Respond to these questions by posting brief comments.  I will evaluate your answers and give you a mark.

Forms of finance – short answer questions

Question 1

Explain the concept of sale and leaseback. (3 marks)

Question 2

Why is it best if a company raises money from a variety of sources? (2 marks)

Question 3

Explain the difference between an ordinary share and a debenture. (4 marks)

Question 4

Why can venture capital be a deceptively dangerous source of finance? (5 marks)

Question 5

The capital that a firm needs may be raised from within the company (Internally) or from outside of the firm. (Externally)

Look at the list of possible sources of funds to a firm and decide if they are internal (I) or external (E) sources. Be careful, some are not sources at all but are uses of funds (U). Mark these as well.

The rules of the world of business are simply not fair! The staple meal in Senegal is imported and much of it originates in the USA. In Ghana tinned tomatoes are often from Italy, yet the country is a grower of this staple food. Just how can such poor countries such as Ghana and Senegal break out of this vicious cycle?

Their workers receive very small sums of money in their wage packets, have very few of the rights we have in the developed economies and much of the value added to their exports takes place thousands of miles away from the lands in which the crop or resource was grown or mined.

Can we in the ‘west’ just stand by and let this happen, or should we fight for a more ‘level playing field’ in world trade and how we buy and sell our goods?

Should we demand of our retailers:

• A policy of monitoring how our favourite products are grown etc and provide us with evidence that the standards we expect have been evident in the work practices of the growing or manufacturing country?
• A policy that builds into buying systems an ethical dimension?
• A policy between all concerned in the distribution chain that an agreed code of conduct be accepted?
• That those who earn profits from what we buy from them act responsibly and monitor how their policies affect both society and the environment?

Perhaps if more of us raised these issues the world might just be a better place? Or will we leave it all to pressure groups?

Question 1

Explain what is meant by (a) pressure group and (b) ethical trading

Question 1 – answer

A pressure group is a collection of individuals who try to persuade people, organisations and government to promote a certain cause or interests. Ethical trading involves checking how something was produced, the rights of the workers etc and not knowingly trading with a company or country where the standards expected by your consumers are compromised

Question 2

How might the work of certain pressure groups alter the ways in businesses buy and distribute products and services?

Question 2 – answer

They might attempt to use advertising, poster campaigns or other ways of using the media to promote their cause. They might lobby politicians and other senior decision-makers and so persuade them to apply their concerns in policy decisions. They might also work in schools and colleges and engage in a programme of educating and informing people of their cause and why they promote it.

Question 3

In what ways might a supermarket benefit from introducing ethical trading?

Question 3 – answer

A supermarket that adopts a more openly ethical stance towards its trading operations would have to consider the costs of such a scheme against its benefits. Benefits might include greater customer loyalty and the acceptance of those who had not previously shopped with them that they now represent the ethical climate they feel comfortable with. Naturally, this would boost trade and increase profitability.

In 2002 the Co-op won the Shell Award for sustainable development for their buying practices for fairtrade bananas. Here’s some details from the Worldaware web site giving information about the award:

“Fairtrade prices for bananas, paid by Co-op supermarkets, mean that growers can afford better housing – and rubber boots. These are an important safeguard in a tropical plantation frequented by snakes and scorpions. One grower, Arturo, says he and his fellow growers used to be the lowest form of Costa Rican life. He worked 14 hours a day and just about survived. Now he and the other 300 growers in a co-operative supplying the Co-op earn 60 per cent more than the minimum wage. They employ an agronomist who has helped them cut their use of dangerous pesticides. Arturo feels a new self-esteem. “I have become an international businessman,” he says. Bananas are the biggest selling item in supermarkets in Britain. They require special and expensive transport and treatment if they are to reach ripeness at the moment when a shopper buys them. This puts them beyond the compass of most Fairtrade enterprises. But the Co-op was big enough to persuade one of its suppliers to handle Fairtrade bananas, initially from Costa Rica, then also from Ghana and Ecuador. Forty per cent of pre-packed bananas sold in Co-ops are now bought from growers at an enhanced price set by the Fairtrade Licensing Organisation, a Europe-wide body.

Part of a Fairtrade deal is that, besides the enhanced price, growers receive an extra social premium to help them improve community services – schools, clinics, water supplies. This may be the most important benefit when the number of growers is large and they have to sell much of their produce to commercial rather than Fairtrade buyers.

