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2.4 - Coggle Diagram
2.4
2.4.2- Understanding business performance
Market Data- Data about the business' competitors and how successful the business is in relation to them. Alongside the trends of market e.g spending (in relation to external factors)
Examples: Market Share analysis, Competitors' Financial Data (compared to the business) / Competitors' Marketing Data, Total market sales trends.
Affected by both Demographic (the population size and characteristics) and Economic (the current economic situation) factors
E.g If a business sells Alcoholic drinks and the demographic is becoming younger the business may invest in Non-alcoholic drinks as they know young demographics are less interesting in purchasing beer and wine.
Marketing Data- Data generally obtained via market research based on consumer feedback and external factors
Examples: Surveys, Questionaires, Economic conditions analysis, interest rates, unemployment rates etc.
Note: Can be primary, secondary / Qualitative or Quantitative.
Useful Data in conjunction with Financial/Market Data to make forecasts or better coordinate business' operations e.g where each department should focus its work.
Financial Data- Data about a business' sales and financial gain from a project
Examples of Financial Data- Cash flow, revenue, break even analysis, Net profit.
Benefits
Financial Data is easy to measure a business' growth and development
Positive trends can please shareholders therefore promoting investment and reducing potential capital deficit.
Negatives
Financial Data can cause the business to have a limited product driven view- this can cause failure to spot new consumer trends and likes and therefore slow to facilitate needs- giving competitors an advantage.
Some businesses do not see Financial success as an indicator of a Business' success therefore it is not as useful
The Data can only be collected after it would have occurred (e.g number of sales in previous quarter) therefore it is out of date and predictions could not account for any unforeseen circumstances.
Graphs and Charts
Charts- Methods of graphically depicting quantitative Data
Graphs-
A type of Chart
which depicts the relationship between two or more variables e.g sales and Time
Uses: Both allow a business to interpret its financial Data (alongside Market trends) and therefore complete cash flow/financial forecasts to accommodate- this allows the business to better prepare for times of financial hardship e.g by taking out a loan whilst easily comparing their performance with other businesses etc.
Need of business Data
Accurate- If the data is inaccurate then the business' forecasts will be tarred and false therefore leading to the business being slow to pick up on consumer trends or failing to identify times of financial hardship and therefore entering debt or liquidation.
UP TO DATE- If the data is out of date then the business' accommodations and forecasts will be on an incorrect time scale leading to slow financial decisions.
Sufficient- If the data is not compared with other sources it could be meaningless as the business becomes fixated and does not gain the conclusive picture.
2.4.1- Business Calculations
ARR (Average rate of return)- The amount the capital invested (in a project) the business makes back per annum.
ARR = (Annual average profit/Cost of initial investment) x 100
Annual average profit = Total profit/project length (in years)
This shows: How profitable an investment opportunity may be and whether it should be exercised.
Examples include: A new piece of machinery, new premises and new logistics supplier.
Gross Profit- The measure of a business profit after the expenses incurred via making the product are taken into account e.g costs of raw materials
Gross profit = Revenue - cost of sales
Examples of costs of sales: Raw materials, machinery/staff to produce.
Gross porfit margin- The proportion of every pound (the business gains as revenue) which is gained as gross profit
This shows: The amount of capital (per £) spent on making/selling the product and therefore where costs can be reduced.
GPM = (Gross Profit/Revenue) x100
Net profit- The measure of the capital a business gains after all expenses are incurred.
Net Profit = Gross profit - operating expenses
Examples of operating expenses: overheads, legal expenses, royalties (if applicable) etc.
Net profit margin- The proportion of every £ (gained as revenue) that the business gains to use and reinvest.
This shows: How much capital is lost via operating expenses and whether considerations need to be made (use in conjunction with Gross profit to determine where the most amount of capital is being lost)
NPM = (Net profit/Revenue) x100