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Breakeven Analysis - Quick Quiz

Sunday, April 13, 2014

Here is a Zondle-powered topic which tests knowledge and understanding of the basics of breakeven analysis. The topic quiz keeps setting you the questions until you get them all right! Give it a go!

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Even St Anthony can’t change the culture at Barclays

Monday, March 10, 2014

In 2012 Anthony Jenkins (nicknamed “Saint Anthony”) succeeded Bob Diamond and promised to clean up Barclays and eradicate the worst excesses of the banking industry. Speaking to those who received huge bonuses for unscrupulous behaviour, he said “my message is simple: Barclays is not the place for you. The rules have changed. You won’t feel comfortable at Barclays and, to be frank, we won’t feel comfortable with you as colleagues”.

Despite this, profit dropping 32% to £5.2bn, and making 3,700 jobs cuts last year:

  • Jenkin’s himself pocketed just under £5m in shares
  • Staff paid over £1m increased from 428 to 481.
  • The bonus pool increased 10% to 2.4b

The justification for this? Many senior traders have left, or threatened to do so, and to keep hold of the top earners, he had to offer top pay. Had he not, the investment wing of Barclays would have plunged into a “death spiral”, with staff and high-value customers going elsewhere.

This is part of the bigger issue regarding European Commission’s rule to reduce banking bonuses, how George Osborne is fighting the decision and why, it would seem, he really didn’t need to as bosses of RBS (81% owned by tax payers) and HSBC also side-stepped the rule by giving large “fixed pay allowances” in the form of shares.

This story always provides great impetus for emotive debate on BUSS4 topics such as government intervention, culture, pay and leadership.

Football Finance

Friday, March 07, 2014

This lesson worked as a nice way to consolidate students’ understanding of finance (and engaged the lads in the class more than ever). The Deloitte Football Money League ranks football’s top earning clubs and gives various infographics, reports and videos about their financial success. Very interesting in itself, but coupled with the fact that most of the teams listed are racking up millions in debt, it made for an interesting discussion about profit, loss, short term investment and long term success.

The PowerPoint (Football_finance_2013.ppt) is a research task and can be used as a lesson or homework. There are various extension questions and then a discussion about UEFAs Financial Fair Play (FFP) rule, which will supposedly "level the playing field" and stop the big clubs running up the kind of debts in the table below.

The Revenue Race - who’s in the lead?

Friday, February 07, 2014

Here's a fun link, showing a variety of firm's building up revenue in real time.  The winner clocks up $1m in little over a minute.  Of course, revenue isn't the same thing as profit - but you can track net profit too, showing up some interesting issues.  Coca-Cola earns more than PepsiCo despite fewer sales. Boeing and Airbus enjoy about equal revenue, but the American firm is much more profitable.

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Is a Flotation Next for Poundland?

Monday, October 07, 2013

Poundland, the fast-growing discount retailer where everything is for sale at £1, looks like it might float its shares on the stock market in the near future.

Poundland is currently 75% owned by venture capital firm Warberg Pincus with the remaining shares split between over 100 Poundland management and employees. The latest income statement published by Poundland makes for impressive reading.

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Being Entrepreneurial - The Trading Game

Thursday, September 19, 2013

There is nothing that better epitomises the concept of being entrepreneurial than trading - buying and selling - hopefully profitably!

That's the idea behind The Trading Game - an interactive teaching and learning resource that tutor2u have developed to support OCR's new qualification in entrepreneurship - Being Entrepreneurial.

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Earnings and Dividends

Sunday, September 01, 2013

Some of you will be starting a new business course soon, and looking at the concept of a limited company.

Stated simply, a company is a type of business in which ownership is split between shareholders. The more shares you own, the larger your cut of the profits the company makes. When a company makes profits, managers have to decide: should those earnings be retained (ploughed back into the business) or paid out to the shareholders as a dividend?

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Fat Profits? The Risks of Investing in a Franchise

Saturday, August 31, 2013

There is profit to be made in the diet and fitness industry. But, do the risks outweigh the rewards for franchisees looking to run local classes?

This article in the Daily Mail will not make pleasant reading for the Rosemary Conley Diet & Fitness franchise, particularly if they are looking to recruit new franchisees. We should always question the validity of the data included in the article and perhaps the motives for publishing it. Nevertheless, for business students it contains some very useful insights into the risks involved in investing in a franchise.

