ICAB CL Business & Finance cheat sheet

PESTLE covers Political, Economic, Social, Technological, Legal and Environmental external factors; it scans the macro-environment, not internal capability.

Porter's Five Forces: rivalry among existing competitors, threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers.

A concentrated industry (few firms, high concentration ratio) tends to show higher prices and greater strategic interdependence than a fragmented one.

Organisational stakeholders include owners/shareholders, employees, customers, suppliers, lenders, government and local communities; each holds differing objectives and influence.

The external environment is commonly split into the macro-environment (PESTLE) and the competitive or task environment (Five Forces, competitors, customers).

Environmental uncertainty rises with the rate of change and complexity of external factors; higher uncertainty favours flexible structures and scenario planning.

Organisational structure types: functional, divisional, matrix and network; centralisation concentrates decision rights, decentralisation disperses them.

Span of control is the number of subordinates reporting to one manager; wider spans reduce management layers but raise supervisory load.

Sole trader: unlimited personal liability, no separate legal personality, taxed on the owner's personal income.

Partnership: two or more owners; general partners bear unlimited liability, limited partners liability is capped at contributed capital.

Private limited company: separate legal personality, limited liability, shares not offered to the public.

Public limited company: shares may be traded publicly, typically subject to minimum share capital and listing/disclosure rules.

Agency problem: separation of ownership (shareholders) and control (managers) creates scope for divergent interests; mitigated by incentives, monitoring and board independence.

Corporate governance codes typically address board composition, independence, audit committees, remuneration and shareholder rights.

Limited liability caps a shareholder's loss at the amount invested or unpaid on shares; it does not protect directors from personal liability for wrongful trading.

Cooperative: owned and democratically controlled by members, typically one member one vote, distributing surplus according to member use.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price; |E|>1 elastic, |E|<1 inelastic.

Demand is elastic when close substitutes exist, the good is a large share of income, or the time horizon is long.

Profit is maximised where marginal revenue equals marginal cost (MR = MC); a price-taker's MR equals market price.

Perfect competition: many sellers, homogeneous product, free entry; long-run economic profit tends toward zero.

Monopoly: single seller, high entry barriers; profit-maximising output where MR = MC, price read from the demand curve.

Monopolistic competition: many firms, differentiated products, free entry; short-run profits erode in the long run.

Oligopoly: few firms, interdependence; outcomes range from collusion (near-monopoly pricing) to price competition.

Price discrimination requires market separation and differing elasticities; charging higher prices in inelastic segments raises revenue.

Cost curves: average total cost = total cost / output; marginal cost crosses average cost at its minimum.

Internal sources: retained earnings, working capital release, asset sales; external: equity, debt, leases, grants, trade credit.

Short-term finance (overdraft, trade credit, factoring) suits working capital; long-term finance (equity, bonds, term loans) suits capital investment.

Matching principle: asset life should broadly match the maturity of the finance used to fund it.

Weighted average cost of capital = (E/V x Ke) + (D/V x Kd x (1 - tax rate)).

Modigliani-Miller without taxes: capital structure does not affect firm value; with taxes, debt creates a tax shield that raises value.

Trade-off theory: firms balance the tax benefit of debt against financial distress and bankruptcy costs.

Pecking order: firms prefer internal funds first, then debt, then new equity, reflecting information asymmetry.

Gearing = debt / (debt + equity) or debt / equity; higher gearing raises financial risk and the cost of equity.

Cash conversion cycle = inventory days + receivable days - payable days; a shorter cycle releases cash.

Current ratio = current assets / current liabilities; quick ratio excludes inventory from current assets.

Inventory days = (inventory / cost of sales) x 365; receivable days = (receivables / revenue) x 365; payable days = (payables / purchases) x 365.

Net present value discounts all cash flows at the cost of capital; accept projects with NPV > 0.

Internal rate of return is the discount rate giving NPV = 0; accept if IRR exceeds the cost of capital.

Payback period is the time to recover the initial outlay; it ignores cash flows after payback and the time value of money.

Accounting rate of return = average annual profit / average investment; it uses profit, not cash flow.

