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Analysing the Strategic Position of a Business - Coggle Diagram
Analysing the Strategic Position of a Business
Financial Ratio Analysis
Financial Ratios
Return on Capital Employed: allows a business to compare operating profits with a total capital employed by the business
Operating Profit/Capital Employed X100
Capital Employed = total equity + non current liabilities
Current Ratio: allows a business to explore it's liquidity by comparing current assets with current liabilities
Current assets/Current Liabilities
Gearing: used to calculate the proportions of long-term funding which comes from debt
Non current liabilities/capital employed X100
Payable days: the time taken for a business to pay those they owe money to
Payables/cost of sales X365
Receivable days: time taken for a business to collect the money that is owed
Receivables/revenue X365
Does not take into account non-financial information, but it does allow a business to compare performance across the years and compare against competitors
Overall Performance
Non-financial information: assess weaknesses and strengths of a business
Can be collected from:
operations function
labour productivity, capacity utilisation and quality measures
marketing function
sales forecast, brand loyalty and satisfaction data
human resource function
absenteeism, labour costs per unit, labour turnover and employee costs
Core Competencies: a business' ability to combine its skills, knowledge, and processes to provide it with an advantage over competitors, also known as a competitive advantage
Advantage: allows a business to attract and retain customers, add value throughout their production process
Disadvantage: outsourcing can lead to quality issues as some production processes are passed to third parties who may seek to cut costs during production
Hamel & Prahalad - big businesses to be viewed as a collection of core competencies, businesses perform better if they were diversified
Kaplan & Norton Scorecard
Advantage: provides leaders and managers with a framework to assess and measure the performance of different aspects of the business
Elkingtons Triple Bottom Line
Profit: important element of determining the business' overall performance, it is needed to support the community
People: the employees and customers determine the overall business performance
Planet: a business' impact on the planet is an important element in determining the businesses overall perdformance
Political & Economic Change
can present opportunities and threats to a business, can also affect decision making
Legislation is an important factor in deterring how a business can and does operate
Gross domestic product (GDP) is the value of goods and services produced by a country during a certain period
Changes in GDP can affect a businesses decision making as it coincides with demand
Taxation: the tax paid by a business on any profits made, can affect a business' decision making
Exchange rates: the value of one currency expressed in terms of another currency
Fiscal policy: the use of government expenditure and taxation to influence demand
Monetary Policy: the controlling of money supply and interest rates ro control economic activity
