medium term targets of a business
    - Should be SMART
    - Quantifiable targets to measure performance against
    - Help to achieve corporate aims
    - Broken down further into Functional Objectives
  16. 16Common Corporate Objectives- Survival
    - Profit
    - Growth
    - Meeting Stakeholder Needs
    - Market Share / Position
    - Diversification
  17. 17Functional Objectives- Short term objectives of each major businesses function e.g. Finance, HR etc.
    - Help to achieve corporate objectives
  18. 18Corporate Strategy- Corporate Strategy is the direction and activities of a business over the long-term
    - Corporate strategy should give a business competitive advantage
    - A good strategy makes sure resources are used wisely
    - A good strategy will also make stakeholders happy
  19. 19Functional Strategy- This is the plan of action for each Functional Area which will achieve their Functional Objectives
  20. 20What kind of things make up Corporate Strategy?- Deciding where the business wants to be in the long term
    - Deciding which markets they should compete in
    - Deciding on what stakeholders expect from the business
    - Deciding how the business can do better than the competition
    - Deciding what resources are needed and how they'll be used
  21. 21Operational Decision Making- Routine day-to-day (short term) decisions made by middle or junior managers
  22. 22Tactical Decision Making- Medium term decisions made by senior managers
    - Used to implement strategic decisions
  23. 23Strategic Decision Making- Made by business owners or directors
    - Usually expensive and high risk
    - Once made, difficult to reverse
    - Concern long-term direction of the business
    - Help the business achieve it's corporate objectives
  24. 24Constraints on Decision Making (Internal)- Leadership and corporate culture > The style of leadership and culture that exists influence the decisions made
    - Ethical position > The ethical stance of the business and approach to CSR influences the decision it makes
    - Available resources > Must have enough cash, staff and other resources to implement the decision
    - Staff > The skills and abilities of staff will affect which decisions can be made and implemented
  25. 25Constraints on Decision Making (External)- Economy > The state of the economy will have a big influence on the decisions made
    - Competition > What rival companies are doing will influence companies
    - Technology > The technology a business can access will affect what it can do and the decisions it makes
    - Legislation > Having to comply with laws will affect the decisions a business makes
    - Pressure Groups > They might threaten bad publicity to try and change decisions
  26. 26Scientific Decision Making- Businesses gather data, analyse it, devise best strategy, implement and review it
    - Involves techniques like break-even analysis, investment appraisal, ratios and decision trees
  27. 27Intuitive Decision Making- Making decisions on the basis of instinct, hunch, feeling, experience
  28. 28What approach to decision making should be used?It depends on:
    1. Speed of decision - If a quick decision is needed, being intuitive saves time
    2. Info available - Detailed data may or may not be available
    3. Size of business - Smaller firms are more likely to follow a hunch as scientific methods take time, cost, resources
    4. Nature of decision - Complicated decisions may need a scientific approach
  29. 29What affects the quality of the decisions made?Training: If people are trained they are likely to make better decisions
    Information: If there is plenty of good info this will help make better decisions
    Risk: Some businesses make decisions that are too cautious as they're afraid of taking risks
    Techniques: Using decision making techniques will help when making complex decisions
    People: Decisions are affected by how experienced people are, their skills, their perception and their personal interests
  30. 30SWOT Analysis- It's a strategic analysis tool, it identifies and analyses the internal and external factors facing the business
    -Businesses need to know what strengths they have and which areas to work on
    - Businesses must also be aware of the opportunities and threats in the external environment that might help or hinder success
    - Businesses can then develop strategies to exploit strengths and opportunities and deal with the weaknesses and threats
    - So SWOT helps a business to develop a competitive advantage over rivals
  31. 31SWOT - Advantages- Can take action to maximise strengths and opportunities and minimise weaknesses and threats
    - Can help lead to a competitive advantage
    - Strategic Analysis like SWOT is essential to business success
  32. 32SWOT - Disadvantages- Takes time, money and resources e.g. Staff/Managers
    - Opportunities and threats might not happen as predicted
    - Strengths and weaknesses can be very subjective
    - It's useless if you don't act on it
  33. 33Non-Financial Measures of Performance (1)Market Share: Some firms will spend to gain customers, reducing profits in the short run, but hopefully increasing profits in the long term
    Sales Targets: When the objective is an increase in sales, it may lower short term profitability through the use of loss leaser products, but which will result in increased sales in the future
    Productivity: Higher levels of productivity reduces average costs and makes a firm more competitive
    Environmental Impact: Being ethical and socially responsible brings benefits to a business
  34. 34Non-Financial Measures of Performance (2)Quality: If a product/service is perceived as being as good as or better than those of rivals then a business will have achieved one of the most important measures of quality
    Customer Satisfaction: The easiest method of measuring customer satisfaction is to measure repeat purchases. Customer loyalty is important as it costs much more to attract new customers than to keep existing ones. It can also be measured by the number of sales achieved through recommendations and by customer surveys
  35. 35Window DressingWindow dressing is actions taken to improve the appearance of a company's financial statements. Window dressing is particularly common when a business has a large number of shareholders, so that management can give the appearance of a well run company to investors who probably do not have much day-to-day contact with the business. It may also be used when a company wants to impress a lender in order to qualify for a loan
