3.5 - Assessing Competitiveness

Question 1

What is the formula for gearing ratio?

Answer 1

Non-current liabilities / capital employed (x100)

Question 2

Why is it risky for potential investors if a businesses gearing ratio is over 50%?

Answer 2

Means that most of the businesses money comes from loads

Question 3

What is ROCE?

Answer 3

Financial ratio that measures a company’s profitability and the efficient of which its capital is employed.

Question 4

What is the formula for ROCE?

Answer 4

Operating profit / capital employed (x100)
- higher % = GOOD

Question 5

What are the limitations of ratio analysis?

Answer 5

• ratio are only as reliable as the financial data they are based on
• ratios need compassion to be meaningful
• industry context matters e.g. low ratios in fast selling sectors may not be a concern
• always consider the broader economic context e.g. global recessions affecting ratios

Question 6

What are Human Resources?

Answer 6

The term for the personnel function of the business

Question 7

What does HR involve?

Answer 7

• identifying workforce requirements to develop appropriate plans
• designing jobs that people do
• developing appropriate reward systems
• developing effective communication systems

Question 8

What does labour productivity measure?

Answer 8

The level of output that each worker produces

Question 9

What is the formula for labour productivity?

Answer 9

Total output / number of workers

Question 10

What does labour turnover measure?

Answer 10

How many staff leaving a business in a year compared to the total number of staff

Question 11

What is the formula for labour turnover?

Answer 11

Number of employees leaving / average number of employees (x100)

Question 12

What is the impact of high labour turnover ?

Answer 12

• increases recruitment costs
• reflects poor morale in workforce and so low productivity levels
• increases training costs of new workers
• loss of productivity while new workers settles in

Question 13

What is the formula for absenteeism?

Answer 13

Number of work days lost through absence / total possible days worked (x100)

Question 14

How can a business reduce labour turnover and absenteeism?

Answer 14

• offer financial incentives e.g. bonuses
• offer non-financial incentives e.g. job rotation
• improve effectiveness of recruitment and selection process
• conducting research to understand why employees are leaving e.g. exit interviews