The Co-op is now the leading retailer of Fairtrade goods in Britain, selling 5.5million worth in a year, a higher proportion of sales than any other supermarket group. With the help of such organisations as the Fairtrade Foundation, Twin Trading and Traidcraft, it has overcome the difficulty faced by small suppliers in meeting supermarkets’ need for high-standard, pre-packed goods in specified quantities at specified times.

Besides such Fairtrade staples as coffee and chocolate (a Co-op brand bar at a readily affordable 39p is specially made by The Day Chocolate Co), the Co-op has launched out into wines from a Chilean co-operative and mangoes from a plantation in Ecuador. It sells Fairtrade goods in all its 2,000 supermarkets, even though they take up shelf space which could otherwise go to branded products. Terry Hudghton, the Co-op’s head of corporate marketing, spearheads the Fairtrade campaign. He sees it as trading, not charity, but at the same time expressing Co-op shoppers’ concern for overseas suppliers.”

You could have a look at the Co-op web site for further details of their business practices and the Co-operative movement.

Question 4

Why might an environmental and social audit benefit a business?

Question 4 – answer

By conducting one or both of these audits a business can (a) see where it is meeting its stakeholder obligations and (b) where it is not. It can then analyse the latter and decide whether it wants to alter its practises to meet them. It could stress how well it is meeting its objectives and explain to all how its operations are designed to benefit as wide a range of stakeholders as they can. Again customer loyalty and the advantages this brings should flow to the company.

Story from BBC NEWS:

http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/8529950.stm

Published: 2010/02/23 23:24:57 GMT

© BBC MMX

Here are the first revision questions for this week.  In particular you should focus on the ethical issues case study question as most of your answers for this on the past exams were a little weak. 

Inflation – short answer questions

Question 1

What are the main influences on business of inflation?

Question 2

Why is monetary policy used in the mixture of policies available to government?

Question 3

Why is inflation considered to be such a problem for an economy?

Interest rates – short answer questions

Question 1

What might be the affects on an economy of a fall in interest rates?

Question 2

How do interest rates influence business?

Government fiscal policy – short answer questions

Question 1

What is fiscal policy?

Ethical objectives – case study

The rules of the world of business are simply not fair! The staple meal in Senegal is imported and much of it originates in the USA. In Ghana tinned tomatoes are often from Italy, yet the country is a grower of this staple food. Just how can such poor countries such as Ghana and Senegal break out of this vicious cycle?

Their workers receive very small sums of money in their wage packets, have very few of the rights we have in the developed economies and much of the value added to their exports takes place thousands of miles away from the lands in which the crop or resource was grown or mined.

Can we in the ‘west’ just stand by and let this happen, or should we fight for a more ‘level playing field’ in world trade and how we buy and sell our goods?

Should we demand of our retailers:

• A policy of monitoring how our favourite products are grown etc and provide us with evidence that the standards we expect have been evident in the work practices of the growing or manufacturing country?
• A policy that builds into buying systems an ethical dimension?
• A policy between all concerned in the distribution chain that an agreed code of conduct be accepted?
• That those who earn profits from what we buy from them act responsibly and monitor how their policies affect both society and the environment?

Perhaps if more of us raised these issues the world might just be a better place? Or will we leave it all to pressure groups?

Question 1

Explain what is meant by (a) pressure group and (b) ethical trading

Question 2

How might the work of certain pressure groups alter the ways in businesses buy and distribute products and services?

Question 3

In what ways might a supermarket benefit from introducing ethical trading?

Question 4

Why might an environmental and social audit benefit a business?

After I see that you have worked on these questions I will post the answers after class discussion.

Have a good week!

K.Kennedy

Hello all,

Please write your ideas about questions which you will ask in your market research.  Make sure the questions are closely related to the products and services you are going to work on – no general, vague questions allowed. 

Have a good weekend and see you Monday.

K. Kennedy

Here is where you can post your ideas about the marketing mix (just the 4 basic P’s this time)  for a specific company.  Post comments on one product and one service.

Weekend work awaits you all!

Go to the Textbook.Tripla website and go to Finance and Accounting.

Do the following questions:

26, 28(only Q1), 37, 38, 39, 54, 55, 56 (do not do current, dividend, or gearing ratios)

Hand write these answers in note form and have them ready for Monday.

If you have any questions please post them as comments on the blog – I will check in over the weekend.

Thanks and good luck!

K Kennedy

PS!  For those of you who are unable to access the Triplea website I am posting the questions from the question bank on their site.