  36. 36Examples of Window Dressing- Cash: Postpone paying suppliers, so that the period-end cash balance appears higher than it should be
    - Fixed Assets: Sell off those fixed assets with large amounts of depreciation associated with them, so the net book value of the remaining assets appears to indicate a relatively new cluster of assets
    - Revenue: Offer customers an early shipment discount, thereby accelerating revenues from a future period into the current period
    - Expenses: Withhold supplier expenses, so that they are recorded in a later period
  37. 37Cost Centres- A cost centre is a part of a business for which costs can be calculated
    - For a cost centre, you can set a cost budget. The budget includes all costs; variable, fixed, direct and indirect
    Disadvantage: Too much focus on cost cutting can sacrifice quality
    Advantage: Compare the efficiency of different departments
  38. 38Profit Centres- A Profit Centre is part of a business for which costs, expenditure, revenue and profit can be calculated
    - For a Profit Centre you can set income and expenditure budgets and as a result you can set a budget for profit as well
    Advantage: Motivate branch managers to improve performance
    Disadvantage: Events outside of the branches control can influence profit performance
  39. 39Cost/Profit Centres - Advantages- Can easily spot the successful and unsuccessful parts of the business
    - Local managers can make better decisions based on their knowledge of the local market and helps improve accountability of managers
    - Delegating responsibility for budget management to staff in cost/profit centres can help motivate them
  40. 40Cost/Profit Centres - Disadvantages- Budget managers need training so they can manage their budgets effectively = cost
    - Can be hard to divide the business into cost/profit centres as sharing out some costs can be tricky
    - Can lead to rivalry between cost/profit centres which can become detrimental to the business
  41. 41Absorption Costing- This method adds a proportion of the indirect costs (overheads) on to the cost of producing each product
    - Each product is allocated a different percentage of each individual indirect cost
    - For example: Each product will be allocated a % of rent, rates, heating etc.
  42. 42Absorption Costing - Advantages- It ensures that all costs are covered
    - It's a fair measure as long as overheads are allocated on a sensible basis and not just in an arbitrary way
  43. 43Absorption Costing - Disadvantages- Overhead costs could be inaccurate
    - It can be complex, time consuming and expensive
    - Some costs are difficult to allocate to a particular centre and this can lead to conflict between centres/managers
  44. 44Contribution CostingContribution Per Unit: Selling Price - Variable Costs Per Unit
    Total Contribution: CPU X Output
    - This contribution is then used towards paying fixed costs
    - Once there is enough contribution to cover fixed costs, the rest is profit
  45. 45Special Orders- Sometimes businesses receive orders which are unexpected, perhaps from a new customer
    - The business then has to decide whether or not they will accept these
    - This decision is often based on the contribution the order will make towards overheads
    - However, it also depends on whether or not the business has enough spare capacity, the staff to cope with demand and whether this order will lead to repeat orders in the future
    RULE: If fixed costs are already covered by contribution they are likely to say yes to the order
  46. 46Contribution Costing - Advantages- It's simple to use
    - It is a useful decision making tool, should they except one order over another? (Which on has the highest contribution?)
    - It can help a firm decide which orders to accept > will it contribute to profit or not?
  47. 47Contribution Costing - Disadvantages- It isn't that useful if fixed costs represent most of the costs in the business
    - It may not contribute to profit but without it the capacity and staff may be under utilised
  48. 48Standard Costing- The method involves calculating the planned costs of producing each product and then comparing them to the actual costs incurred
    - The difference between the standard cost (budgeted) and the actual cost is called a variance
    - Standard costing helps a business to manage and control costs, for example: If it costs more than expected to make a product, the business can investigate why
  49. 49Standard Costing - Advantages- Can identify areas of weakness and inefficient practice
    - Staff can be motivated to achieve within cost targets
    - They can represent the best estimate of what a product should cost to make
    - Helps to control costs
  50. 50Standard Costing - Disadvantages- Requires the business to gather information which is time consuming and expensive
    - This method makes workers strive for favourable variances so they might take short cuts to reduce costs
    - Got to regularly update standard cost as prices increase e.g. Raw material, minimum wage
  51. 51Budgets- A budget is a financial plan for the future which forecasts future earnings and future spending
    - A budget includes targets for costs or revenue that a business or department must aim to reach over a given period of time, usually a year
    - Budgets tell managers how much they can spend to achieve their objectives and they also let them check whether or not they are on track
    - Most businesses use budgets
  52. 52Income Budget- This forecasts the amount of money that will come into the business as revenue. To do this, the business needs to know how much they expect to sell, so they produce sales forecasts
  53. 53Expenditure Budget- This forecasts what the total costs (fixed and variable) will be for the year. To do this the business needs to know how much they expect to produce. They then break expenditure down into the different departments
  54. 54Profit Budget- This uses the totals from the income and the expenditure budgets to calculate what the expected profit or loss will be for the year
  55. 55Budget - Advantages- They help control income and expenditure
    - They show where the money goes