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Costs, Cash, Capital and Customers - Harriet Green’s Strategy for Success

Harriet Green's strategy for Thomas Cook looks like it might become a classic case study in how to achieve a successful turnaround for a business with a strong brand and customer base but a weak balance sheet (gearing too high).

Before Green could get the balance sheet right through a refinancing, she had to get the business right first. She needed to change the organisational structure and improve profitability and medium-term cash flow through a strategy of retrenchment. This has been a painful process but it made it much easier when Thomas Cook approached the stock market to raise new share capital (equity) and reduce the amount of debt.

This short interview with Harriet Green is packed full with great A2 business studies materials as she explains the basics of her turnaround strategy.

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Business Finance - New Sources for Entrepreneurs

Wednesday, July 17, 2013

Setting up a business is hard enough. Setting it up in this economic climate is nearly impossible. So entrepreneurs are having to seek out some imaginative solution. With banks seemingly reluctant to lend to new and smaller businesses, start ups are having to be more imaginative in how they raise cash to get going. This Channel 4 news report looks at the growth of unregulated peer to peer lending such as Zopa, Rate Setter, Funding Circle and KickStarter.

The UK’s peer-to-peer lending market remains small in the context of total commercial bank lending but it has trebled in size in just three years. According to a new report from the Open Data Institute, "lenders have been attracted by the relatively high rate of returns available by lending in this market, given the current low yield in bank and other conventional debt instruments."

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How are UK firms raising finance?

Tuesday, June 18, 2013

The textbook section on finance is sometimes a bit far from the mark when describing how firms (especially the biggest) raise finance in reality.  Several years have passed since the ‘Credit Crunch’ of 2007/08 and big problems remain. Business lending has now been falling steadily for four years, and is 20% lower than in 2009.

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Revision Quiz - Breakeven Basics

Monday, May 13, 2013

This new revision quiz on Breakeven Basics is designed for GCSE & equivalent courses.

Launch Revision Quiz - Breakeven Basics


Co Op Bank’s USP vanishing trick

Friday, May 10, 2013

One of the strengths and a key component in the Co-Op Bank's USP after recent banking problems - sub-prime lending, collapse of Northern Rock and LIBOR rate fixing, was its emphasis of ethical banking. 

http://www.co-operativebank.co.uk/



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Revision Quiz - Managing Stocks

This revision quiz looks at the basics of stock management and its role in lean production.

Launch Revision Quiz - Managing Stocks

Shocker or Cracker? BYOD and find out

Monday, April 29, 2013

Seeking a way to make costs, revenue and profits interesting for my business students and get them digging deep into the reality of cost control, revenue generation I developed the "Shocker or Cracker?" activity.

This requires students to conduct independent research within the classroom using their own electronic devices (laptop, tablet or samrtphone) and helps to generate a healthy sense of competition.

There has been increasing debate about the merits of adopting a Bring Your Own Device (BYOD) policy within schools and colleges so I thought I'd give it a go...

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Return on Capital: a snapshot of British Business

Friday, April 26, 2013

Whenever you are investigating a firm’s accounts – perhaps using ratio analysis – you quickly realise that the answers you’re generating only really make sense when you compare them against something, like last year’s figures, or those of a rival.

My students are looking at a case study (OCR F297) in which a firm is making a return on capital of approximately 11%.  We were wondering if that was a ‘good’ return or not.  I’ve come across an article that directly answers that question, and raises some other points that offer a revealing insight into the health of Britain’s businesses.

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What does Apple plan to spend $100bn on?

Wednesday, April 24, 2013

Some interesting finance news here, since Apple don’t plan to spend their famous cash mountain on a conventional purchase.  Instead, they plan to raise dividends and buy back their own shares.  Why?

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Low Contribution & High Fixed Costs - the Problems for Nintendo’s Wii U

Saturday, March 23, 2013

A classic example here of how earning a low contribution per unit can lead to big problems for a business if it does not sell high-enough volumes - particularly when fixed costs are high.

Nintendo's new "next-generation" console retails in the key US market for a selling price of $299. However, the (variable) cost of the components used and assembly are pretty close to the selling price, which leaves little if any scope for Nintendo to make a contribution on each console unit sold. Don't forget, it also needs to allow its retail and other distributors to earn a satisfactory margin too.

Of course Nintendo can recoup much of the cost back through lucrative royalty payments from games-developers who are licenced to develop for the new console. 

But the big problem for Nintendo would be if the Wii U fails to sell in large quantities. The early indications of consumer demand do not look good...

This excellent short video from CNN takes a look at the variable costs of making the Wii U.