Relevant cash flows are incremental, future and opportunity-cost based; sunk costs and allocated fixed overheads are excluded.

Sensitivity analysis tests how far one variable can change before NPV reaches zero; scenario analysis varies several variables together.

Primary markets issue new securities; secondary markets allow investors to trade existing securities, providing liquidity.

Money markets handle short-term instruments (Treasury bills, commercial paper); capital markets handle long-term debt and equity.

A commercial bank takes deposits and lends; an investment bank underwrites issues and advises on mergers and acquisitions.

Bond price and yield move inversely; a rise in market interest rates lowers existing fixed-coupon bond prices.

Yield to maturity equates the bond's future coupons and redemption value to its current price.

Central banks set policy rates, act as lender of last resort and supervise monetary stability.

Systematic (market) risk cannot be diversified away; unsystematic (specific) risk can be reduced by diversification.

Capital Asset Pricing Model: required return = risk-free rate + beta x (market return - risk-free rate).

Efficient market hypothesis: semi-strong form implies prices reflect all publicly available information, so trading on public news earns no abnormal return.

Ansoff matrix: market penetration, market development, product development, diversification, ordered by increasing risk.

SWOT combines internal strengths and weaknesses with external opportunities and threats.

Porter's generic strategies: cost leadership, differentiation and focus; being 'stuck in the middle' erodes competitive advantage.

The balanced scorecard uses four perspectives: financial, customer, internal process, and learning and growth.

SMART objectives are specific, measurable, achievable, relevant and time-bound.

Budget variances: adverse when actual profit is below budget or actual cost above budget; favourable in the reverse.

Return on investment = operating profit / capital employed; residual income = operating profit - (capital employed x required return).

A mission states the organisation's purpose; a vision describes its desired future state; objectives translate these into measurable targets.

Marketing mix (4Ps): product, price, place, promotion; services add people, process and physical evidence.

Product life cycle stages: introduction, growth, maturity, decline; strategy shifts from building awareness to defending share to harvesting.

Market segmentation divides buyers by demographic, geographic, psychographic or behavioural criteria; targeting selects segments to serve.

Pricing approaches include cost-plus, penetration, skimming, value-based and competitive pricing.

Capacity measures: design capacity, effective capacity and actual output; utilisation = actual output / design capacity.

Economic order quantity balances ordering costs against holding costs to minimise total inventory cost.

HRM functions: recruitment and selection, training and development, performance appraisal, reward, and employee relations.

Labour turnover = (number of leavers / average number of employees) x 100; high turnover raises recruitment and training costs.

Utilitarian ethics judges actions by consequences (greatest good); deontological ethics judges by duties and rules regardless of outcome.

CSR is commonly framed by the triple bottom line: economic, social and environmental performance (profit, people, planet).

Stakeholder theory holds that firms should account for all affected parties, not only shareholders.

Conflicts of interest should be disclosed, and where possible avoided, through recusal or independent oversight.

Whistleblowing is disclosure of wrongdoing; effective programmes provide confidential reporting channels and protection from retaliation.

Money laundering stages: placement, layering and integration; controls include customer due diligence and suspicious activity reporting.

Anti-bribery frameworks require risk assessment, due diligence on intermediaries, accurate records, and prohibition of facilitation payments.

Whistleblower protection and clear codes of conduct reduce ethical risk and support regulatory compliance.

Risk is commonly assessed as likelihood x impact; the resulting score drives prioritisation and response.

Risk responses: avoid, reduce (mitigate), transfer (e.g. insurance) and accept; residual risk remains after controls.

The CIA triad: confidentiality, integrity and availability define core information security objectives.

Data protection principles typically include lawfulness, purpose limitation, data minimisation, accuracy, storage limitation, integrity and accountability.

Phishing, ransomware and insider threats are major cyber risks; controls include access management, patching, backups and staff training.

Segregation of duties prevents one person controlling all stages of a transaction, reducing fraud and error risk.

Disaster recovery focuses on restoring IT systems; business continuity covers maintaining critical operations during disruption.

Big data characteristics: volume, velocity, variety, veracity and value; analytics converts raw data into decision-relevant information.

A business case for IT investment compares total cost of ownership against quantified benefits and risk reduction.

