SlideShare ist ein Scribd-Unternehmen logo
1 von 7
Downloaden Sie, um offline zu lesen
1|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c



                       ASSESSING COMPETITIVENESS
OVERVIEW


    1. INTERPRETATION OF FINANCIAL STATEMENT

            a.   Gross profit margin
            b.   Net profit margin
            c.   ROC (Return on Capital)
            d.   ROCE (Return on Capital Employed)
            e.   Acid test ratio
            f.   Current ratio
            g.   Gearing ratio
            h.   Interpretations of these margins and ratios
            i.   Limitations of ratios as a decision making tool


    2. HUMAN RESOURCE COMPETITIVENESS

            a.   Labour productivity
            b.   Labour turnover
                      i. Unavoidable leavers
            c.   Limitations of these calculations

INTERPRETATIONS OF FINANCIAL STATEMENTS


                                            Ratio analysis is an examination of accounting data by relating one
                                            figure to another. The approach allows more meaningful
                                            interpretation of the data and the identification of trends.

                                                                               BUSINESS STUDIES FOR A LEVEL 3RD EDITION BY IAN MARCOUSÉ

                                            Before we proceed onto actually calculating the ratios, it is very important to
                                            familiarise ourselves with a financial statement, as these statements are what we
                                            need to calculate these ratios. The gross profit margin, the net profit margin and the
                                            ROCE is calculated from the profit and loss account. The table to the left is an
                                            example of a profit and loss account. The expenses are essentially costs that are not
                                            involved in the production of goods and services such as advertising, wages of the
                                            administration staff as well as depreciation (the value of the company’s capital
                                            decreases with age). Cost of sales are the costs directly related to production
                                            including wages for labour as well as the overheads for rent, fuel etc.




                                            Figure 1 - This has been taken from Dave Hall's book,
                                            Business Studies 4th Edition←
2|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c


GROSS PROFIT MARGIN

First, we need to calculate the gross profit, and then we can calculate the margin.

                                    ������������������������������ ������������������������������������ = ������������������������������ ������������������������������������������ (������������������������ ������������������������������ ������������ ������������������������������������������������) − ������������������������ ������������ ������������������������������

                                                                                                      ������������������������������ ������������������������������������
                                      ������������������������������ ������������������������������������ ������������������������������������ =                                                                       × 100
                                                                               ������������������������������ ������������������������������������������ (������������������������ ������������������������ ������������ ������������������������������������������������)

                                                                                                  £400,000                4
                                                        ������������������������������ ������������������������������������ ������������������������������������ =                  × 100 = 44 %
                                                                                                  £900,000                9
                                                                          ������������������������������ ������������������������������������ ������������������������������������ ≈ 44%


NET PROFIT MARGIN

First, we need to calculate the net profit, and then we calculate the margin. As a simple rule of thumb, the net profit is the profit
before tax – essentially, after you have taken all the costs, other expenses not directly linked to the production of the product as
well as interest payable, you get the net profit: the value that the business is taxed on. The net profit will be very clearly stated
in the tables that the exam board will provide, because its exact location can vary depending on the financial transactions of
each individual business.

                                                                                                      ������������������ ������������������������������������
                                       ������������������ ������������������������������������ ������������������������������������ =                                                                         × 100
                                                                            ������������������������������ ������������������������������������������ (������������������������ ������������������������������ ������������ ������������������������������������������������)

                                                                                                     £110,000     2
                                                               ������������������ ������������������������������������ ������������������������������������ =             = 12 %
                                                                                                     £900,000     9

                                                                            ������������������ ������������������������������������ ������������������������������������ ≈ 12%


ROCE (THE RETURN ON CAPITAL EMPLOYED)

To calculate this value, we need to be familiar with the balance sheet. The
balance sheet is essentially a financial statement that lists a firm’s assets and
liabilities: in simple terms, it’s what a business owns and owes. We need to
remind ourselves that long term loans are also counted as investment into the
business and therefore do count as capital employed into the business. The
business made an operating profit of £5,600,000.

    •      Fixed assets are assets that the business will have in the long term i.e.
           buildings, machinery etc. basically, assets that the business will have
           for more than a year.
    •      Current Assets are assets that will last for less than a year. These
           assets are the most liquid assets the business has; examples include
           things such as cash etc.

  ������������������������������������������ ������������������������������������������ (������������������ ������������������������������������) = ������������������������������������������ ������������������������������������ − ������������������������������������������ ������������������������������������������������������������

    ������������������ ������������������������������������ = ������������������������������ ������������������������������������ + (������������������������������������������ ������������������������������������ − ������������������������������������������ ������������������������������������������������������������)

             ������������������������������������������ ������������������������������������������������ = ������������������ ������������������������������������ + ������������������������ ������������������������ ������������������������������������������������������������������

                                               ������������������������������������������������������ ������������������������������������
                                 ������������������������ =                                    × 100
                                               ������������������������������������������ ������������������������������������������������

                                         £5,600,000
                  ������������������������ =                                × 100 ≈ 22%
                                 (£17,400,000 + £8,000,000)
3|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c

ROC (RETURN ON CAPITAL)

This essentially measures the profitability of a business. If a business invests into a project, it will want to know the profitability
of the project.

                                                                                                             ������������������ ������������������������������������
                                                   ������������������ (������������������������������������ ������������ ������������������������������������������) =                                          × 100
                                                                                                        ������������������������������������������ ������������������������������������������������

This value is expressed as a percentage.


THE CURRENT RATIO AND THE ACID TEST RATIO

Both these ratio assess the liquidity of a business i.e. how easily a business’ assets can be turned into cash. Again, this is another
ratio that is concerned with the balances sheets a business publishes.


CURRENT RATIO

The current ratio of a business is essentially the ratio between its current asses and its current liabilities.