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The importance of ICT and electronic banking services

Thursday, March 07, 2013

Many AS Business candidates are asked about this question, and perhaps one of the most helpful ways of looking at this topic is seeing what happens when things go wrong.  The latest headache was a short disruption only this week at RBS, and is covered by the BBC and The Guardian.

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Sony sells iconic office block as part of turnaround strategy

Tuesday, March 05, 2013

Sony has sold part of its heritage and culture as part of Kazou Hirai's dramatic turnaround strategy with the sale and leaseback of one of its main buildings in Tokyo for 111.1 billion yen (£794m) 

According to Sony's official press release regarding the property sale:

"Sony is transforming its business portfolio and reorganizing its assets in an effort to strengthen its corporate structure. This sale was conducted as a part of this reorganization."

This isn't the first time that Sony has opted for the use of sale and leaseback as a way of raising finance.  in January 2013 Sony raised $1.1bn from the sale and leaseback of its corporate headquarters in New York.

The asset sales are designed to generate cash and repay Sony's high debts, which in turn are part of a major restructuring programme introduced by Hirai. He came into the job in Spring 2012 stating that "Sony must change: Sony will change".

The Urge to Merge

Thursday, February 21, 2013

Could businesses rediscover an enthusiasm for mergers, which was largely lost after the last merger bubble burst in the run up to the financial crisis of 2008?

According to The Economist, some of the right conditions are in place.  Interest rates remain very low, and most mergers are built on the back of borrowed money.  At the same time (to the surprise of many) a lot of firms are sitting on vast cash reserves.  Perhaps all that is needed now is the appetite for risk that is probably behind many of these bold moves, at least in the past.

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Raising finance for startups - the real-life Dragons

Monday, February 18, 2013

This is a useful short video from the BBC which illustrates the process of business angel investing. 

There is a strong flow of entrepreneurs who attempt to raise capital by pitching their companies to so-called angel investors. So what are the investors looking for before they part with their cash? And how helpful is the process for the entrepreneurs themselves?

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Blackberry’s Last Hope - What it costs to make the Z10

Tuesday, February 12, 2013

Many seasoned industry observers believe that RIM's survival hopes rest on the recent launch of the Z10 - the new Blackberry smartphone designed to compete directly with the iPhone 5 and Samsung's range.

RIM needs the new phone to generate some pretty significant profits and a key part of that will be achieving a strong gross profit margin in a highly competitive, price-sensitive market.

In this video, the basic manufacturing unit costs of the Z10 have been analysed and compared with the iPhone 5. What are the results?

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Cash flow management - make sure you employ good people!

Saturday, February 09, 2013

A key part of effective cash flow management is having the right people managing the cash!

In this video, Innocent Drinks co-founder, Adam Balon speaks at a recent business seminar on their experience of managing the cash flows from customers (retailers) in the early days of Innocent. Innocent Drinks got into some serious cash flow problems arising from poor financial control over working capital management. The key learning point - make sure that the people involved in financial management are of high quality.

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What do we learn from football ‘rich lists’?

Friday, February 01, 2013

I've been on this topic before, since every year we're updated with a 'rich list' of European football clubs, and I often ask my students what this means.  Everybody understands how financial success and success on the pitch are often (but not always) very closely linked, so it's a question worth asking.

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Elop Stops Paying Dividends as Part of Nokia’s Turnaround Strategy

Friday, January 25, 2013

You might have read that blog entry a recently where we tried to make the case for a business cutting the amounts paid to shareholders in dividends in order to conserve cash and/or invest in projects.

Well it looks like Stephen Elop must read the Business Studies blog (thanks Stephen) because that's exactly what he and the Nokia board have just decided to do!

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Its accrual world.  A guide to accrued and prepaid expenses

Monday, January 14, 2013

An accrual is an amount used in an accounting period which will not be paid for until the next accounting period.

In final accounts accrued expenses are: -

  • added to the expense (from trial balance) before listing in the Income Statement
  • shown as a current liability in the balance sheet

This ensures the Income Statement records costs incurred for the year instead of amounts paid. The expense is adjusted to relate to the period covered by the Income Statement. The balance sheet shows a liability for the amount due but unpaid.

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A defining moment – some of the key terms of introductory accounting explained

Sunday, January 13, 2013

These are my top 20 definitions for you to revise based upon the exam papers of the last few years. Each definition is usually worth 2 or possibly 3 marks. 

Exam Tip: Remember to apply your knowledge to questions & quote figures, details from the questions or give examples to fully demonstrate your knowledge. 