PESTLE covers Political, Economic, Social, Technological, Legal and Environmental external factors; it scans the macro-environment, not internal capability.

Porter's Five Forces: rivalry among existing competitors, threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers.

A concentrated industry (few firms, high concentration ratio) tends to show higher prices and greater strategic interdependence than a fragmented one.

Organisational stakeholders include owners/shareholders, employees, customers, suppliers, lenders, government and local communities; each holds differing objectives and influence.

The external environment is commonly split into the macro-environment (PESTLE) and the competitive or task environment (Five Forces, competitors, customers).

Environmental uncertainty rises with the rate of change and complexity of external factors; higher uncertainty favours flexible structures and scenario planning.

Organisational structure types: functional, divisional, matrix and network; centralisation concentrates decision rights, decentralisation disperses them.

Span of control is the number of subordinates reporting to one manager; wider spans reduce management layers but raise supervisory load.

Sole trader: unlimited personal liability, no separate legal personality, taxed on the owner's personal income.

Partnership: two or more owners; general partners bear unlimited liability, limited partners liability is capped at contributed capital.

Private limited company: separate legal personality, limited liability, shares not offered to the public.

Public limited company: shares may be traded publicly, typically subject to minimum share capital and listing/disclosure rules.

Agency problem: separation of ownership (shareholders) and control (managers) creates scope for divergent interests; mitigated by incentives, monitoring and board independence.

Corporate governance codes typically address board composition, independence, audit committees, remuneration and shareholder rights.

Limited liability caps a shareholder's loss at the amount invested or unpaid on shares; it does not protect directors from personal liability for wrongful trading.

Cooperative: owned and democratically controlled by members, typically one member one vote, distributing surplus according to member use.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price; |E|>1 elastic, |E|<1 inelastic.

Demand is elastic when close substitutes exist, the good is a large share of income, or the time horizon is long.

Profit is maximised where marginal revenue equals marginal cost (MR = MC); a price-taker's MR equals market price.

Perfect competition: many sellers, homogeneous product, free entry; long-run economic profit tends toward zero.

Monopoly: single seller, high entry barriers; profit-maximising output where MR = MC, price read from the demand curve.

Monopolistic competition: many firms, differentiated products, free entry; short-run profits erode in the long run.

Oligopoly: few firms, interdependence; outcomes range from collusion (near-monopoly pricing) to price competition.

Price discrimination requires market separation and differing elasticities; charging higher prices in inelastic segments raises revenue.

Cost curves: average total cost = total cost / output; marginal cost crosses average cost at its minimum.

Internal sources: retained earnings, working capital release, asset sales; external: equity, debt, leases, grants, trade credit.

Short-term finance (overdraft, trade credit, factoring) suits working capital; long-term finance (equity, bonds, term loans) suits capital investment.

Matching principle: asset life should broadly match the maturity of the finance used to fund it.

Weighted average cost of capital = (E/V x Ke) + (D/V x Kd x (1 - tax rate)).

Modigliani-Miller without taxes: capital structure does not affect firm value; with taxes, debt creates a tax shield that raises value.

Trade-off theory: firms balance the tax benefit of debt against financial distress and bankruptcy costs.

Pecking order: firms prefer internal funds first, then debt, then new equity, reflecting information asymmetry.

Gearing = debt / (debt + equity) or debt / equity; higher gearing raises financial risk and the cost of equity.

Cash conversion cycle = inventory days + receivable days - payable days; a shorter cycle releases cash.

Current ratio = current assets / current liabilities; quick ratio excludes inventory from current assets.

Inventory days = (inventory / cost of sales) x 365; receivable days = (receivables / revenue) x 365; payable days = (payables / purchases) x 365.

Net present value discounts all cash flows at the cost of capital; accept projects with NPV > 0.

Internal rate of return is the discount rate giving NPV = 0; accept if IRR exceeds the cost of capital.

Payback period is the time to recover the initial outlay; it ignores cash flows after payback and the time value of money.

Accounting rate of return = average annual profit / average investment; it uses profit, not cash flow.

Relevant cash flows are incremental, future and opportunity-cost based; sunk costs and allocated fixed overheads are excluded.

