Summary of Chapter 3:Using financial data to measure and assess performance(Part 2)

WORKING CAPITAL

Working capital(net current assets)=current assets - current liabilities

The working capital cycle:

Factors influencing the level of working capital:

1. The nature of the product: Items such as clothing that must be displayed in order to entice customers require higher inventory levels that those that do not need display
2. The durability of the product: Companies try to have lower levels of inventories of perishable items or finished products that may become unfashionable
3. The efficience of suppliers: If suppliers can supply large quantities at short notice ,a business will be able to hold lower inventory levels
4. Lead-time: If it takes a long time to make a product,companies will be more likely to hold them in the stock
5. Customer expectations: If the customer is prepared to wait ,it may be unnecessary to hold inventories;if the customer wants the item immediately,inventories should be held.
6. Competition: A business needs to match its rivals,so invetory levels are influenced by the policies of competitors

• Causes of working capital difficulties:

1. Failure to control inventory levels: as high levels of inventories 'tie up' resources unnecessarily and cost the business money in storage costs
   
2. Poor control of receivables(debtors) : a firm that allows receivables to delay payments needs to hold higher levels of other current assets,such as cash ,as a precaution.
   
3. Cash-flow problems: a firm that pays its payables too quickly will damage its working capital.
   
4. Poor internal planning and coordination: If individual departments of a firm are unable to meet targets ,working capital problems will occur.
   
5. External factors: Unforeseen changes can affect consumers' tastes.If the business is not able to adapt quickly ,this may lead to unsold stock or low levels of cash.
   

• Solving working capital problems:

1. Inventory control : Ideally inventory levels should be maintained at a low level,as this means that less money is tied up in inventories
   
2. Low inventory levels: reduce the needs of storage space,and the chances of damage,deterioration and obsolescence.
   
3. Receivables control: this can be achieved by:

• Managing credit control
• Chasing up late payers
• Obtaining a credit rating
• Controlling the quality of the service of the product
  

Summary of Chapter 3:Using financial data to measure and assess performance(Part 1)

Because I haven't got my books yet from my lovely EF...and my school is motivating me by that way,and supporting me in studying ,and because I just have the copy of chapter 3,which Mr.Chris copied to me so I will summarise it...= =

• Company accounts:

*The balance sheet: a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year

*Income statement: Income statement, also called profit and loss statement and Statement of Operations, is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line").

• Purposes and users of company accounts:

Internal users

1. MAnagers: managers use information to record financial activities,plan appropriate courses of action,control the use of resources,and analyse and evaluate the effectiveness of actions and decisions taken in financial terms
2. Employees: employees can assess the security of their employment and the ability of the firm to provide them with reasonable wages by examining the financial position of the business.
3. Owners and investors: Investors want to compare the financial benefits of their investment with alternatives,such as shares in different companies or placing their savings in a bank.

External users:

1. Government: The government wants to know that the business has met its legal requirements and that it has paid certain levels of tax.
2. Competitors: Competitors are able to compare their performance against rival companies and benchmark their performances.
3. Suppliers: Suppliers want information about a firm's financial situation before agreeing to supply materials
4. Customers: Customers want to know if the company is financially sound and that guarantees and after-sales servising agreements are secure.
5. The local community: The local communities relies on businesses for employment and wealth creation.

• Analysing balance sheet:

*Assets:

• Non-current assets: tend to be owned by an organisation for a period of more than 1 year
• Current assets: tend to be owned for less than 1 year

*Key terms:

• Assets:items that are owned by an organisation
• Non-current assets: resources that can be used repeatedly in the production process
• Tangible assets: non-current assets that exist physically
• Intangible assets: non-current assets that do not have a physical presence,but are nevertheless of value to a firm

*Liabilities:

• Current liabilities: are debts scheduled for repayment within 1 year
• Non-current liabilities: are debts due for repayment after more than 1 year

*Capital:

• Share capital:the funds provided by shareholders through the purchase of shares
• Reserves and retained earnings: those items that arise from increases in the value of the company,which are not distributed to shareholders as dividends,but are retained by the business for future use.

• Purposes of the balance sheet:

1. Recognising the scale of a business: adding non-current assets to working capital and gives an overall view of the capital employed by a business and thus its overall worth
2. Calculating the net assets of a business:The balance sheet shows the overall worth of a business:its total assets minus its total liabilities.
3. Gaining an understanding of the nature of the firm: the structure of a firm's assets may give information about the nature of a business
4. Identify the company's liquidity position: Comparing liquid or current assets with current liabilities shows whether a firm is going to be able to avoid cash-flow problems
5. Showing sources of capital: the balance sheet shows whether a company is raising its finance from retained profits or long-term loans
6. Recognising the significant of changes over time: Continual scrunity of the balance sheet can identify any undersirable changes that take place
   

Business Evaluation:Deluxe golf carts as neighbourhood transportation

There's been plenty of lip service paid to electric vehicles in recent years, but the fact remains that in many communities, they're still more frequently discussed than actually seen. Not so in several U.S. neighbourhoods, however, where golf carts and other diminutive electric vehicles are part of the very fabric of community life.

