Analysing the strategic position of a business

Influences on the mission of a business 

• Personal belief 
• Business ownership 
• Values and relative power of stakeholders
• Nature of the industry 
• Degree of competition 

Influences on corporate objectives and decisios 

• Short termism -  pressure on a business to perform in the short term
• Business ownership - objectives of a company will be heavily influenced by the objectives of the shareholder 

Internal influences 

• Mission statement 
• Leaders' personal objectives and values 
• Perfomance 
• Organisational culture 
• Internal stakeholders

External influences 

• External environment  - PESTEL
• Investors' objectives 
• Competitive environment 
• Global markets
• External stakeholders 

Functional decision making 

• Decisions made with a busines by managers of a specific funcational area 
• Will impact; marketing, finance, operations, human resources 

SWOT  analysis 

• A diognostic tool used to identify the internal strengths and weaknesses and the external opportunities and threats to a business 

Assessing financial performance 

• PLCs have a legal obligation to publish their annual accounts 
• Financial data can be used to assess performance and potential

Published accounts 

• The financial performance of a business can be assessed using two key financial reports 
• Balance sheet 
• Income statement 

Balance sheet - the terminology 

• Non-current assets  - likely to be kept by the business for more than one year 
• Current assets - likely to be turned into cash within a year 
• Non-current liabilities  - debts that the business has more than one year to repay 
• Current liabilities  - debts that the business may have to repay within one year 

Income statement 

• Sales revenue  - money coming in from sales 
• Cost of sales  - costs directly linked to the production of the goods or services sold 
• Gross profit 
• Expenses  - all other costs associated with the trading of the business
• Operating profit
• Interest - interest paid on debt or received on positive balances 
• Profit for the year 

Ratio analysis

• Allows for a more meaningful analysis of published accounts 

Return on Capital Employed (ROCE)

• A measure of how efficiently a business is using capital employed to generate profits 

Operating profit x 100

Total equit + non-current liabilities

Liquidity 

• A measure of a business' ability to survive in the short term 
• A business with a low liquidity is in danger if short term creditors demand payment quickly 

Current assets 

Current liabilities 

Gearing 

• Measures what proportion of a business' capital is funded through long term loans 

Non-current liabilities x 100

Total equity + non-current liabilities 

Efficiency ratio

• Asses the internal management of a business 
• Payables days, recieveables days, inventory turnover 

Payables days 

• A meaure of how long it takes, on average, for the business to pay for supplies it has purchased on credit 

Payables x 365

Cost of sales 

Recievables days 

• A measure of how long it takes, on averagge, for customers to pay the business for goods or services it has purchased on credit 

Recievables x 365

Sales revenue 

Inventory turnover 

• Average inventory held can be calculated by finding the average of inventory at the start and end of the year 

Cost of sales 

Average inventory held 

Value of assessing financial ratios when assessing performance 

• Provides a…