                                                                       ������������������������������������������ ������������������������������������
                                      ������������������������������������������ ������������������������������ =
                                                                    ������������������������������������������ ������������������������������������������������������������������

ACID TEST RATIO

The acid test ratio takes into account that stocks are the least liquid of all the current assets
and should not be counted as an asset that can be easily liquefied.

                                                                  ������������������������������������������ ������������������������������������ − ������������������������������
                                 ������������������������ ������������������������ ������������������������������ =
                                                                     ������������������������������������������ ������������������������������������������������������������������

GEARING RATIO

This essentially is a ratio that gives an indication of how much debt the business is
under, giving insight into the long term stability of the organisation.

                                                                                   ������������������������-������������������������ ������������������������������
        ������������������������������������������ (������������������������ ������������������������������ ������������ ������������������������������������������������)������������������������������ =                                    × 100
                                                                                  ������������������������������������������ ������������������������������������������������

This value (like every other ratio that is multiplied by 100) is expressed as a
percentage. In boom times, investors and banks find gearing a good thing, as the
business is focusing on growth, however this entails great risk. However, if a recession
suddenly hits, then the business will be in grave danger because now the business still
has to pay back the interest with a reduced income from battered sales.
4|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c

INTERPRETATIONS OF THESE MARGINS ANS RATIOS


        RATIO OR MARGIN                                                          ANALYSIS

                                      The gross profit will differ from industry to industry and hence needs to be looked at with the
                                      context of the business in mind. Can be improved by:
        GROSS PROFIT MARGIN
                                          • Raising sales revenue without increasing total costs – i.e. make production cheaper
                                               e.g. can be done via automation.
                                      Similarly to the gross profit margin, this will vary from industry to industry and has to be
                                      looked at with the context of the business in mind. For example, the food industry has both a
         NET PROFIT MARGIN            low gross and net profit margins, but since there is a very high volume sold, it is not a
                                      problem. Can be improved by:
                                           • Same as gross profit margin.

                                      This is a fundamental ratio that essentially shows how well the business is making use of its
                                      resources and essentially, how lucrative it is for investment. The ROCE of a business needs to
                                      be compared with previous years to identify a trend in its growth. Also, if the ROCE is less
                                      than 6 %, then there is little incentive to invest as if an investor were to invest this money into
 ROCE (RETURN ON CAPITAL EMPLOYED)
                                      the bank instead, then the person would be much better off still making money with no risk.
                                      Can be improved by:
                                           • Increasing the efficiency of the business through generating greater profits from the
                                                same amount of capital invested.

                                      This measures the profitability of a project or operation and thus is a good indicator of how
      ROC (RETURN ON CAPITAL)
                                      successful the project was to the business.

                                      Shows the ratio between assets and liabilities. The business would do best to keep this at 1.5:1.
                                      However if this is too high, it means that the business has too much money that it is not
                                      investing. However, having too low a current ratio means that it may not be able pay back debts
                                      in times of crisis such as a downturn. Can be improved by:
           CURRENT RATIO
                                           • Selling under-used fixed assets
                                           • Selling shares to gain more share capital
                                           • Postpone or reduce planned investments
                                           • Take long term-loans

                                      Arguably, the best ratio is 1:1. A result that is too low means that that the business may not be
                                      able to pay off its short term debts. However, companies such as supermarkets operate with
                                      very low liquidity ratios. In fact, some of the major companies such as BP, Imperial Tobacco
                                      and TESCO have very low acid test ratios.
           ACID TEST RATIO                 • Adopting JIT, this way you have not stock to worry about – and you can divert more
                                                capital into production
                                           • Selling under-used capital or selling old machinery
                                           • Selling shares to increase share capital
                                           • Take long term loans

                                      The more geared the business is, the more debt it has. By this, it means that investing in this
                                      business is risky as well as it will be hard for the business to gain finances from banks.
                                      However, whether a business that is geared will get investment will also depend on the state of
                                      the industry. Can be improved by:
          GEARING RATIO
                                           • Issue more shares to raise share capital
                                           • Buy back debentures (bonds)
                                           • Retain more profit
                                           • Repay loans
5|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c

VALUE AND LIMITATIONS OF THESE RATIOS AS A DECISION MAKING TOOL

                             VALUE                                                            LIMITATIONS

                                                                    Comparisons have to be made with businesses that are similar
                                                                    (same industry, similar operations) and also businesses in the
                                                                    same time frame in order to get a fair comparison.
Ratios are very simple to calculate, most of them have a consistent
                                                                    Sometimes, businesses in the same industry are vastly different.
formula.
                                                                    Sainsbury focuses on food and groceries alone, while TESCO is
                                                                    moving onto home appliances – these new products will have a
                                                                    different gross profit margin and will affect comparisons.

                                                                    Businesses might also have different accounting techniques, which
Analysis can be carried out very quickly as they are very simple to
                                                                    will determine how their financial statements are made – financial
calculate and demand only basic financial statements.
                                                                    statements determine ratios.

Can be used to compare one company with another; they can be         The ratios are limited to the quality of the balance sheets – the
used to compare businesses in the same industry. Comparisons         balance sheet represents a ‘snapshot’ of the business at the end
can also be made within the companies as it may have many on-        of a financial year and is not representative of the business’
going projects.                                                      circumstance over the entire year.


                                                                    Qualitative information is ignored, making it quite ineffective in
Can be used by decision makers to identify the strengths and the service industry.
weaknesses of a business. For example, if gross profit margin is
very high, but the Net profit margin is very low, then the business
may try to reduce operational costs as well as reduce its debts.    The ratios are only as good as the financial accounts. Inflation can
                                                                    make a business’ assets look more valuable – when there might
                                                                    not actually be a change in real value.


