BUSS3 NOTES

In depth business notes taken from the textbook and condensed down

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Using Objectives & Strategies (1)
Corporate Objectives = goals/targets of the whole organisation, usually based on its mission or aims = providing a mechanism for ensuring that authority
can be delegated without loss of coordination.
Functional Objectives = goals/targets of each of the functional areas of a business, usually based on its corporate objectives.
Corporate Objective Functional Objective
1. Survival 1. Minimum level of sales/level of
2. Profit maximisation stock/staff
3. Growth maximisation 2. Effective marketing =
4. Diversification sales/costs = improves profit
margins/ staff
turnover/absenteeism
3. Market share/Retaining profit =
finance growth/Expand number of
sites/Recruit more staff
4. Development of niche markets
Functional Objective Strategy
1. Gain market share = 1. price
CO-rate of growth 2. Introduce zero budgeting
2. costs = CO-maximising 3. Centralised buying in bulk from
profits same supplier
3. Improve EOS 4. Improve motivational techniques
4. Improve labour turnover
Understanding Financial Objectives (2)
Cash-flow Objectives:
Minimum closing monthly cash balance
Bank overdraft by the end of the year
Even spread of sales revenue
Spreading costs more evenly
Certain level of liquid items
Raising cash at a particular point
Setting contingency fund levels
Cost Minimisation:
Cost in purchase of stock
Wage costs per unit
Levels of wastage
Least-cost site
CPT (costs/1000 customers) of promotion
Efficiency of production = VC per unit
ROCE = OPERATING PROFIT/CAPITAL EMPLOYED X 100
1. Achieve an ROCE that exceeds the level recorded in the previous year
2. Achieve an ROCE that compares favourably with UK level
3. Achieve an ROCE that exceeds competitors level
Shareholders' Returns
A high dividend per share/% increase compared with last year
A high dividend yield = dividend paid as a % of the market value of the share = can compare with opportunity cost e.g. savings account
Increasing the share price = by retaining profits + growing successfully
High earnings per share = total profit/by the number of shares = shows efficiency
Other Financial Objectives
Sales maximisation
Liquidity + Gearing targets
Individual project targets
Financial efficiency targets
Reasons for Financial Objectives
Provide a yardstick
Improve efficiency
For shareholders
For outside organisations
Internal Influences
Corporate Objectives = must correlate in order to meet mission/aims
Finance = healthy financial situation can help it meet targets more easily
HR = depends on efforts/skills of workforce
Operational = if operating efficiently can help meet financial targets
Resources Available = premises, brand names, quality of workforce
Nature of the Product = maturity stage?
Other External Influences
Market = demand is high or low?
Competitor's actions and performance
Suppliers = credit terms/bulk buying/reliable for JIT
Using Financial Date to Measure + Assess Performance (3)
Non-current assetsowned for >1 year

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Current assetsowned <1 year
Non-current liabilitiesdebts due for repayment after >1 year
Current liabilitiesdebts scheduled for repayment within 1 year
Share capitalfunds provided by shareholders through the purchase of shares
Reserves/retained earningsitems that arise from increases in the value of the company
Purposes of balance sheet
Recognising the scale of the business = non-current assets + working capital = overall view of capital employed, thus its overall worth
Calculating the net assets of the business = total assets minus total liabilities = value of business…read more

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What happens to the profit?
`Earnings per share' shows shareholders the effectiveness of the business in using its equity capital to make profits. A business that is using most of its
profits to pay dividends will please shareholders looking for a quick return = BUT shareholders with LT interest in business may prefer to see retained
profits as these will be reinvested into the business to boost profits in future.…read more

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ROCE = OPERATING PROFIT + (TOTAL EQUITY + NON-CURRENT LIABILITIES) X 100
Shows the operating profit as a percentage of capital employed; capital employed equates to the value of the capital that a business has at its disposal.
Should exclude exceptional items to get a better value = exceptional items deem it not to be high-quality profit.
Liquidity Ratios
CURRENT RATIO = CURRENT ASSETS : CURRENT LIABILITIES
Ideal between 1.5:1 and 2:1 = unlikely to run out of cash.…read more

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These calculations ignore the gains or losses that can be made from owning shares = if share prices are increasing, the dividend yield will fall, but owning
these shares will be a more attractive proposition. A fall in the share price will increase the dividend yield but may be seen as an unfavourable trend by
shareholders. If share prices are relatively static, the dividend yield is a more relevant measure. BUT still limited as ignores the part of the profit that is
retained.…read more

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Demotivation = may add pressure and stress imposed on staff, who may have technical skills that do not include financial management = demotivate staff
who want to use their technical ability rather than financial skills or do not have time for extra work
Setting targets = for specialist areas, the senior managers of the business may lack the detailed knowledge needed to recognise whether a profit centre is
being run effectively or ineffectively = targets may be easy/hard
Diseconomies = if too much financial responsibility…read more

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