A-Level Business — Strategic Analysis & Evaluation

Front

Distinguish between 'mission' and 'vision' statements.

Back

**Mission:** Defines the organization's core purpose, scope of operations, and value proposition *today*. It answers 'What do we do and for whom?'. **Vision:** A future-oriented aspiration of where the business wants to be. It answers 'Where are we going?'. A strategic plan translates the vision into actionable objectives.

Front

Analyze the impact of 'overtrading' on liquidity.

Back

Overtrading occurs when a business expands operations (sales) faster than its cash reserves can support. While turnover increases, working capital (cash) is drained by funding high levels of inventory and receivables before cash is collected from sales. Without increased external finance, this leads to insolvency despite high profitability.

Front

Compare 'cash flow' with 'profit'.

Back

Profit is a surplus of revenue over expenses (accrual accounting concept), often including non-cash items like depreciation. Cash flow is the actual movement of money in and out of the bank. A business can be profitable but illiquid (if customers don't pay on time) or unprofitable but liquid (if relying on large loans). Cash flow is necessary for survival; profit is necessary for long-term growth.

Front

Calculate and interpret 'Return on Capital Employed' (ROCE).

Back

Formula: **ROCE = (Operating Profit / Capital Employed) × 100**. It measures the efficiency of profit generation relative to long-term capital invested. A higher percentage indicates better efficiency. It is crucial for comparing performance across different industries or sizes, though it relies on accurate asset valuation (e.g., depreciation methods).

Front

Evaluate 'Internal Rate of Return' (IRR) vs. 'Average Rate of Return' (ARR).

Back

**ARR** calculates the average annual profit as a percentage of initial investment. It is simple but ignores the timing of cash flows. **IRR** calculates the discount rate where Net Present Value (NPV) is zero. It accounts for the time value of money and yields a percentage (easier to compare to cost of capital), but it assumes reinvestment at the same rate and can be ambiguous with non-conventional cash flows.