It is 10 pages of text so here goes:

TripleA question set

Q24 Balance sheets – short answer questions

Question 1

Distinguish between fixed and current assets.

Question 2

Why are debtors an asset to a firm?

Question 3

You lend money to a bank. Is this an asset or liability as far as the bank is concerned?

Question 4

Distinguish between tangible and intangible assets.

Question 5

Distinguish between ordinary shares and debentures.

Q 28 The balance sheet – numerical questions

Question 1

Solway Gliders plc have just set up a new office in Bristol. They have also purchased a new computer system and software. They have hit a snag, and some of the data has become lost. The latest version of their balance sheet is shown below, and it has some gaps. Your task is to try and work out what should be in these gaps, and then to complete the account.

Comment on your findings.

Q 37 Profitability ratios – short answer questions

Question 1

What facts should be taken into consideration when examining firms ROCE?

Question 2

Explain the primary efficiency ratio for a firm.

Question 3

Explain the differences between profit and profitability.

Question 4

How does a short term or a long term approach to business influence the level of ROCE that will be considered acceptable?

Q38 Profitability ratios – report

Produce a SHORT report outlining whether or not falling profit margins are a serious cause for concern. Your report should arrive at an overall conclusion.

Use the following format for the report:

To:
From:
Date:
Subject:

Q39 Profitability – numerical questions

Question 1

Examine the data below, which is extracted from the accounts of Rattlebone Automobiles over a number of years.

Calculate the profitability ratios for each of these years.

Question 2

You have obtained the profitability figures for two other firms in the car business, and these are given below. The firms are Ocelot plc, a manufacturer of hand made luxury sports cars, and Bridge plc, a mass producer of small family cars. Comment on your findings, and on the comparisons you can make.

At least all the data relates to the same industry, the car industry. Comparisons should be valid, therefore.

Question 3

Jeremy Waite runs a small antiques shop in Chichester. He is a sole trader and views the shop as a ‘hobby more than a job’. He is curious about the financial performance of the shop and has provided extracts from two years’ final accounts. He would like you to analyse the accounts to assess the profitability of the firm. The balance sheet extracts are as follows:

Required

(a) Calculate for both years the following ratios:

(i) Return on capital employed
(ii) Gross profit percentage
(iii) Net profit percentage

(b) Using your results from (a), analyse the profitability of the shop.

Q54 Ratio analysis – limitations – report

Produce a short report outlining three limitations of ratios. Credit will be given if the limitations are illustrated with an example.

Use the following format for the report:

To:
From:
Date:
Subject:

Q55 Ratio analysis – limitations

This is an opportunity to consolidate, and review progress to date in this long, complex unit. The following case study covers all of the topics covered in this unit so far. It is a good revision exercise.

Sherston Antiques (1991) plc

Sherston Antiques have been trading for the last 10 years in Tetbury. Their accounts for the last four years are shown below.

The business grew quickly, but they also had some problems. They are now looking to raise capital for a further expansion through a rights issue. The proposal is a 2 for 1 deal, at a price of 40 cents per share.

They have been able to revalue their properties as a result of the housing boom in the recent years. They have also been hit by a series of bad debts amongst their customers in Latin America.

The company has built up a very good reputation for itself, and its logo is well known, and a sign of quality and value. The Managing Director is proposing at the next Board Meeting that this should now be recognised in the accounts by the inclusion of an entry for intangible assets.

You are a shareholder of Sherston Antiques and have just received the latest Annual Report and Accounts, and the papers for the rights issue. Examine the accounts, and then answer the following questions.

Accounts summary for Sherston Antiques plc

Note: There are 1 million shares sold, with a face value of 10c, on the market today. The sale of another 2 million shares is already authorised.

Question 1

Explain the term ‘rights issue’.

Question 2

When did Sherston Antiques revalue and when did they write off the bad debts?

Question 3

How do the consequences of these actions affect the ratios for the company?

Question 4 – Do you consider the rights issue to be a good investment?

Q56 – Ratio analysis – summary questions

Question 1

Consider the accounts of Hope Ltd.

Additional information:

1. The value of closing stock as at 31 December 2003 was $250,000.
2. The market price of an ordinary share on 31 December 2003 was $2.25.

From the above information, calculate the following ratios:

• Gross profit margin
• Net profit margin
• Return on capital employed
• Price earnings ratio

Question 2

Consider the accounts of Harker Ltd.

Additional information:

1. The value of closing stock as at 31 December 2004 was $48,000.
2. The market price of an ordinary share on 31 December 2004 was $1.12.