Sensitivity analysis tests how far one variable can change before NPV reaches zero; scenario analysis varies several variables together.

Primary markets issue new securities; secondary markets allow investors to trade existing securities, providing liquidity.

Money markets handle short-term instruments (Treasury bills, commercial paper); capital markets handle long-term debt and equity.

A commercial bank takes deposits and lends; an investment bank underwrites issues and advises on mergers and acquisitions.

Bond price and yield move inversely; a rise in market interest rates lowers existing fixed-coupon bond prices.

Yield to maturity equates the bond's future coupons and redemption value to its current price.

Central banks set policy rates, act as lender of last resort and supervise monetary stability.

Systematic (market) risk cannot be diversified away; unsystematic (specific) risk can be reduced by diversification.

Capital Asset Pricing Model: required return = risk-free rate + beta x (market return - risk-free rate).

Efficient market hypothesis: semi-strong form implies prices reflect all publicly available information, so trading on public news earns no abnormal return.

Ansoff matrix: market penetration, market development, product development, diversification, ordered by increasing risk.

SWOT combines internal strengths and weaknesses with external opportunities and threats.

Porter's generic strategies: cost leadership, differentiation and focus; being 'stuck in the middle' erodes competitive advantage.

The balanced scorecard uses four perspectives: financial, customer, internal process, and learning and growth.

SMART objectives are specific, measurable, achievable, relevant and time-bound.

Budget variances: adverse when actual profit is below budget or actual cost above budget; favourable in the reverse.

Return on investment = operating profit / capital employed; residual income = operating profit - (capital employed x required return).

A mission states the organisation's purpose; a vision describes its desired future state; objectives translate these into measurable targets.

Marketing mix (4Ps): product, price, place, promotion; services add people, process and physical evidence.

Product life cycle stages: introduction, growth, maturity, decline; strategy shifts from building awareness to defending share to harvesting.

Market segmentation divides buyers by demographic, geographic, psychographic or behavioural criteria; targeting selects segments to serve.

Pricing approaches include cost-plus, penetration, skimming, value-based and competitive pricing.

Capacity measures: design capacity, effective capacity and actual output; utilisation = actual output / design capacity.

Economic order quantity balances ordering costs against holding costs to minimise total inventory cost.

HRM functions: recruitment and selection, training and development, performance appraisal, reward, and employee relations.

Labour turnover = (number of leavers / average number of employees) x 100; high turnover raises recruitment and training costs.

Utilitarian ethics judges actions by consequences (greatest good); deontological ethics judges by duties and rules regardless of outcome.

CSR is commonly framed by the triple bottom line: economic, social and environmental performance (profit, people, planet).

Stakeholder theory holds that firms should account for all affected parties, not only shareholders.

Conflicts of interest should be disclosed, and where possible avoided, through recusal or independent oversight.

Whistleblowing is disclosure of wrongdoing; effective programmes provide confidential reporting channels and protection from retaliation.

Money laundering stages: placement, layering and integration; controls include customer due diligence and suspicious activity reporting.

Anti-bribery frameworks require risk assessment, due diligence on intermediaries, accurate records, and prohibition of facilitation payments.

Whistleblower protection and clear codes of conduct reduce ethical risk and support regulatory compliance.

Risk is commonly assessed as likelihood x impact; the resulting score drives prioritisation and response.

Risk responses: avoid, reduce (mitigate), transfer (e.g. insurance) and accept; residual risk remains after controls.

The CIA triad: confidentiality, integrity and availability define core information security objectives.

Data protection principles typically include lawfulness, purpose limitation, data minimisation, accuracy, storage limitation, integrity and accountability.

Phishing, ransomware and insider threats are major cyber risks; controls include access management, patching, backups and staff training.

Segregation of duties prevents one person controlling all stages of a transaction, reducing fraud and error risk.

Disaster recovery focuses on restoring IT systems; business continuity covers maintaining critical operations during disruption.

Big data characteristics: volume, velocity, variety, veracity and value; analytics converts raw data into decision-relevant information.

A business case for IT investment compares total cost of ownership against quantified benefits and risk reduction.