Notesale: Turn your study into money

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They set out what the firm
does and why they do it
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5 characteristics of a good statement:
differentiate from rivals
defines which market a firm wants to operate in
relevant to all stakeholders
excites, inspires and motivates

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Functions of objectives
a clear statement about what needs to be done and achieved
a means of measuring performance
examples of objectives profit, cash flow, market share

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Corporate Culture
is the way that a business does things and the way that people in the firm expect things to be
done
• four main types of corporate culture:
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Risk culture: refers to bureaucratic firms where authority is defined by job titile
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Person culture: refers to loose organisations of individual workers, usually professional
partnerships (laissez-faire workers make own decisions and get on with by themselves
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Team work on tasks need the responsibility to make their own
decisions and the freedom to organise themselves in the way they think best and in order to
meet firm's objectives
• Barrier to cultural change – because of the culture and values the firm has fear that workers
will become stress, out of comfort zone, worried about pay and conditions, developed good
working relationship can be tarnished
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Corporate Strategy
• how a firm achieves its objectives
• Porter's Strategy = came up with the idea of firm strategy – Porter put forward a theory of
competitive advantage
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Cost advantage – selling products at a low cost
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cost leadership – calling for lowest cost of production taking advantage of economies of
scale
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Decision Making Model
• Business analyse their current situation using SWOT – SWOT is a kind of situational audit
that tells managers where business is in terms of STRENGTH, WEAKNESS,
OPPORTUNITIES, THREATS
• This is a simple model but should not be used in isolation
• Ansoff's Matrix – is a tool that helps businesses decide their product and market growth
strategy
• Products
Existing
New
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Product developmentincrease market share and
used in a market when they
increase usage
have good growth potential
and strong research and
development and a good
competitive advantage
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Can be able to make lots of
identical products
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Diversification – very
risky and appropriate when
a firm really need to
diversify to reduce
depenedance on a limited
poroduct range, when there
is a promise of high profits
or when they have cash
reserves to lean back on

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• Calculated – avaerage annual profit divided investment times 100%
• Advantage – easy to caluclate and takes into a ccount of all projects cash flow
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This is the amount it would be worth
if you had it now, which later will be less than face value

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calculated – 1
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sum of discounted factor, 3
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Firm must look at the current market environment, corporate image, their
objectives and industrial relationship and use other techniques too
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Decision Trees
• are a mathematical model used in decision making and incorporating probability
• squares are used to show decision being made, branches out of the square show options,
Nodes – show alternative outcomes, and branches out of nodes show the probability of an
event
• advantage – sets out a problem clearly using visuals and encourage a logical approach to
decision making, useful when making tactical or routine decision rather strategic decisions
• disadvantage – ignores changing nature of business and hard to predict probabilities
accurately
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Critical Path Analysis
identifies the most efficient and cost effective way of completely a complex project
critical path is the shortest time required to get from start to finish and has no float time
advantage – helps find shortest time possible
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Disadvantage – CPA relies on estimates of how long each task will take if these aren't
accurate, the whole is inaccurate
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EST – earliest start time – an activity cannot start until the activity before it has been
completed
LFT – latest finish time – latest time by which the activity can be completed without holding
up next vivacity
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Special Order
• contributions help managers make decisions regarding additional customer orders at reduced
prices
• contribution: selling price – variable cost – used to pay fixed costs – what left over is profit
• special order decisions – refers to a situation where the proposed price is insufficient to
cover the average cost of production
• disadvantage – contributions can easily be confused with profit
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It could actually cost less to let the event the event
happen then plan for them
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Interpretation of financial statement
• Ratio analysis: method of assessing a firm's financial situation by comparing two sets of
linked data
• ratios used:
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b) net profit margin – net profit / turnover times 100
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Calculated – operating profit
divided capital employed *100
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Operating profit is best measure of performance as it focuses only on the firm main trading
activities whereas others measure include items aren't reflection of efficiency
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Liquidity ratios- show how much money is available to pay bills – there are 2 current and
acid test/quick ratio
• a) current ratio – compare current asset to current liabilities – current asset divide current
current liabilities
• ideal ratio is 1:5:1 or 2:1 higher or too low is bad
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Too low suggest firm is insolvent
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Calculated
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Ideal 1:1 is or
0
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Nature of company growth
• there are two ways a firm can grow – organic – grows by firms using its own resources
• inorganic – occurs when a firm gets bigger by joining with another firm

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Mergers – when two companies agree that they should join together – to share expertise,
benefit economies of scale
Synergy – the idea that after merging the performance will exceed that of its previously
separated 2 + 2 = 5
takeover – purchase of a smaller firm by a larger one – advantage more profit and total
control
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Usually when a business grows it will need to readjust it organisational structures during
growth managers delegate more - as a a business becomes larger – tall structures get larger
and chains of communication longer, less effective – sometimes tall changes to flat
Layers of hierarchy are removed – called delayering – there's often an emphasis on team
work 4encourage more use of TQM – total quality management and employees are
delegated authority to remove product if faulty
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