From the above information, calculate the following ratios:

• Gross profit margin
• Net profit margin
• Return on capital employed
• Acid test
• Current ratio
• Dividend yield
• Price earnings ratio
• Gearing

Hello Everyone,

Here is where you are going to write your reflection on learning.  I want you to think about your learning experience of sources of finance.  Is this assignment the best way for you to learn about sources of finance?  Would it be better or worse to be given a large business development project and work it out on your own?  How do you learn best, from words in a textbook or by doing an actual project?  Do you learn better with other people or on your own?

Post your reflections on this blog on the 20th of January.  I am looking forward to reading them.

Best,

K. Kennedy

Knowledge

Application

Analysis

Evaluation / Judgement

Levels of Response

Evaluation can be shown in a variety of ways depending on the circumstances:

• Being able to justify decisions and judgements
• The ability to make comparisons and consider both sides and make a judgement about a course of action/ decision
• Weighing up the strength of factors/arguments to show which is considered to be the most important and why
• Consideration of long and short term issues and recognising the importance of the differences
• Questioning the validity of data or techniques
• Assessing feasibility of a course of action in terms of resources, time, capacity etc

Might be demonstrated by phrases such as:

• “the greatest effect this will have on the business is…..”
• “the extent of the impact will be….”
• “whether this happens depends on…..”
• “the recommended strategy is……. because…..” and so on
• “on balance……..because…..”

Analysis, can be shown in a variety of ways depending on the circumstances by:

• Breaking down case issues and/or manipulating data  or information for a purpose related to the question
• Selecting and using relevant information or ideas
• Identifying implications or consequences of actions or situations for the business in the case
• Bringing together of information and ideas from various sources and working towards a solution to a problem or issue
• The use of Business Studies concepts and theory to support the answer
• Examining aspects of an issue without drawing conclusions

Might be demonstrated by phrases such as:

• “however……”
• “the result of this….”
• “this will lead to…”
• “consequently the business will…..”
• “If… then…but if….then…..”
• “Advantages include………..On the other hand disadvantages …….” and so on.

Application

• Knowledge of issues/concepts used in the context of the case

Knowledge

• Relevant knowledge quoted or explained but not discussed in the context of the case or question
• Critical understanding of a concept

Michael Phelps going to great lengths still in search of the impossible

Phelps, once written off by schoolteacher, has turned his life into a pursuit of the scarcely believable

Image :1 of 2

Matthew Syed

It is strange, the moments that change history. In 1997, a shy, “problem” schoolboy from a working-class family in Baltimore, Maryland, was told that he would “never achieve anything in life”. It was the kind of throwaway remark that many schoolteachers — overworked, overstressed, underpaid — make about disruptive students. But for Michael Phelps, at that time and place in his young, faltering life, it changed everything.

“I still remember the way I felt,” Phelps says during an end-of-year interview in Manchester. “I had just started swimming seriously and those comments from my teacher seemed to burn deep inside. I was often made to feel like an outsider at school because I had Attention Deficit Hyperactive Disorder [ADHD] and struggled to fit in. But I thought to myself: ‘You can think whatever you want, but I am going to prove you wrong.’ I am not sure why it fired me up so much, but it did.”

From that day to this, Phelps’s life has been one long sacrifice in pursuit of the impossible. His daily routine is so punishing and so neurotically relentless that it strays into the vicinity of masochism. He does not simply want to win, he wants to set goals that inspire incredulity and disbelief, as if revelling in an eternal cycle of proving people — anybody — wrong.

When Phelps announced in advance of the Olympic Games in Beijing that he was aiming for eight gold medals in the pool, Ian Thorpe, the Australian swimming legend, said (quite reasonably) that the American was unlikely to achieve his target. Phelps responded by pinning the offending remarks to his locker and staring at them every morning until the day he left for China.
//

Related Links

• Fantastic Phelps conquers Rome

• Michael Phelps: touching history

• Profile: Phelps the physiological phenomenon

“When people doubt me, it gives me huge motivation,” he says. “It is like the negativity is the fuel that takes me through the water day after day.

“I want to show that I can achieve things they consider impossible. The first time it was the teacher at school, but now I trawl the internet looking for anyone else who doesn’t think I am going to cut it. It can be competitors, journalists, whatever.

“The more negative they are, the more determined — and the more certain — I am to do it. And you know what? If I have an ambition in my mind, whatever it is, nothing is going to stop me. Nothing.”