WINDOW DRESSING


                Window dressing is the legal manipulation of company accounts by a business to present a
                financial picture which is to its benefit.

                                                                                                BUSINESS STUDIES 4TH EDITION, DAVE HALL

    •    Business managers may want to paint a good financial image of the
         business in order to attract investors.
    •    Businesses might manipulate the financial picture to look bleak for the
         short term to make it look better in the long term – business tend to
         choose to get over with a financial crisis quickly than having poor
         financial performance for a long time; if the business shows strength in
         coming out of a financial crisis then they will become a favourite with
         investors.
    •    Making financial statements look worse can be used to reduce the tax
         on a business.
    •    Businesses trying to sell itself or one of its operations will do their best
         to manipulate accounts in order to get the best possible value for the
         business.
6|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c

HUMAN RESOURCE COMETITIVENESS

Both labour productivity and turnover show the effectiveness of the work force and can be a very useful yard-stick for
measuring the efficiency of the business in question.


LABOUR PRODUCTIVITY

                                                                                   ������������������������������ ������������������������������������ (������������������ ������������������������������������ ������������ ������������������������)
                          ������������������������������������ ������������������������������������������������������������������������ =
                                                                    ������������������������������������������ ������������������������������������ ������������ ������������������������������������������������������ (������������������ ������������������������������������ ������������ ������������������������)

This essentially measures the how many products (on average) a worker produces over a specific period of time. There can be
many ways to improve this:

    •   Making production more capital intensive will reduce the need to labour as well as produce at a cheaper rate as
        machines can work continuously unlike workers.
    •   Often, changing the type of production can improve the efficiency of a business; using cell production instead of
        assembly line production is an example as it meets worker’s social needs.
    •   Training can make workers more able, allowing them to perform their work more efficiently.
    •   Overall, increasing the motivation of workers by giving them more power or authority is also a great way to increase
        productivity, as they can highlight the main problems with the production process and can therefore come up with a
        better solution.

High labour productivity will drive the costs of the business down and hence the business can sell cheaper products to gain
greater sales or keep prices the same and get more profit – depending on the elasticity of the product.

However, even after adoption these measures, often businesses are unable to compete:

    •   Often competing businesses may offshore production to places such as China, where the labour cost is very cheap.
    •   Rivals may be able to increase productivity at an even faster rate, than the business, through a combination of
        technology and cheap labour.
    •   Rival might also enhance the quality of the product while at the same time increasing the productivity of the business.


LABOUR TURNOVER

                                                            ������������������������������������ ������������ ������������������������������ ������������������������������������������ (������������������������ ������ ������������������������������������ ������������ ������������������������)
              ������������������������������������ ������������������������������������������������ =                                                                                                                    × 100
                                                ������������������������������������������ ������������������������������������ ������������ ������������������������������ ������������ ������������������������ ������������ ������������������������ (������������������������ ������ ������������������������������������ ������������ ������������������������)

Labour turnover can be caused by a variety of reasons.
Some being:
                                                                                                  Problems with recruiting new staff:
    •   The company paying staff low wages
    •   Relatively few training programmes                                                               •     It takes time and has high administration costs
                                                                                                                    o Induction programmed given by large
    •   Poor methods in recruitment and selection
                                                                                                                         companies increase the cost of
        process
                                                                                                                         recruitment
    •   Poor working conditions – unsafe, bullying etc.
    •   Lack of transport may also be a reason                                                    Why turnover may be a good thing:
    •   Some turnover is unavoidable as some businesses
        may have passed the working age.                                                                 •     New staff bring in new ideas
                                                                                                         •     Some workers may be ineffective
                                                                                                         •     If a business is shrinking, reducing business size
                                                                                                               can be good in cutting costs.
                                                                                                         •     If a business pays low wages, it might prefer hiring
                                                                                                               new workers than increasing the wage.
7|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c


USES AND LIMITATIONS

    •   These ratios give an indication of a problem in the business, but does not give any specific detail about the problems
        that the business and often business have to carry out additional research to get to the root of the problem.

Weitere ähnliche Inhalte

Andere mochten auch

4.1 further mechanics
4.1   further mechanics4.1   further mechanics
4.1 further mechanicsRawVix
 
3.1 why businesses seek international markets short notes
3.1 why businesses seek international markets   short notes3.1 why businesses seek international markets   short notes
3.1 why businesses seek international markets short notesRawVix
 
3.2 key players in the world economy
3.2 key players in the world economy3.2 key players in the world economy
3.2 key players in the world economyRawVix
 
2 1 1_marketing objectives and strategy
2 1 1_marketing objectives and strategy2 1 1_marketing objectives and strategy
2 1 1_marketing objectives and strategyRawVix
 
Important points physics. chemistry and mathematics
Important points   physics. chemistry and mathematicsImportant points   physics. chemistry and mathematics
Important points physics. chemistry and mathematicsRawVix
 
3.6 multinational corporations
3.6 multinational corporations3.6 multinational corporations
3.6 multinational corporationsRawVix
 
4a.1 corporate objectives and strategy
4a.1 corporate objectives and strategy4a.1 corporate objectives and strategy
4a.1 corporate objectives and strategyRawVix
 
Edexcel a2 unit 4a - Making business decisions
Edexcel a2 unit 4a - Making business decisionsEdexcel a2 unit 4a - Making business decisions
Edexcel a2 unit 4a - Making business decisionsRawVix
 
Edexcel A level Business Studies notes Unit3
Edexcel A level Business Studies notes Unit3Edexcel A level Business Studies notes Unit3
Edexcel A level Business Studies notes Unit3Tesmon Mathew
 

Andere mochten auch (9)

4.1 further mechanics
4.1   further mechanics4.1   further mechanics
4.1 further mechanics
 
