ICAEW ACA Business Insight and Performance cheat sheet

Value chain analysis (Porter): split activities into primary (inbound logistics, operations, outbound logistics, marketing and sales, service) and support (firm infrastructure, HR, technology development, procurement); competitive advantage arises where a firm performs an activity at lower cost or with differentiation that customers will pay for.

PESTLE covers Political, Economic, Social, Technological, Legal and Environmental factors; use it to structure the external macro-environment, then score each factor by likelihood and impact to prioritise.

Porter's Five Forces: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, rivalry among existing competitors. High combined force intensity compresses industry profitability toward the cost of capital.

Ansoff matrix: existing product/existing market = market penetration; new product/existing market = product development; existing product/new market = market development; new product/new market = diversification (highest risk).

BCG matrix: stars (high growth, high share, invest), cash cows (low growth, high share, harvest to fund others), question marks (high growth, low share, selective investment), dogs (low growth, low share, divest or rationalise).

Stakeholder mapping (Mendelow): plot power against interest. High power/high interest = manage closely; high power/low interest = keep satisfied; low power/high interest = keep informed; low power/low interest = minimal effort.

Cost leadership competes on lowest total cost in the industry; differentiation competes on unique attributes commanding a price premium; focus applies either strategy to a narrow segment. 'Stuck in the middle' describes failing to achieve either.

Core competences (Prahalad and Hamel) are valuable, rare, hard to imitate and non-substitutable (VRIN); they underpin products and are difficult for competitors to replicate.

The cultural web (Johnson and Scholes) analyses paradigm through stories, rituals and routines, symbols, organisational structures, control systems and power structures; use it to diagnose why strategy implementation fails.

Ratio analysis: gross margin = gross profit/revenue; operating margin = operating profit/revenue; ROCE = operating profit/(total assets - current liabilities); asset turnover = revenue/net assets; ROCE = operating margin x asset turnover.

Liquidity: current ratio = current assets/current liabilities; quick ratio = (current assets - inventory)/current liabilities. A very high current ratio may signal idle inventory or slow receivables rather than strength.

Efficiency: inventory days = inventory/cost of sales x 365; receivable days = trade receivables/revenue x 365; payable days = trade payables/cost of sales x 365. The cash operating cycle = inventory days + receivable days - payable days.

Gearing: debt/(debt + equity) or debt/equity. Interest cover = operating profit/finance cost; a fall below about 3 times is a common covenant warning sign.

Limitations of ratio analysis: different accounting policies, creative accounting and window dressing, inflation distortion of comparatives, and ratios ignore qualitative factors such as brand strength and management quality.

Variance analysis: profit variance = (actual volume x actual margin) - (budget volume x budget margin); split into volume, price and cost effects. Favourable (F) increases profit, adverse (A) reduces it.

Investment appraisal: NPV discounts cash flows at the cost of capital and is preferred because it is absolute and uses cash; IRR is the discount rate giving zero NPV; payback ignores cash flows after the cut-off; ARR uses accounting profit, not cash.

Sensitivity analysis tests how far one variable can move before NPV falls to zero (percentage change = NPV/PV of the affected cash flows); it identifies the most critical assumption.

Break-even units = fixed costs/contribution per unit; margin of safety = (budgeted units - break-even units)/budgeted units; contribution = selling price less variable cost.