ICMAP Strategic Level cheat sheet

Porter's Five Forces - rivalry, threat of new entrants, threat of substitutes, supplier power, buyer power - jointly determine industry profit potential; strength in one force does not offset structural weakness in another.

PESTLE scans Political, Economic, Social, Technological, Legal and Environmental macro factors; SWOT then pairs internal Strengths/Weaknesses with external Opportunities/Threats.

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

BCG matrix: vertical axis market growth rate, horizontal axis relative market share; cash cows (high share, low growth) fund stars and selected question marks; dogs are candidates for divestment.

Porter generic strategies: cost leadership (broad market, lowest cost), differentiation (broad market, unique offer), focus (narrow segment); failing to pursue one coherently leaves a firm 'stuck in the middle' with below-average returns.

Core competence test (Prahalad & Hamel): the competence must contribute significantly to perceived customer value, be competitively unique and hard to imitate, and be extendable into new markets.

Value chain: five primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service) plus four support activities (firm infrastructure, HRM, technology development, procurement).

Greiner growth model: evolutionary phases of creativity, direction, delegation, coordination and collaboration, each ending in a revolutionary crisis of leadership, autonomy, control or red tape.

Strategic drift occurs when incremental change lags environmental change, opening a performance gap; recovery requires transformational change, or turnaround/retrenchment if the drift is advanced.

Balanced Scorecard: four perspectives - financial (lagging), customer, internal business process, and learning and growth (leading); each requires objectives, measures, targets and initiatives.

Target cost = estimated target selling price − required target profit margin; any cost gap must be closed at the design stage because most life-cycle costs are committed before production begins.

Throughput = sales revenue − truly variable (material) costs; throughput accounting ratio = return per bottleneck hour ÷ total factory cost per bottleneck hour; a TPAR below 1 means the product does not cover factory costs.

Activity-based costing assigns overheads to activity cost pools and then to products via cost drivers (set-ups, orders, machine hours); it is preferred where overheads are high and product diversity is large.

Life-cycle costing accumulates costs across design, launch, growth, maturity, decline and disposal; pre-production costs are typically a small spend but a large proportion of total committed cost.

Kaizen costing sets continuous incremental cost-reduction targets after design freeze; target costing operates before design freeze, and standard costing measures performance after it.

Transfer pricing general rule: minimum transfer price = variable cost of the transferring unit + opportunity cost of transferring internally; market price applies where an active competitive market exists.

ROI = divisional operating profit ÷ divisional capital employed; RI = divisional profit − (imputed interest rate × capital employed); RI avoids ROI's rejection of profitable projects that dilute the percentage.

Planning versus operational variances: the planning variance isolates forecasting error (uncontrollable) and the operational variance measures controllable performance against the revised standard.

NPV = Σ CFt/(1+r)^t − I0; accept projects with NPV > 0, and for mutually exclusive projects select the highest positive NPV.

IRR is the discount rate at which NPV = 0; accept if IRR exceeds the cost of capital; non-conventional cash flows can produce multiple IRRs, in which case NPV is the decision rule.

WACC = (E/V)Ke + (D/V)Kd(1−t); it is valid only for projects of average business and financial risk - otherwise use a divisional or risk-adjusted rate.

CAPM: Ke = Rf + β(Rm − Rf); beta captures systematic risk, which is non-diversifiable and therefore the only risk rewarded.

Modigliani–Miller with tax: Vg = Vu + Dt; and Ke(g) = Ke(u) + (Ke(u) − Kd)(1−t)(D/E). Without tax, firm value and WACC are independent of gearing.

Dividend valuation: P0 = D1/(Ke − g); rearranged Ke = D1/P0 + g; growth g = b × r, where b is the retention ratio and r the return on retained funds.

Rights issue TERP = (market value of existing shares + issue proceeds) ÷ total shares after issue; value of a right = TERP − issue (subscription) price.

Adjusted present value = base-case NPV discounted at the ungeared cost of equity + present value of financing side effects (tax shield, subsidised loan benefit, issue costs); used when gearing changes over the project's life.

Interest rate parity links forward premiums/discounts to interest rate differentials; purchasing power parity links expected spot rate changes to inflation differentials - both underpin forward-rate forecasting.

Agency theory: separation of ownership and control creates monitoring costs, bonding costs and residual loss; governance mechanisms aim to minimise total agency cost, not to eliminate monitoring.

OECD Principles cover (i) rights of shareholders, (ii) equitable treatment of shareholders, (iii) role of stakeholders, (iv) disclosure and transparency, and (v) board responsibilities.

The UK Corporate Governance Code applies to premium-listed companies on a 'comply or explain' basis; the FRC maintains it and companies must publish an annual compliance statement.

Board structure: chairman and chief executive roles are separate; at least half the board excluding the chairman should be independent non-executive directors for FTSE 350 companies.

Audit committee: minimum three independent NEDs (two for smaller companies), at least one with recent relevant financial experience, and not chaired by the board chairman.

Remuneration committee: composed wholly of independent NEDs; performance-related pay should be linked to long-term shareholder value, with clawback and shareholding requirements.

Companies Act 2006 s.172: directors must promote the success of the company for members as a whole, having regard to long-term consequences, employees, suppliers, customers, community and environment.

COSO internal control framework: five components - control environment, risk assessment, control activities, information and communication, and monitoring activities.

King IV (South Africa) uses 'apply and explain', treating all principles as applicable; the ICGN Global Governance Principles address shareholder rights, board accountability and sustainability.

Five fundamental ethical principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

Five ethical threats: self-interest, self-review, advocacy, familiarity and intimidation; safeguards include independent review, partner rotation, disclosure to those charged with governance, or declining the engagement.

Contract formation requires offer, acceptance, consideration, intention to create legal relations and capacity; an invitation to treat (e.g. a price display) is not an offer.

Directors' statutory duties (CA 2006 ss.171–177): act within powers, promote the success of the company, exercise independent judgement, exercise reasonable care and skill, avoid conflicts, not accept benefits from third parties, and declare interests in proposed transactions.

Bribery Act 2010 offences: bribing another person, receiving a bribe, bribing a foreign public official, and failure of a commercial organisation to prevent bribery; 'adequate procedures' is a full defence to the corporate offence.

Money laundering has three stages - placement, layering and integration; suspicious activity reports go to the financial intelligence unit, and tipping off the suspect is itself an offence.

Fraud triangle: pressure or incentive, opportunity, and rationalisation; internal controls primarily reduce the opportunity element.

Negligence (Caparo test): a duty of care was owed, that duty was breached, and the breach caused damage that is not too remote; auditors generally owe their duty to the company and its members as a body, not to individual investors.

Ethical decision frameworks: utilitarianism (greatest good for the greatest number), deontology (duties and rules), virtue ethics (character of the decision maker) and justice/fairness (equity of process and outcome).