Strategy and global business

1. The current ratio equals:

1. Current assets ÷ current liabilities
2. Profit ÷ capital
3. Debt ÷ equity
4. Revenue ÷ assets

Show answer

A: Current assets ÷ current liabilities. It measures short-term liquidity.

2. In SWOT analysis, which factors are external?

1. Strengths and weaknesses
2. Opportunities and threats
3. Strengths and threats
4. Weaknesses and opportunities

Show answer

B: Opportunities and threats. Strengths and weaknesses are internal to the business.

3. What does Porter's five forces model analyse?

1. Employee motivation
2. The competitive forces shaping an industry
3. Cash flow
4. Marketing mix

Show answer

B: The competitive forces shaping an industry. It includes rivalry, entrants, substitutes, and buyer and supplier power.

4. ROCE equals:

1. Operating profit ÷ capital employed × 100
2. Revenue ÷ costs
3. Net profit ÷ revenue
4. Assets ÷ liabilities

Show answer

A: Operating profit ÷ capital employed × 100. It shows how efficiently capital generates profit.

5. What does the 'E' in PESTLE include?

1. Only employment
2. Economic and environmental factors
3. Only ethics
4. Efficiency

Show answer

B: Economic and environmental factors. PESTLE covers economic and environmental influences separately.

6. Which financial ratio would best indicate whether a business can pay its short-term debts?

1. Gearing ratio
2. Current ratio
3. Gross profit margin
4. Return on capital employed

Show answer

B: Current ratio. It compares current assets with current liabilities.

7. What does a high level of gearing indicate about a business?

1. It relies mainly on retained profit
2. It relies heavily on borrowed capital relative to equity, increasing financial risk
3. It has no debt
4. It is guaranteed to fail

Show answer

B: It relies heavily on borrowed capital relative to equity, increasing financial risk. High gearing increases risk, especially if interest rates rise.

8. A firm has sales of £80m, cost of sales of £48m and operating profit of £12m. What is its operating profit margin?

1. 15%
2. 25%
3. 40%
4. 60%

Show answer

A: 15%. Operating profit margin = operating profit ÷ revenue × 100 = 12 ÷ 80 × 100 = 15%. 40% is the gross margin ((80−48)÷80), and 60% is the cost of sales ratio.

9. In Porter's five forces, which situation would most clearly increase buyer power in an industry?

1. Suppliers hold patents on key inputs
2. A few large supermarkets buy most of a supplier's output
3. High barriers to entry protect existing firms
4. Many close substitutes exist for the industry's products

Show answer

B: A few large supermarkets buy most of a supplier's output. Buyer power rises when a few large customers account for most sales, so they can demand lower prices. The other options relate to new entrants, substitutes and supplier power.

10. A UK firm's distinctive capability is most likely to give sustainable competitive advantage if it is:

1. Based on a temporary price cut
2. Valuable to customers and hard for rivals to imitate
3. Shared by most firms in the industry
4. Easily bought on the open market

Show answer

B: Valuable to customers and hard for rivals to imitate. Distinctive capabilities and core competences create lasting advantage when they add customer value and are difficult to copy. Common, easily purchased or temporary features are readily imitated.