Q&A: What are synergies in takeovers and mergers?
Look at any major takeover or merger in the news and you’ll come across the concept of synergies….
read more...»Q&A - What is a partnership?
A partnership is formed where a business is started and owned by more than one person.
read more...»Q&A - How does the acid-test ratio differ from the current ratio?
Not all assets can be turned into cash quickly or easily. Some - notably raw materials and other stocks - must first be turned into final product, then sold and the cash collected from debtors. The acid test ratio (sometimes also called the “quick ratio”) therefore adjusts the current ratio to remove the value of stocks from the current assets total. This is because stocks are assumed to be the most illiquid part of current assets – it is harder to turn them into cash quickly.
read more...»Q&A - How is the current ratio calculated and interpreted?
The current ratio is the classic measure of liquidity. It indicates whether the business can pay debts due within one year out of the current assets. The current ratio reveals how much “cover” the business has for every £1 that is owed by the firm. For example, a ratio of 1.5:1 would mean that a business has £1.50 of current assets for every £1 of current liabilities.
read more...»Q&A - What is the “creditor days” ratio?
“Creditor days” is a similar ratio to debtor days and it gives an insight into whether a business is taking full advantage of trade credit available to it. This ratio estimates the average time it takes a business to settle its debts with trade suppliers.
read more...»Q&A - How can the debtor days ratio be calculated and interpreted?
The debtor days ratio focuses on the time it takes for trade debtors to settle their bills. The ratio indicates whether debtors are being allowed excessive credit. A high figure (more than the industry average) may suggest general problems with debt collection or the financial position of major customers. The efficient and timely collection of customer debts is a vital part of cash flow management, so this is a ratio which is very closely watched in many businesses.
read more...»Q&A - Explain the asset turnover ratio
The asset turnover ratio considers the relationship between revenues and the total assets employed in a business. A business invests in assets (e.g. machinery, stocks) in order to make profitable sales, and a good way to think about the asset turnover ratio is imagining the business trying to make those assets work hard (or sweat) to generate sales.
read more...»Q&A - How is stock turnover calculated and interpreted?
Stock turnover helps answer questions such as “have we got too much money tied up in inventory”? An increasing stock turnover figure or one which is much larger than the “average” for an industry may indicate poor inventory management.
read more...»Q&A - What is “profit quality”?
One of the issues to consider when looking at the income statement is to look at whether the reported profit is “high quality” or “low quality”. What is the difference?
read more...»Q&A - What factors determine the amount of working capital in a business?
Many factors affect the level of working capital in a firm. It is important to remember that different industries have different working capital profiles, reflecting their methods of doing business and what they are producing and selling.
read more...»Q&A - What is “working capital”?
By adding together the totals for current assets and current liabilities in the balance sheet, a very important figure can be calculated – working capital. Working capital provides a strong indication of a business’ ability to pay is debts, and is calculated as: current assets less current liabilities
read more...»Q&A - What is depreciation?
Depreciation is a tricky concept to understand and often confuses business students. It is a cost that is recognised in the income statement, but it does not involve a cash flow! How does this happen?
read more...»Q&A - Who are the main users of financial accounts?
The financial accounts provide a wealth of information that is useful to various users of financial information. The key users are described briefly below:
read more...»Q&A - Outline what are meant by financial accounts
Every transaction that a business gets involved with ultimately finds its way into the accounting records and financial statements of the business. In business there are essential two main types of financial reports (or “accounts”):
• Financial accounts – which formally record, summarise and report the transactions of the business
• Management accounts – which present and analyse financial data to help management take decisions and monitor performance
Q&A - What are the main ways a public company can raise finance from shareholders?
Both private and public companies can raise finance by selling new shares in the company. For the purpose of this note, we concentrate on the main options open to a publicly-quoted company – i.e. a company whose shares are quoted and traded on a recognised stock exchange.
read more...»Q&A - Describe the main kinds of intermediary involved in distribution channels
Whilst many kinds of business get involved in distribution channels, the most common type of intermediaries are retailers, wholesalers, distributors, agents and franchisees. These are described briefly below:
read more...»Q&A - Should a business avoid intermediaries and sell direct?
A key decision a business has to make about distribution is whether to sell “direct”. Direct marketing means selling products by dealing directly with consumers rather than through intermediaries.
read more...»Q&A - What factors determine the type of distribution channel used by a business?
A wide variety of factors need to be considered when deciding on the most appropriate distribution channel for a product. These are summarised below:
read more...»Q&A - How many stages does a distribution channel have?
Distribution channels vary in terms of the number of stages a product goes through between producer and final consumer. “Long” channel routes involve one or more intermediaries such as wholesalers, retailers and agents. in “short” channels, the product is supplied to the consumer directly from the producer without the use of intermediaries (sometimes also called “middlemen”).
read more...»Q&A - Outline the role of a distribution channel
A distribution channel can be defined as: “all the organisations through which a product must pass between its point of production and consumption”. Looking at that definition, you can see that a product might pass through several stages before it finally reaches the consumer. The organisations involved in each stage of distribution are commonly referred to as “intermediaries”.
read more...»Q&A - What is the role of “place” in the marketing mix?
Place (or its more common name “distribution”) is about how a business gets its products to the customers. The objective of distribution is clear. It is to: to make products available in the right place at the right time in the right quantities. Distribution matters for a business of any size – it is a crucial part of the marketing mix.
read more...»Q&A - What is personal selling and merchandising?
Personal selling is where businesses use people (the “sales force”) to sell the product after meeting face-to-face with the customer. The sellers promote the product through their attitude, appearance and specialist product knowledge. They aim to inform and encourage the customer to buy, or at least trial the product.
read more...»Q&A - Outline the role of public relations and sponsorship in promotion
Public relations covers a broad series of activities where a business manages its relationships with different parts of the public, e.g. customers, the media, local communities, suppliers, employees and investors.
read more...»Q&A - Describe the main features of advertising as a method of promotion
Advertising is defined as any “paid-for method of promotion” and is the main form of “above the line promotion”. Advertising presents or promotes the product to the target audience through a variety of media such as TV, radio, cinema, online, newspapers and magazines.
read more...»Q&A - What is the difference between “above” and “below the line” promotion?
The way in which promotion is targeted is traditionally split into two types - “above the line” and “below the line”.
read more...»Q&A - What are the main aims of promotion?
Promotional activities have a variety of aims:
read more...»Q&A - What is promotion?
It is no longer enough for a business to have great products. Lots of businesses have those too. Customers need to know about a great product and be persuaded to buy. That is the role of promotion.
read more...»Q&A - How can a business use contribution pricing?
Contribution pricing involves setting a price based on the variable cost of producing or buying a product. The aim is to ensure the selling price generates an acceptable contribution towards covering the fixed costs of the business.
read more...»Q&A - What is competitor-based pricing?
Competitor-based pricing involves the setting of prices based on what rivals are charging.
read more...»Q&A - Outline the main methods of sales promotion
Sales promotion is the process of persuading a potential customer to buy the product. Sales promotion is designed to be used as a short-term tactic to boost sales – it is rarely suitable as a method of building long-term customer loyalty.
read more...»