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Make yourself a Balance Sheets butty

Saturday, January 12, 2013

Balance Sheets are a key financial statement and learning the layout of these is a key to success in A Level Accounting.  They are a snapshot at a point in time.  However there is no way you can expect people to remember the layout is there??  Well, - there is and it involves Alchemy (magic). 

  Assets – things a business owns

– Liabilities things a business owes

= Capital – the owners investment

When you make yourself a sandwich you have bread on the top and bottom to hold the filling in.  Being an Accountant I’m a bit odd so I recommend a Current Sandwich! (or a ‘Butty’ to those Tutor2u northerners!)


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How to profit from an Income Statement

Friday, January 11, 2013

Students of Accounting regularly struggle with Income Statements layouts and its vital this is overcome by you as these are fundamental to your success in Units 1, 2 & 3.  These can easily be worth 15-25% of the paper.  Here are the key components broken down and explained: -

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BUSS3 A* Evaluation - Do You Really Have to Pay That Dividend?

Shareholders can be hard to manage and difficult to please.

On the one hand, a firm owes a debt of gratitude to shareholders for putting their money where their mouth is and backing the business with their cash.

However, shareholders – like all investors – look for a return on their shareholding.  The return comes in two ways: (1) a dividend paid (in cash) out of retained profits and (2) an increase in the value of the shares (a “capital gain”).

For many quoted companies, the shareholder dividend is a permanent feature of doing business with investors. A dividend is typically paid twice each year: an interim (usually smaller) dividend paid after 6 months of the financial year; followed by a final dividend once the full results for the year are worked out.

The payment of dividends enables you (and investors) to calculate a key shareholder ratio: the dividend yield.

Dividend yield is simply the annual dividend paid divided by the average share price over the period covered. This gives a good indication of the percentage return on investment that a shareholder gains just from the dividend each year.

So, for example, an annual dividend payment of £0.50 per share for shares that were priced on average at £10.00 each would be a dividend yield of 5%.

So far, so good.  But can you see a potential problem from the point of view of management? 

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How and why we complete bank reconciliation

Thursday, January 10, 2013

Bank reconciliation is where you check that your bank statement (the banks version of your bank account) matches your own cash book (your version of the bank account).  Its good practice to do so because: -

  • ·  We can correct errors we make in our cash book
  • ·  We can notify the bank of errors they may have made
  • ·  We can update the cash book with items we have missed
  • ·  We can identify out of date cheques and cancel them in the cash book
  • ·  We can identify dishonoured cheques and update the cash book accordingly
  • ·  We can use it as a deterrent to fraud by comparing our version to the banks independent version


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Debit Credit theory – An introduction to double entry bookkeeping

Wednesday, January 09, 2013

People often switch off when you start talking about double entry book keeping.  The real problem is people look at their bank statements and, aside from the pain of having £0.26 sat in there, it’s written from the banks perspective.  This means many people think the debit and credit are to be written that way. It’s a fundamental skill needed to do well in many of the accounting units.

 

Key point to remember

  • Double entry means that you do two entries (shock!) – in separate accounts
  • Every Account has two sides – a debit side and credit side
  • Debit means to receive.   The receiving account gets the debit in its account
  • Credit means to give.   The giving account gets the credit entry in its account

 

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A Little Ketchup on Source Documents

My first Tutor2u blog will, like most of the others (sadly there will be more!), focus on certain parts of Accounting.  There will be regular mention of ‘easy marks’.  These are the ones which turn a C grade to a B grade and so on.  It’s a theme I use to make sure my students maximise their marks. 

This blog is on arguably one of the easiest part of the AS Accounting syllabus.  Yet it’s one which students get wrong continually. Source documents are a continual source of frustration to me that students don’t pick up these relatively easy marks.

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BUSS3 A* Evaluation - Investment Appraisal and the Power of Application

Saturday, January 05, 2013

The need to stay 100% in context when writing BUSS3 answers is well appreciated by A grade students. As we've said many times, good application opens the door to good analysis and pushes student answers up to the highest levels of evaluation. 

Nowhere is this more important than in the use of investment appraisal. This is because investment appraisal is all about making forecasts about the future. Those forecasts absolutely have to take account of the nature of the case study firm and the market in which it operates.  Investment appraisal calculations also have to make use of data based on assumptions usually made by the case study management.  The A* answer for a BUSS3 answer that makes use of investment appraisal evidence should therefore make best use of the opportunity to question the assumptions made by management and the reliability of the forecast data used.