3.1 why businesses seek international markets short notes
3.1 why businesses seek international markets   short notes3.1 why businesses seek international markets   short notes
3.1 why businesses seek international markets short notes
 
3.2 key players in the world economy
3.2 key players in the world economy3.2 key players in the world economy
3.2 key players in the world economy
 
2 1 1_marketing objectives and strategy
2 1 1_marketing objectives and strategy2 1 1_marketing objectives and strategy
2 1 1_marketing objectives and strategy
 
Important points physics. chemistry and mathematics
Important points   physics. chemistry and mathematicsImportant points   physics. chemistry and mathematics
Important points physics. chemistry and mathematics
 
3.6 multinational corporations
3.6 multinational corporations3.6 multinational corporations
3.6 multinational corporations
 
4a.1 corporate objectives and strategy
4a.1 corporate objectives and strategy4a.1 corporate objectives and strategy
4a.1 corporate objectives and strategy
 
Edexcel a2 unit 4a - Making business decisions
Edexcel a2 unit 4a - Making business decisionsEdexcel a2 unit 4a - Making business decisions
Edexcel a2 unit 4a - Making business decisions
 
Edexcel A level Business Studies notes Unit3
Edexcel A level Business Studies notes Unit3Edexcel A level Business Studies notes Unit3
Edexcel A level Business Studies notes Unit3
 

Ähnlich wie 4a.3 assessing competitiveness

Connor rykersofthw1
Connor rykersofthw1Connor rykersofthw1
Connor rykersofthw1Cryker
 
Williamson's Managerial Discretion Model (4).pptx
Williamson's Managerial Discretion Model (4).pptxWilliamson's Managerial Discretion Model (4).pptx
Williamson's Managerial Discretion Model (4).pptxdivysolanki170
 
Capital budgeting
Capital budgetingCapital budgeting
Capital budgetingALOK GIRI
 
Sandy financial analysis
Sandy financial analysisSandy financial analysis
Sandy financial analysispiyush.u.t
 
Chap009
Chap009Chap009
Chap009LUXSVB
 
Ch 9 financial statement analysis
Ch 9 financial statement analysisCh 9 financial statement analysis
Ch 9 financial statement analysisAmaie Idarus
 
Brad Simon - Finance Lecture - Project Valuation
Brad Simon - Finance Lecture - Project ValuationBrad Simon - Finance Lecture - Project Valuation
Brad Simon - Finance Lecture - Project Valuationbradhapa
 
Project Valuation Lecture
Project Valuation LectureProject Valuation Lecture
Project Valuation Lecturebradhapa
 
Accounting assignment frederico costa
Accounting assignment frederico costaAccounting assignment frederico costa
Accounting assignment frederico costaFrederico Costa
 
RATIO ANALYSIS - UNIT-5.pptx
RATIO ANALYSIS - UNIT-5.pptxRATIO ANALYSIS - UNIT-5.pptx
RATIO ANALYSIS - UNIT-5.pptxHaripriyaTyarala
 
3.4 interpreting published accounts (part 2) - moodle
3.4   interpreting published accounts (part 2) - moodle3.4   interpreting published accounts (part 2) - moodle
3.4 interpreting published accounts (part 2) - moodleMissHowardHA
 
CT 1 NOTES FOR ACTUARIAL SCIENCE BY SOURAV SIR'S CLASSES 9836793076
CT 1 NOTES FOR ACTUARIAL SCIENCE BY SOURAV SIR'S CLASSES   9836793076 CT 1 NOTES FOR ACTUARIAL SCIENCE BY SOURAV SIR'S CLASSES   9836793076
CT 1 NOTES FOR ACTUARIAL SCIENCE BY SOURAV SIR'S CLASSES 9836793076 SOURAV DAS
 
Capital Budgeting - With Real World Examples
Capital Budgeting - With Real World ExamplesCapital Budgeting - With Real World Examples
Capital Budgeting - With Real World Examplessunil Kumar
 
Project Profitability Analysis and Evaluation
Project Profitability Analysis and EvaluationProject Profitability Analysis and Evaluation
Project Profitability Analysis and EvaluationArpit Amar
 

Ähnlich wie 4a.3 assessing competitiveness (20)

Connor rykersofthw1
Connor rykersofthw1Connor rykersofthw1
Connor rykersofthw1
 
Capital budgeting
Capital budgetingCapital budgeting
Capital budgeting
 
Ratio Analysis.pptx
Ratio Analysis.pptxRatio Analysis.pptx
Ratio Analysis.pptx
 
Williamson's Managerial Discretion Model (4).pptx
Williamson's Managerial Discretion Model (4).pptxWilliamson's Managerial Discretion Model (4).pptx
Williamson's Managerial Discretion Model (4).pptx
 
Capital budgeting
Capital budgetingCapital budgeting
Capital budgeting
 
Sandy financial analysis
Sandy financial analysisSandy financial analysis
Sandy financial analysis
 
Ratio analysis
Ratio analysisRatio analysis
Ratio analysis
 
Chap009
Chap009Chap009
Chap009
 
Ratio analysis
Ratio analysisRatio analysis
Ratio analysis
 
Ch 9 financial statement analysis
Ch 9 financial statement analysisCh 9 financial statement analysis
Ch 9 financial statement analysis
 
Ingenieria economica
Ingenieria economicaIngenieria economica
Ingenieria economica
 
Brad Simon - Finance Lecture - Project Valuation
Brad Simon - Finance Lecture - Project ValuationBrad Simon - Finance Lecture - Project Valuation
Brad Simon - Finance Lecture - Project Valuation
 
Project Valuation Lecture
Project Valuation LectureProject Valuation Lecture
Project Valuation Lecture
 
Ratio analysis ii
Ratio analysis iiRatio analysis ii
Ratio analysis ii
 
Accounting assignment frederico costa
Accounting assignment frederico costaAccounting assignment frederico costa
Accounting assignment frederico costa
 
