Analysing the strategic position of a business flashcards

Topic 7: Analysing the strategic position of a business

Mission, corporate objectives, strategy and tactics

Mission: why the business exists. Corporate objectives: measurable goals for the whole business. Strategy: the long-term plan to reach them. Tactics: short-term actions that carry out the strategy.

SWOT: value and weakness

Internal strengths and weaknesses; external opportunities and threats. Useful for organising evidence, but it is only a list, subjective and quickly dated. Rank the points and reach a choice.

ROCE and gearing

Capital employed = total equity + non-current liabilities. ROCE = operating profit ÷ capital employed × 100. Gearing = non-current liabilities ÷ capital employed × 100.

Operating profit £54k; equity £300k; non-current liabilities £100k. ROCE and gearing?

Capital employed £400k. ROCE = 54 ÷ 400 × 100 = 13.5%. Gearing = 100 ÷ 400 × 100 = 25.0%.

Receivables days, payables days and inventory turnover

Receivables days = receivables ÷ revenue × 365. Payables days = payables ÷ cost of sales × 365. Inventory turnover = cost of sales ÷ inventories (times a year).

Kaplan and Norton's Balanced Scorecard: the four perspectives

Financial; customer; internal business processes; learning and growth. It balances short- and long-term measures, but takes time to design and to weight.

Elkington's Triple Bottom Line

Profit, People, Planet: success judged on financial, social and environmental results. Social and environmental impact are hard to measure.

Core competences

Things a business does well that are hard to copy and valued by customers; a source of competitive advantage.

Carroll's pyramid of CSR, base to top

Economic, legal, ethical, philanthropic responsibilities.

Porter's five forces, and when each is strong

Entry threat (low barriers), buyer power (few or large buyers, easy switching), supplier power (few suppliers, specialised inputs), rivalry (many similar rivals, slow growth), substitute threat (easy alternatives). Weak forces mean higher profit potential.

Cost £50,000; cash flows £20k, £25k, £30k. Payback and ARR?

Payback: £45,000 after year 2; 5 ÷ 30 = 0.17, so 2.17 years. ARR: net return £25,000 ÷ 3 years = £8,333 a year ÷ £50,000 × 100 = 16.7%.

Net present value and sensitivity analysis

NPV = sum of discounted cash flows − initial cost; positive means the project beats the discount rate. Sensitivity analysis changes one assumption at a time to show which forecasts matter; it gives no probabilities.