He sounds almost pathological as he describes the nature and intensity of his ambition. But this, of course, is the stuff of greatness.

Phelps was born in the Lake Point area of Baltimore County in 1985. His parents divorced a few years later and his mother — whom the swimmer describes as an “amazing women: wise, tough and incredibly strong” — brought up her son and two daughters almost single-handed. But it was evident early on that the young Phelps had difficulty focusing on anything for more than a few moments at a time.

“As a very little boy, I was not just always on the go; I simply could not sit still,” Phelps writes in his autobiography. “I would twirl pens and pencils between my fingers. I made faces at cameras. I climbed on everything. I never shut up. I had a question for everything, and wouldn’t stop asking questions until I got the answer. If then.”

It was for this reason that he had so many problems fitting in with his class-mates and was considered unruly by his teachers.

Phelps was prescribed Ritalin in sixth grade to combat ADHD and, for a while, took the drug three times a day. But his ultimate redemption was to be found in the pool. “What I discovered soon after starting to swim was that the pool was a safe haven,” he says. “Two walls at either end. Lane lines on either side. A black stripe on the bottom for direction. I could go fast in the pool, it turned out, in part because being in the pool slowed down my mind. In the water I felt, for the first time, in control.”

I ask if the extent of his ambition — and the inspiration he derives from proving people wrong — is a consequence of his marginalisation at school. “Yes, I think that is part of it, for sure,” he says. “Proving yourself is a way of gaining acceptance and showing what you are really made of. Even when I was hugging my mom after winning my eighth gold in Beijing, my mind was flitting to that teacher and what she had said. God, it felt good!” Has he seen the teacher since he left school? “No, I haven’t, but it would have been a lot of fun if I had.”

Phelps’s exploits in China transformed his profile around the world, with invitations to appear on Saturday Night Live and other top US television shows, but they also brought attention of a rather different kind. In January, the News of the World ran a front page story with a picture showing Phelps using a bong, a device used to smoke marijuana. Phelps admitted to “behaviour that was regrettable and demonstrated bad judgment” and USA Swimming suspended him from competition for three months.

I ask if the photo was an unjustified intrusion into his private life or an inevitable consequence of his celebrity. “I think the media has been this way for a long time,” he says. “Sport has become more and more public and I think that once you have got to a certain level you have to accept that the press is going to be interested in your private life. Of course, that means you have to be more careful about the people around you and who you are going to trust. But it also means that you have to learn from your mistakes. I hope I have done that.”

Today, Phelps’s eyes are set firmly on London 2012 and another tilt at history. He has already ditched the ultra-fast 100 per cent polyurethane suits that will be banned from next month, suffering a number of defeats as a consequence, not least in the 200 metres butterfly at the Duel in the Pool on Saturday. But this does not worry him. “Everything that happens between now and 2012 is about giving myself the best shot at the Olympics,” he says. “Starting as early as possible with the new suits was a no-brainer.”

When I ask if he has figured out his goals for the London Games yet, he smiles. “Yes, I have worked them out and written them down,” he says. “But I am not going to tell anybody what they are for a while yet. Not even my mother knows. The only person in the loop is Bob [Bowman, Phelps’s long-time coach].”

Phelps continues to evoke the aura of the outsider, a man who is not altogether sure where he fits in. Perhaps that is his strength as a professional athlete, the reason why his competitors should be fearful of another bout of Olympic dominance come London. He seems to have no obvious comfort zone beyond the rigours of the pool.

I ask whether he ever doubts his own ability to achieve his exacting goals; that he might fail to prove his detractors wrong? “If you are passionate about something, you are going to get there come what may,” he says.

“People say that I have great talent, but in my opinion excellence has nothing to do with talent. It is about what you choose to believe and how determined you are to get there. The mind is more powerful than anything else.”

Inside the mind of a championThe art of Olympic performance, by Michael Phelps “I think of nothing. I clear my mind so it is absolutely empty of negative thoughts. When you are about to come face to face with the moment of truth, after four years of sacrifice, the last thing you want in your head are thoughts of what might go wrong.

“It may not sound easy, but this state of mind comes naturally when you have put in the hard work. If you have done the right things in practice, and if you have done them over and over so often they have lodged inside your mind and body, you ought to have complete confidence in your abilities.

“Delivering in the pool is, in many ways, the easy part. It is the icing on the cake. You know what you have to do. You know how to do it. And you know that nobody can stop you.”