RATIO ANALYSIS - UNIT-5.pptx
RATIO ANALYSIS - UNIT-5.pptxRATIO ANALYSIS - UNIT-5.pptx
RATIO ANALYSIS - UNIT-5.pptx
 
3.4 interpreting published accounts (part 2) - moodle
3.4   interpreting published accounts (part 2) - moodle3.4   interpreting published accounts (part 2) - moodle
3.4 interpreting published accounts (part 2) - moodle
 
CT 1 NOTES FOR ACTUARIAL SCIENCE BY SOURAV SIR'S CLASSES 9836793076
CT 1 NOTES FOR ACTUARIAL SCIENCE BY SOURAV SIR'S CLASSES   9836793076 CT 1 NOTES FOR ACTUARIAL SCIENCE BY SOURAV SIR'S CLASSES   9836793076
CT 1 NOTES FOR ACTUARIAL SCIENCE BY SOURAV SIR'S CLASSES 9836793076
 
Capital Budgeting - With Real World Examples
Capital Budgeting - With Real World ExamplesCapital Budgeting - With Real World Examples
Capital Budgeting - With Real World Examples
 
Project Profitability Analysis and Evaluation
Project Profitability Analysis and EvaluationProject Profitability Analysis and Evaluation
Project Profitability Analysis and Evaluation
 

Kürzlich hochgeladen

SOC 101 Demonstration of Learning Presentation
SOC 101 Demonstration of Learning PresentationSOC 101 Demonstration of Learning Presentation
SOC 101 Demonstration of Learning Presentationcamerronhm
 
How to Create and Manage Wizard in Odoo 17
How to Create and Manage Wizard in Odoo 17How to Create and Manage Wizard in Odoo 17
How to Create and Manage Wizard in Odoo 17Celine George
 
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...Nguyen Thanh Tu Collection
 
On National Teacher Day, meet the 2024-25 Kenan Fellows
On National Teacher Day, meet the 2024-25 Kenan FellowsOn National Teacher Day, meet the 2024-25 Kenan Fellows
On National Teacher Day, meet the 2024-25 Kenan FellowsMebane Rash
 
Spellings Wk 3 English CAPS CARES Please Practise
Spellings Wk 3 English CAPS CARES Please PractiseSpellings Wk 3 English CAPS CARES Please Practise
Spellings Wk 3 English CAPS CARES Please PractiseAnaAcapella
 
Introduction to Nonprofit Accounting: The Basics
Introduction to Nonprofit Accounting: The BasicsIntroduction to Nonprofit Accounting: The Basics
Introduction to Nonprofit Accounting: The BasicsTechSoup
 
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in DelhiRussian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhikauryashika82
 
PROCESS RECORDING FORMAT.docx
PROCESS      RECORDING        FORMAT.docxPROCESS      RECORDING        FORMAT.docx
PROCESS RECORDING FORMAT.docxPoojaSen20
 
Unit-IV- Pharma. Marketing Channels.pptx
Unit-IV- Pharma. Marketing Channels.pptxUnit-IV- Pharma. Marketing Channels.pptx
Unit-IV- Pharma. Marketing Channels.pptxVishalSingh1417
 
The basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptxThe basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptxheathfieldcps1
 
This PowerPoint helps students to consider the concept of infinity.
This PowerPoint helps students to consider the concept of infinity.This PowerPoint helps students to consider the concept of infinity.
This PowerPoint helps students to consider the concept of infinity.christianmathematics
 
ICT role in 21st century education and it's challenges.
ICT role in 21st century education and it's challenges.ICT role in 21st century education and it's challenges.
ICT role in 21st century education and it's challenges.MaryamAhmad92
 
Unit-V; Pricing (Pharma Marketing Management).pptx
Unit-V; Pricing (Pharma Marketing Management).pptxUnit-V; Pricing (Pharma Marketing Management).pptx
Unit-V; Pricing (Pharma Marketing Management).pptxVishalSingh1417
 
Basic Civil Engineering first year Notes- Chapter 4 Building.pptx
Basic Civil Engineering first year Notes- Chapter 4 Building.pptxBasic Civil Engineering first year Notes- Chapter 4 Building.pptx
Basic Civil Engineering first year Notes- Chapter 4 Building.pptxDenish Jangid
 
Key note speaker Neum_Admir Softic_ENG.pdf
Key note speaker Neum_Admir Softic_ENG.pdfKey note speaker Neum_Admir Softic_ENG.pdf
Key note speaker Neum_Admir Softic_ENG.pdfAdmir Softic
 
Micro-Scholarship, What it is, How can it help me.pdf
Micro-Scholarship, What it is, How can it help me.pdfMicro-Scholarship, What it is, How can it help me.pdf
Micro-Scholarship, What it is, How can it help me.pdfPoh-Sun Goh
 
How to Manage Global Discount in Odoo 17 POS
How to Manage Global Discount in Odoo 17 POSHow to Manage Global Discount in Odoo 17 POS
How to Manage Global Discount in Odoo 17 POSCeline George
 
How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17Celine George
 
microwave assisted reaction. General introduction
microwave assisted reaction. General introductionmicrowave assisted reaction. General introduction
microwave assisted reaction. General introductionMaksud Ahmed
 
Magic bus Group work1and 2 (Team 3).pptx
Magic bus Group work1and 2 (Team 3).pptxMagic bus Group work1and 2 (Team 3).pptx
Magic bus Group work1and 2 (Team 3).pptxdhanalakshmis0310
 

Kürzlich hochgeladen (20)

SOC 101 Demonstration of Learning Presentation
SOC 101 Demonstration of Learning PresentationSOC 101 Demonstration of Learning Presentation
SOC 101 Demonstration of Learning Presentation
 
How to Create and Manage Wizard in Odoo 17
How to Create and Manage Wizard in Odoo 17How to Create and Manage Wizard in Odoo 17
How to Create and Manage Wizard in Odoo 17
 
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...
TỔNG ÔN TẬP THI VÀO LỚP 10 MÔN TIẾNG ANH NĂM HỌC 2023 - 2024 CÓ ĐÁP ÁN (NGỮ Â...
 
