ICAEW ACA Business Insight and Performance flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Value chain

Porter's model splitting a firm into primary and support activities so managers can identify where cost is incurred or customer value is created, and where competitive advantage can be built.

PESTLE analysis

A framework classifying external macro-environmental influences as political, economic, social, technological, legal and environmental, used to identify opportunities and threats facing an organisation.

Porter's Five Forces

An industry attractiveness model assessing new entrants, buyer power, supplier power, substitutes and rivalry; the stronger these forces, the harder it is to earn returns above the cost of capital.

Ansoff matrix

A growth grid combining existing and new products with existing and new markets, producing market penetration, product development, market development and diversification, with diversification carrying the greatest risk.

BCG matrix

A portfolio tool plotting business units by market growth and relative market share, classifying them as stars, cash cows, question marks or dogs to guide investment and divestment decisions.

Mendelow stakeholder mapping

A grid of stakeholder power against interest, giving four strategies: manage closely, keep satisfied, keep informed, and minimal effort, so engagement effort matches stakeholder influence.

Cost leadership strategy

A generic strategy where a firm aims to be the lowest-cost producer in its industry, winning market share through price or earning higher margins at prevailing market prices.

Differentiation strategy

A generic strategy where a firm offers attributes customers value and rivals lack, such as quality, brand or service, allowing it to charge a price premium that exceeds the added cost.

Core competences

Activities a firm performs distinctively well that are valuable, rare, hard to imitate and non-substitutable, forming the foundation of sustainable competitive advantage across product lines.

Cultural web

A diagnostic model describing an organisation's paradigm through stories, rituals, symbols, structures, controls and power relationships, revealing why formal strategy may be resisted in practice.

SWOT analysis

A summary framework matching internal strengths and weaknesses with external opportunities and threats, used to convert analysis into strategic options rather than as a stand-alone list.

Gross profit margin

Gross profit divided by revenue, expressed as a percentage. It shows the proportion of sales left after cost of sales and indicates pricing power and production efficiency.

Operating profit margin

Operating profit divided by revenue. It measures profitability after all operating costs but before interest and tax, showing how well overheads are controlled relative to sales.

Return on capital employed

Operating profit divided by capital employed, where capital employed is total assets less current liabilities. It measures profit generated per unit of long-term funds invested.

ROCE decomposition

ROCE equals operating profit margin multiplied by asset turnover. This splits performance into profitability per sale and sales generated per unit of capital, guiding corrective action.

Current ratio

Current assets divided by current liabilities. It indicates short-term liquidity, but a very high figure may reflect slow-moving inventory or overdue receivables rather than strength.

Quick ratio

Current assets excluding inventory, divided by current liabilities. It tests whether a firm can meet short-term obligations without relying on selling inventory, a stricter liquidity measure.

Cash operating cycle

Inventory days plus receivable days minus payable days. It shows how long cash is tied up in working capital before collection, so a longer cycle increases financing needs.

Gearing ratio

Debt divided by debt plus equity, or debt divided by equity. It measures financial risk from borrowing and affects the cost of capital and covenant headroom.

Interest cover

Operating profit divided by finance costs. It shows how many times profit covers interest payments; a low or falling figure signals financial distress risk to lenders.

Ratio analysis limitations

Ratios can mislead because of differing accounting policies, creative accounting and window dressing, inflation effects on comparatives, and omission of qualitative factors such as brand and management quality.

Profit variance analysis

Comparing actual against budgeted profit and splitting the difference into volume, price and cost effects, so managers can see which factor caused the deviation.

Net present value

The sum of future cash flows discounted at the cost of capital, less initial investment. A positive NPV means the project adds value and is the preferred appraisal method.

Internal rate of return

The discount rate at which a project's NPV equals zero. It is compared with the cost of capital; a project is acceptable when IRR exceeds the required return.

Payback period

The time taken for cumulative cash inflows to recover the initial investment. It is simple and focuses on liquidity but ignores cash flows after the cut-off and the time value of money.

Sensitivity analysis

Calculating how far a single input can change before NPV reaches zero, expressed as a percentage, to identify which assumption most threatens project viability.

Break-even point

Fixed costs divided by contribution per unit. It is the sales volume at which total contribution exactly covers fixed costs and profit is zero.

Margin of safety

Budgeted or actual sales volume minus break-even volume, divided by budgeted volume. It shows the percentage by which sales can fall before a loss arises.

Contribution per unit

Selling price less variable cost per unit. It measures the amount each sale contributes towards fixed costs and then profit, and underpins break-even and limiting-factor decisions.

Limiting factor analysis

When a resource is scarce, rank products by contribution per unit of the limiting factor and allocate capacity in that order to maximise total contribution.

Relevant costing

Decision-making using only future incremental cash flows; sunk costs, committed costs and apportioned fixed overheads are excluded because they do not change with the decision.

Benchmarking

Comparing an organisation's processes and performance against internal, competitor or best-practice standards to identify performance gaps and set improvement targets.