With many of the same gas-free benefits offered by larger electric vehicles—but considerably lower price tags—neighbourhood electric vehicles, or NEVs, are the transportation of choice for residents of several large retirement communities, Golf carts are a common sight on the streets and specially designed paths of The Villages community in Florida, for example—and not just the ordinary, plain-vanilla variety. In fact, many of the community's 77,000 retired residents "pimp their rides" to look like fire trucks, 1930s roadsters and stretch limos, Wired reported, spending as much as USD 20,000 in the process of swapping in bigger tires or hacking engines to surpass the traditional golf cart's maximum speed of about 20 mph. Similar sights are apparently seen in other communities around the country, including the retirement mecca of Sun City, Arizona, and the all-ages suburb of Peachtree City, Georgia. Accessories are sold by companies like GoNEV.

Driver's licenses are not typically required for most golf carts, but full-fledged NEVs—which are street-legal in most states—require insurance and registration, Wired reported. Either way, such vehicles offer not only eco-benefits and credentials, but apparently also those of the more neighbourly kind: "If your neighbour is in his yard, you can't drive by in your golf cart without waving and saying hello," Gary Lester, VP of community relations for The Villages, told Wired. Chrysler's Global Electric Motorcars is one major maker of NEVs, selling its vehicles for as low as USD 3,644 with tax credits.

Lower prices, fewer emissions and social benefits on top of an eco-iconic appearance and government tax incentives? Legal and insurance issues notwithstanding, sounds like a potential winner to us. Who will put golf carts at the forefront of *your* community's next planning venture...?

The base arguement for this type of car is "is it neccessary and reasonable for demand for cars nowadays."So there are 2 main discussions:

• Advantages:
  

In the credit crunch situation like this,pepople are likely to safe as much money as possible.So with the low price such as USD 3,644,its not expensive to buy a car.So probably,this could be a good idea to expand this product to the market.

It has a lot of benefits and convinient for people to use it like with many of the same gas-free benefits offered by larger electric vehicles—but considerably lower price tags—neighbourhood electric vehicles.Therefore,pollution will be reduced and negative externality will be less. Also,

Driver's licenses are not typically required for most golf carts, but full-fledged NEVs—which are street-legal in most states—require insurance and registration.. so people will not waste their time to get a driving licence and it's a very simple type of transportation.

• But there are plenty of costs in this product as well.

First of all,money invested to supply and produce the product is high.It has high technology equipments and materials,which needs a big amount of money from the start.So in the long run,with economy of scale,it may gain profit as the average cost per every unit is getting lower.

Secondly,the speed of this type of transport.It just has maximum speed of about 20 mph,which is very low competing with other cars.So in needs of emergency or busy work,this car won't help much.

This type of cars is so simple that it even doesn't have windows....so what's the point of driving it,if there's no windows.Furthermore,if you look at the pictures of those cars,it just has 2 sits on it which means,it's definetely not suitable for big families.

Summary Mindmap chapter 4 Business A2

Summary Mindmap:Balance sheet

The most detailed mindmap about Balance sheet ever:D

Ethical question

"A fellow employee told me he plans to quit the company in two months and start a new job which has been guaranteed to him.Meanwhile, my boss told me that he wasn't going to give me a new opportunity in our company because he was going to give it to my fellow employee now.What should I do?"

There are 2 situations for this case:

• If I'm a substitute with that fellow employee:

So in my own idea,staying with that company is the right choice.Because,it's a big opportunity for me to stay at the company,because I could be sent to higher hierarchy.It's beneficial if that fellow employee will leave,therefore,the place for me to be replaced of him is quite safe.

So why not staying at that company,wait till he leave,and have his job,withi higher responsibilities and higher hierarchy.Also,the boss will understand,that if he will give that fellow a new opportunity,it will be W.O.S because he will leave and it will cost a lot to retrain and reemploy.Also it may cost because of recruitment .It's quit not very ethical because our benefit will be our fellow employee's leaving.But......still,this how competition work...We have to compete to improve..and to survive

• If I'm not a substitute for that fellow:

So there will be no opportunity for me if that fellow will leave.In other way ,there's nothing affecting me if he leaves.Because,anyway if he leaves,I will not be instead of him doing his work,so there will be no new opportunity for me.So there will be other employees who might do his work.Also For the Y-theory workers such as me ,no responsibility and achievement means "failed".

But I could probably make or force the boss of the company to do that fellow's work by affecting his brain.I'll also move to another company,and for the company,people leaving is not beneficial,especially at the same time!Others might feel demotivated and they may reduce their productivity or even move as well.So the boss may try to keep me and motivate me by giving that fellow's job.IF this won't even work,Therefore leaving the company and find a new job will be the best choice

Revision MindMap:Problems of transports that the Government faces