On National Teacher Day, meet the 2024-25 Kenan Fellows
On National Teacher Day, meet the 2024-25 Kenan FellowsOn National Teacher Day, meet the 2024-25 Kenan Fellows
On National Teacher Day, meet the 2024-25 Kenan Fellows
 
Spellings Wk 3 English CAPS CARES Please Practise
Spellings Wk 3 English CAPS CARES Please PractiseSpellings Wk 3 English CAPS CARES Please Practise
Spellings Wk 3 English CAPS CARES Please Practise
 
Introduction to Nonprofit Accounting: The Basics
Introduction to Nonprofit Accounting: The BasicsIntroduction to Nonprofit Accounting: The Basics
Introduction to Nonprofit Accounting: The Basics
 
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in DelhiRussian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
Russian Escort Service in Delhi 11k Hotel Foreigner Russian Call Girls in Delhi
 
PROCESS RECORDING FORMAT.docx
PROCESS      RECORDING        FORMAT.docxPROCESS      RECORDING        FORMAT.docx
PROCESS RECORDING FORMAT.docx
 
Unit-IV- Pharma. Marketing Channels.pptx
Unit-IV- Pharma. Marketing Channels.pptxUnit-IV- Pharma. Marketing Channels.pptx
Unit-IV- Pharma. Marketing Channels.pptx
 
The basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptxThe basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptx
 
This PowerPoint helps students to consider the concept of infinity.
This PowerPoint helps students to consider the concept of infinity.This PowerPoint helps students to consider the concept of infinity.
This PowerPoint helps students to consider the concept of infinity.
 
ICT role in 21st century education and it's challenges.
ICT role in 21st century education and it's challenges.ICT role in 21st century education and it's challenges.
ICT role in 21st century education and it's challenges.
 
Unit-V; Pricing (Pharma Marketing Management).pptx
Unit-V; Pricing (Pharma Marketing Management).pptxUnit-V; Pricing (Pharma Marketing Management).pptx
Unit-V; Pricing (Pharma Marketing Management).pptx
 
Basic Civil Engineering first year Notes- Chapter 4 Building.pptx
Basic Civil Engineering first year Notes- Chapter 4 Building.pptxBasic Civil Engineering first year Notes- Chapter 4 Building.pptx
Basic Civil Engineering first year Notes- Chapter 4 Building.pptx
 
Key note speaker Neum_Admir Softic_ENG.pdf
Key note speaker Neum_Admir Softic_ENG.pdfKey note speaker Neum_Admir Softic_ENG.pdf
Key note speaker Neum_Admir Softic_ENG.pdf
 
Micro-Scholarship, What it is, How can it help me.pdf
Micro-Scholarship, What it is, How can it help me.pdfMicro-Scholarship, What it is, How can it help me.pdf
Micro-Scholarship, What it is, How can it help me.pdf
 
How to Manage Global Discount in Odoo 17 POS
How to Manage Global Discount in Odoo 17 POSHow to Manage Global Discount in Odoo 17 POS
How to Manage Global Discount in Odoo 17 POS
 
How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17
 
microwave assisted reaction. General introduction
microwave assisted reaction. General introductionmicrowave assisted reaction. General introduction
microwave assisted reaction. General introduction
 
Magic bus Group work1and 2 (Team 3).pptx
Magic bus Group work1and 2 (Team 3).pptxMagic bus Group work1and 2 (Team 3).pptx
Magic bus Group work1and 2 (Team 3).pptx
 