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BUSS3 A* Evaluation - High Gearing is Good – Sometimes!

Friday, January 04, 2013

What is the right level of gearing for a firm? Read many outdated business studies textbooks and they probably warn that gearing is too high if it is over 50% and that such “high gearing” is a warning sign of potential financial problems for a firm.

Well, possibly. But I’ve come across many firms in my business past that have thrived with levels of gearing much higher than 100%. In fact, when you look at most venture capital-backed takeovers or management buy-outs you’ll find that most of the funding used to finance the business is debt.  Many well-established multinationals operate with gearing well above 50% and investors hardly bat an eyelid?

So how can high gearing be good for a business?

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Revision Presentation - Cost Basics

Sunday, December 30, 2012

This revision presentation looks at the key concepts of business costs.  What are the main types of business cost and how can they be categorised?  Why is the distinction between variable and fixed costs so important?  Why do new businesses often find it hard to estimate the costs of the business - particularly in the startup business plan?

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Revision Presentation - Cash Flow Forecasting for Startups and Small Businesses

Every startup should consider the likely future cash flows of the enterprise in the first few weeks and months of trading.  This revision presentation takes students through the basics of the cash flow forecast.

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Revision Presentation - Shareholder Ratios

Wednesday, December 26, 2012

A brief introduction here to two key ratios that focus on the returns that shareholders earn from their investment - dividend per share and dividend yield.

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Revision Presentation - Liquidity Ratios

Monday, December 24, 2012

In this revision presentation we look at liquidity ratios - which assess whether a business has sufficient cash or equivalent current assets to be able to pay its debts as they fall due.

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Revision Presentation - Making Investment Decisions (Introduction)

This introductory revision presentation guides students through the concept of basic investment appraisal. It examines the nature of capital investment spending and then outlines three common approaches to investment appraisal: payback period, net present value and accounting rate of return. Some key evaluative points relating to investment appraisal are also discussed.

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Revision Presentation - Raising Finance for an Established Business

Saturday, December 22, 2012

This revision presentation for business students provides an overview of the finance-raising options for an established business. It covers concepts such as share issues, sale and leaseback, trade credit and venture capital.

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Revision Presentation - Financial Efficiency Ratios

Friday, December 21, 2012

In this revision presentation, we provide an overview of financial efficiency rations - which assess how effectively a business is managing its assets.

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Revision Presentation - Profitability Ratios

This revision presentation helps guide students through the calculation and interpretation of three key profitability ratios: gross profit margin; operating profit margin and return on capital employed (ROCE)

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Revision Presentation - Balance Sheet Basics

Saturday, December 08, 2012

The basic structure and content of a balance sheet is explained in the revision presentation below.

You may also find this revision note on the balance sheet helpful.

Once you've worked through the revision materials on balance sheet basics, have a go at this revision quiz to test your knowledge and understanding.

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Revision Presentation - Income Statement Basics

The revision presentation below outlines the basic structure of the income statement and also explains the meaning of “profit quality”.

You may also find this revision note on the income statement useful.

Once you have worked through the revision note and presentation, try this revision quiz on income statements.

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Hollywood’s return on investment in their Stars

Wednesday, December 05, 2012

Here’s an amusing one to add to Business Studies end of term competitions.  I covered the topic last year and asked which Hollywood celebrities gave the lowest return on the investment studios made in them.  In other words, for every $ that the star was paid for appearing in a movie, how much did the film make at the box office?  Who is the most ‘overpaid’?  Have a few guesses before you look at the list….

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Introducing Zombie Businesses - Trading (Somehow) But Almost Dead

Wednesday, November 07, 2012

They survive - but only just. They have debts and relatively high gearing, but with the support of creditors and low interest rates these businesses are just about able to service their debts. They are barely profitable and not growing, but they trade on, and on.

Who are they? Zombie businesses. And one view is that zombie businesses are a significant factor in holding back economic growth in the UK.


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Starbucks brews up big tax breaks

Tuesday, October 16, 2012

Reuters have uncovered some interesting figures relating to Starbuck's UK operation - is it making a profit or not?

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ResearchBuster: Retrenchment

Wednesday, September 26, 2012

Most businesses aim to grow - but not all succeed - and many are forced to reduce the scale and scope of their business activities as a deliberate act of strategy.  This is known as “retrenchment” and A2 students should have an understanding of some examples of retrenchment in action.  Which firms / brands were involved?  What happened?  And why?  Here are some suggestions that students could add to their notes:

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