    - They force managers to review their activities to see if they meet budgets
    - Managing budgets can be delegated from managers to other staff (known as budget holders) and this can motivate them
    - They allow departments to coordinate spending
    - Meeting a budget target is rewarding for staff
  56. 56Budget - Disadvantages- Budgeting is very time consuming
    - They can be restricting: Fixed budgets stop firms from responding to market changes
    - They can cause rivalry and resentment if departments compete for money
    - Too much focus is placed on them and not the customer
  57. 57Why do Firms Budget?- To measure success or failure
    - To enable spending power to be delegated to local managers. They know best about how to use the business's money
    - To motivate staff if they are rewarded for sticking to the budget
  58. 58How are budgets put together? (1)- Budgets are often put together for individual departments in the business (departmental budgets) and these are then used to produce the budgets for the whole business (master budgets)
    - New businesses have to develop their budgets from scratch. This is hard to do as they don't have much information to base them on. This means their budgets are more likely to be inaccurate
  59. 59How are budgets put together? (2)- Established businesses can use budgets from previous years and then just update them. They do this by adding or subtracting a % increase or decrease
    - Historical budgeting like this is quick and simple but it only changes the figures and assumes the rest of the business conditions are the same
  60. 60What information is needed to prepare a budget? - Income Budget- Businesses must research and predict what sales they will make during the year. From this they can predict sales revenue. They can often produce a sales forecast to help them
  61. 61What information is needed to prepare a budget? - Expenditure Budget- Businesses must research the costs they will have to cover during the year. These costs include wages, running costs, raw materials, taxes etc.
  62. 62What information is needed to prepare a budget? - Profit Budget?- Businesses must use the figures from the income and expenditure budget to produce a profit budget. It's vital that the figures in these are accurate and as realistic as possible
  63. 63Zero Budgeting- This sets each department's budgets at zero
    - It then demands that budget holders fully justify every £1 they're asking for
    - This is often used by new start-up businesses
    Drawback: Doing this takes up a lot of time for budget holders and managers > time that could be spent doing other things
  64. 64Fixed Budgets- Means that budget holders MUST stick to their budget throughout the year
    - Fixed budgets are good to control cash flow as people have to stick to them
    - However, fixed budgets can also stop a business from seizing an opportunity or responding to a threat as the budget has to be stuck to regardless
  65. 65Budgets can be hard to stick to....1. If staff don't have the right skills they can't manage budgets effectively
    2. If staff are de-motivated, or not committed this can also affect how well budgets are managed
    3. High levels of waste can also cause budgets to be hard to stick to
  66. 66What happens after the budget has been set?- Businesses must keep checking what's actually happening against the budget set
    - They need to see (i) if there's a difference (ii) if so why, and then (iii) take action
    - Businesses must do something about variances. If they're adverse then they need to find out why. Even favourable ones need looking at, why are they favourable and there is good practice that could be used somewhere else in the business
    - Variances can be caused by internal and external factors
  67. 67Variances- Are usually measured each month and they help analyse budgets
    - If a business checks for variances it gives them an early warning of any issues which means that they can take action early
    - Variances can be either adverse or favourable and they can add up
    - A favourable variance is one that leads to a higher than budgeted profit (So either revenue was higher or costs were lower than budgeted)
    - An adverse variance is one that leads to a lower than budgeted profit (So either revenue was lower or costs were higher than budgeted)
  68. 68What causes variances? - Internal Factors- Improving efficiency can cause a favourable variance
    - Overestimating income and underestimating costs causes adverse variances
    - Cutting prices can affect the income budget: How depends on how this affects demand (PED)
    - Poor budget management often causes adverse variances
  69. 69What causes variance? - External Factors- What the competition are doing can affect budgets
    - Changing tastes/fashions can also affect budgets and also variances
    - Changes in the economy causes variances, for example, wages may go up in a boom period
    - Suppliers can also cause variances for example, they might put up prices for raw materials
  70. 70Variance Analysis- Variance analysis is all about catching variances, understanding them and fixing them
    - They need to understand favourable variances and share this good practice across the business, and fix adverse variances
    - They have 2 options here:
    1. Change what the business is doing to fit the fixed budget
    2. Change the flexible budget to fit what the business is doing
    - This depends on whether they have a fixed budget or flexible budget
  71. 71Investment Appraisal- Strategic decision making tool > research and time
    - 3 methods of investment appraisal
    1. Average Rate of Return
    2. Payback
    3. Net Present Value
    - All three methods are quantitative tools used to decide whether to invest in a project or not
  72. 72Average Rate of Return (ARR)- Compares the annual profit made, with the amount of investment put in at the beginning of the project
    - The higher the ARR the better
    - ARR takes into account all cash inflows and outflows and the % return from it
    - e.g. 13% - for every £100 invested, £13 return
    - Can compare to return in a bank
    FORMULA: (Net Return/Initial Investment) / No. of years X 100
  73. 73—

Information

Description
Flashcards on Untitled, created by jack_button on 31/03/2016.
Created by
jack_button
Views
0
Rating

Feedback

What is it about?

What do you think of the new look?

How do you like it?