4a.3 assessing competitiveness

  • 1. 1|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c ASSESSING COMPETITIVENESS OVERVIEW 1. INTERPRETATION OF FINANCIAL STATEMENT a. Gross profit margin b. Net profit margin c. ROC (Return on Capital) d. ROCE (Return on Capital Employed) e. Acid test ratio f. Current ratio g. Gearing ratio h. Interpretations of these margins and ratios i. Limitations of ratios as a decision making tool 2. HUMAN RESOURCE COMPETITIVENESS a. Labour productivity b. Labour turnover i. Unavoidable leavers c. Limitations of these calculations INTERPRETATIONS OF FINANCIAL STATEMENTS Ratio analysis is an examination of accounting data by relating one figure to another. The approach allows more meaningful interpretation of the data and the identification of trends. BUSINESS STUDIES FOR A LEVEL 3RD EDITION BY IAN MARCOUSÉ Before we proceed onto actually calculating the ratios, it is very important to familiarise ourselves with a financial statement, as these statements are what we need to calculate these ratios. The gross profit margin, the net profit margin and the ROCE is calculated from the profit and loss account. The table to the left is an example of a profit and loss account. The expenses are essentially costs that are not involved in the production of goods and services such as advertising, wages of the administration staff as well as depreciation (the value of the company’s capital decreases with age). Cost of sales are the costs directly related to production including wages for labour as well as the overheads for rent, fuel etc. Figure 1 - This has been taken from Dave Hall's book, Business Studies 4th Edition←
  • 2. 2|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c GROSS PROFIT MARGIN First, we need to calculate the gross profit, and then we can calculate the margin. ������������������������������ ������������������������������������ = ������������������������������ ������������������������������������������ (������������������������ ������������������������������ ������������ ������������������������������������������������) − ������������������������ ������������ ������������������������������ ������������������������������ ������������������������������������ ������������������������������ ������������������������������������ ������������������������������������ = × 100 ������������������������������ ������������������������������������������ (������������������������ ������������������������ ������������ ������������������������������������������������) £400,000 4 ������������������������������ ������������������������������������ ������������������������������������ = × 100 = 44 % £900,000 9 ������������������������������ ������������������������������������ ������������������������������������ ≈ 44% NET PROFIT MARGIN First, we need to calculate the net profit, and then we calculate the margin. As a simple rule of thumb, the net profit is the profit before tax – essentially, after you have taken all the costs, other expenses not directly linked to the production of the product as well as interest payable, you get the net profit: the value that the business is taxed on. The net profit will be very clearly stated in the tables that the exam board will provide, because its exact location can vary depending on the financial transactions of each individual business. ������������������ ������������������������������������ ������������������ ������������������������������������ ������������������������������������ = × 100 ������������������������������ ������������������������������������������ (������������������������ ������������������������������ ������������ ������������������������������������������������) £110,000 2 ������������������ ������������������������������������ ������������������������������������ = = 12 % £900,000 9 ������������������ ������������������������������������ ������������������������������������ ≈ 12% ROCE (THE RETURN ON CAPITAL EMPLOYED) To calculate this value, we need to be familiar with the balance sheet. The balance sheet is essentially a financial statement that lists a firm’s assets and liabilities: in simple terms, it’s what a business owns and owes. We need to remind ourselves that long term loans are also counted as investment into the business and therefore do count as capital employed into the business. The business made an operating profit of £5,600,000. • Fixed assets are assets that the business will have in the long term i.e. buildings, machinery etc. basically, assets that the business will have for more than a year. • Current Assets are assets that will last for less than a year. These assets are the most liquid assets the business has; examples include things such as cash etc. ������������������������������������������ ������������������������������������������ (������������������ ������������������������������������) = ������������������������������������������ ������������������������������������ − ������������������������������������������ ������������������������������������������������������������ ������������������ ������������������������������������ = ������������������������������ ������������������������������������ + (������������������������������������������ ������������������������������������ − ������������������������������������������ ������������������������������������������������������������) ������������������������������������������ ������������������������������������������������ = ������������������ ������������������������������������ + ������������������������ ������������������������ ������������������������������������������������������������������ ������������������������������������������������������ ������������������������������������ ������������������������ = × 100 ������������������������������������������ ������������������������������������������������ £5,600,000 ������������������������ = × 100 ≈ 22% (£17,400,000 + £8,000,000)
  • 3. 3|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c ROC (RETURN ON CAPITAL) This essentially measures the profitability of a business. If a business invests into a project, it will want to know the profitability of the project. ������������������ ������������������������������������ ������������������ (������������������������������������ ������������ ������������������������������������������) = × 100 ������������������������������������������ ������������������������������������������������ This value is expressed as a percentage. THE CURRENT RATIO AND THE ACID TEST RATIO Both these ratio assess the liquidity of a business i.e. how easily a business’ assets can be turned into cash. Again, this is another ratio that is concerned with the balances sheets a business publishes. CURRENT RATIO The current ratio of a business is essentially the ratio between its current asses and its current liabilities. ������������������������������������������ ������������������������������������ ������������������������������������������ ������������������������������ = ������������������������������������������ ������������������������������������������������������������������ ACID TEST RATIO The acid test ratio takes into account that stocks are the least liquid of all the current assets and should not be counted as an asset that can be easily liquefied. ������������������������������������������ ������������������������������������ − ������������������������������ ������������������������ ������������������������ ������������������������������ = ������������������������������������������ ������������������������������������������������������������������ GEARING RATIO This essentially is a ratio that gives an indication of how much debt the business is under, giving insight into the long term stability of the organisation. ������������������������-������������������������ ������������������������������ ������������������������������������������ (������������������������ ������������������������������ ������������ ������������������������������������������������)������������������������������ = × 100 ������������������������������������������ ������������������������������������������������ This value (like every other ratio that is multiplied by 100) is expressed as a percentage. In boom times, investors and banks find gearing a good thing, as the business is focusing on growth, however this entails great risk. However, if a recession suddenly hits, then the business will be in grave danger because now the business still has to pay back the interest with a reduced income from battered sales.
  • 4. 4|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c INTERPRETATIONS OF THESE MARGINS ANS RATIOS RATIO OR MARGIN ANALYSIS The gross profit will differ from industry to industry and hence needs to be looked at with the context of the business in mind. Can be improved by: GROSS PROFIT MARGIN • Raising sales revenue without increasing total costs – i.e. make production cheaper e.g. can be done via automation. Similarly to the gross profit margin, this will vary from industry to industry and has to be looked at with the context of the business in mind. For example, the food industry has both a NET PROFIT MARGIN low gross and net profit margins, but since there is a very high volume sold, it is not a problem. Can be improved by: • Same as gross profit margin. This is a fundamental ratio that essentially shows how well the business is making use of its resources and essentially, how lucrative it is for investment. The ROCE of a business needs to be compared with previous years to identify a trend in its growth. Also, if the ROCE is less than 6 %, then there is little incentive to invest as if an investor were to invest this money into ROCE (RETURN ON CAPITAL EMPLOYED) the bank instead, then the person would be much better off still making money with no risk. Can be improved by: • Increasing the efficiency of the business through generating greater profits from the same amount of capital invested. This measures the profitability of a project or operation and thus is a good indicator of how ROC (RETURN ON CAPITAL) successful the project was to the business. Shows the ratio between assets and liabilities. The business would do best to keep this at 1.5:1. However if this is too high, it means that the business has too much money that it is not investing. However, having too low a current ratio means that it may not be able pay back debts in times of crisis such as a downturn. Can be improved by: CURRENT RATIO • Selling under-used fixed assets • Selling shares to gain more share capital • Postpone or reduce planned investments • Take long term-loans Arguably, the best ratio is 1:1. A result that is too low means that that the business may not be able to pay off its short term debts. However, companies such as supermarkets operate with very low liquidity ratios. In fact, some of the major companies such as BP, Imperial Tobacco and TESCO have very low acid test ratios. ACID TEST RATIO • Adopting JIT, this way you have not stock to worry about – and you can divert more capital into production • Selling under-used capital or selling old machinery • Selling shares to increase share capital • Take long term loans The more geared the business is, the more debt it has. By this, it means that investing in this business is risky as well as it will be hard for the business to gain finances from banks. However, whether a business that is geared will get investment will also depend on the state of the industry. Can be improved by: GEARING RATIO • Issue more shares to raise share capital • Buy back debentures (bonds) • Retain more profit • Repay loans
  • 5. 5|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c VALUE AND LIMITATIONS OF THESE RATIOS AS A DECISION MAKING TOOL VALUE LIMITATIONS Comparisons have to be made with businesses that are similar (same industry, similar operations) and also businesses in the same time frame in order to get a fair comparison. Ratios are very simple to calculate, most of them have a consistent Sometimes, businesses in the same industry are vastly different. formula. Sainsbury focuses on food and groceries alone, while TESCO is moving onto home appliances – these new products will have a different gross profit margin and will affect comparisons. Businesses might also have different accounting techniques, which Analysis can be carried out very quickly as they are very simple to will determine how their financial statements are made – financial calculate and demand only basic financial statements. statements determine ratios. Can be used to compare one company with another; they can be The ratios are limited to the quality of the balance sheets – the used to compare businesses in the same industry. Comparisons balance sheet represents a ‘snapshot’ of the business at the end can also be made within the companies as it may have many on- of a financial year and is not representative of the business’ going projects. circumstance over the entire year. Qualitative information is ignored, making it quite ineffective in Can be used by decision makers to identify the strengths and the service industry. weaknesses of a business. For example, if gross profit margin is very high, but the Net profit margin is very low, then the business may try to reduce operational costs as well as reduce its debts. The ratios are only as good as the financial accounts. Inflation can make a business’ assets look more valuable – when there might not actually be a change in real value. WINDOW DRESSING Window dressing is the legal manipulation of company accounts by a business to present a financial picture which is to its benefit. BUSINESS STUDIES 4TH EDITION, DAVE HALL • Business managers may want to paint a good financial image of the business in order to attract investors. • Businesses might manipulate the financial picture to look bleak for the short term to make it look better in the long term – business tend to choose to get over with a financial crisis quickly than having poor financial performance for a long time; if the business shows strength in coming out of a financial crisis then they will become a favourite with investors. • Making financial statements look worse can be used to reduce the tax on a business. • Businesses trying to sell itself or one of its operations will do their best to manipulate accounts in order to get the best possible value for the business.
  • 6. 6|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c HUMAN RESOURCE COMETITIVENESS Both labour productivity and turnover show the effectiveness of the work force and can be a very useful yard-stick for measuring the efficiency of the business in question. LABOUR PRODUCTIVITY ������������������������������ ������������������������������������ (������������������ ������������������������������������ ������������ ������������������������) ������������������������������������ ������������������������������������������������������������������������ = ������������������������������������������ ������������������������������������ ������������ ������������������������������������������������������ (������������������ ������������������������������������ ������������ ������������������������) This essentially measures the how many products (on average) a worker produces over a specific period of time. There can be many ways to improve this: • Making production more capital intensive will reduce the need to labour as well as produce at a cheaper rate as machines can work continuously unlike workers. • Often, changing the type of production can improve the efficiency of a business; using cell production instead of assembly line production is an example as it meets worker’s social needs. • Training can make workers more able, allowing them to perform their work more efficiently. • Overall, increasing the motivation of workers by giving them more power or authority is also a great way to increase productivity, as they can highlight the main problems with the production process and can therefore come up with a better solution. High labour productivity will drive the costs of the business down and hence the business can sell cheaper products to gain greater sales or keep prices the same and get more profit – depending on the elasticity of the product. However, even after adoption these measures, often businesses are unable to compete: • Often competing businesses may offshore production to places such as China, where the labour cost is very cheap. • Rivals may be able to increase productivity at an even faster rate, than the business, through a combination of technology and cheap labour. • Rival might also enhance the quality of the product while at the same time increasing the productivity of the business. LABOUR TURNOVER ������������������������������������ ������������ ������������������������������ ������������������������������������������ (������������������������ ������ ������������������������������������ ������������ ������������������������) ������������������������������������ ������������������������������������������������ = × 100 ������������������������������������������ ������������������������������������ ������������ ������������������������������ ������������ ������������������������ ������������ ������������������������ (������������������������ ������ ������������������������������������ ������������ ������������������������) Labour turnover can be caused by a variety of reasons. Some being: Problems with recruiting new staff: • The company paying staff low wages • Relatively few training programmes • It takes time and has high administration costs o Induction programmed given by large • Poor methods in recruitment and selection companies increase the cost of process recruitment • Poor working conditions – unsafe, bullying etc. • Lack of transport may also be a reason Why turnover may be a good thing: • Some turnover is unavoidable as some businesses may have passed the working age. • New staff bring in new ideas • Some workers may be ineffective • If a business is shrinking, reducing business size can be good in cutting costs. • If a business pays low wages, it might prefer hiring new workers than increasing the wage.
  • 7. 7|Q u az i N a f i u l I sl a m – w w w . s t u d e n t t e c h .c o . c c USES AND LIMITATIONS • These ratios give an indication of a problem in the business, but does not give any specific detail about the problems that the business and often business have to carry out additional research to get to the root of the problem.