methods of improving investor return

Cambridge A‑Level Business 9609 – Complete Syllabus Notes

Table of Contents

1. Unit 1 – Business & Its Environment (AS)
2. Unit 2 – Human Resource Management (AS)
3. Unit 3 – Marketing (AS)
4. Unit 4 – Operations Management (AS)
5. Unit 5 – Finance & Accounting (AS)
6. Unit 6 – External Influences (A‑Level)
7. Unit 7 – Business Strategy (A‑Level)
8. Unit 8 – Advanced HRM (A‑Level)
9. Unit 9 – Advanced Marketing (A‑Level)
10. Unit 10 – Advanced Operations (A‑Level)
11. 10.2 – Investment Ratios & Methods of Improving Investor Return
12. 10.3‑10.5 – Ratio Analysis of Published Accounts
13. Limitations of Ratio Analysis
14. Summary
15. Practice Questions

---

1. Business & Its Environment (AS)

1.1 What is a Business?

• Enterprise – the activity of creating, organising and managing a business to achieve objectives.
• Economic sectors – primary (raw materials), secondary (manufacturing), tertiary (services).

1.2 Business Objectives

• Profit maximisation (short‑term) vs. profit‑maximising (long‑term).
• Growth – organic (internal) and external (acquisition, merger).
• Market share, sales volume, return on capital, survival.
• Corporate Social Responsibility (CSR) – ethical, environmental, community concerns.
• SMART objectives – Specific, Measurable, Achievable, Realistic, Time‑bound.

1.3 Stakeholders

• Internal: owners (shareholders), directors, managers, employees.
• External: customers, suppliers, creditors, government, community, trade unions.
• Stakeholder influence – power/interest matrix, conflict & negotiation.

1.4 Business Structures & Size

• Ownership types:
  • Sole trader – unlimited liability, simple to set up.
  • Partnership – unlimited liability (general), limited liability (limited partnership).
  • Private limited company (Ltd) – limited liability, shares not offered to the public.
  • Public limited company (PLC) – limited liability, shares traded on a stock exchange.
• Size measurements:
  • Turnover (sales revenue).
  • Number of employees.
  • Market share.
  • Capital employed.

1.5 External Environment

• PESTEL analysis – Political, Economic, Social, Technological, Environmental, Legal factors.
• Porter’s Five Forces – threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, industry rivalry.
• Impact of macro‑economic indicators – GDP growth, inflation, exchange rates, interest rates.

---

2. Human Resource Management (AS)

2.1 HRM Functions (Core Processes)

Function	Key Activities
Workforce Planning	Forecast labour demand, analyse supply, develop recruitment plan.
Recruitment & Selection	Job analysis, advertising, shortlisting, interviews, testing, offer.
Training & Development	Induction, on‑the‑job training, off‑the‑job courses, e‑learning, career development.
Motivation & Welfare	Pay, benefits, working conditions, health & safety, morale‑building activities.
Performance Management	Setting objectives, appraisal (360°, MBO), feedback, reward.
Industrial Relations	Trade‑union negotiation, collective bargaining, dispute resolution.
Employment Law	Contracts, redundancy vs. dismissal, discrimination, health & safety legislation.

2.2 Motivation Theories (AS)

• Maslow’s Hierarchy of Needs – physiological → self‑actualisation.
• Herzberg’s Two‑Factor Theory – hygiene factors vs. motivators.
• McGregor’s Theory X & Theory Y – assumptions about employee nature.
• Equity Theory – perceived fairness of input‑output ratios.

2.3 Management & Leadership Styles (AS)

• Autocratic – decisions by manager only.
• Democratic – participation in decision‑making.
• Laissez‑faire – minimal direction.
• Transformational – inspires and motivates through vision.

---

3. Marketing (AS)

3.1 Nature of Marketing

• Exchange process – buyer, seller, product, price, place, promotion.
• Market types – consumer (B2C) vs. industrial (B2B).
• Mass vs. niche marketing – breadth of target market.
• Demand‑supply interaction – price elasticity, market equilibrium.

3.2 Market Research

• Primary data – surveys, interviews, observations, experiments.
• Secondary data – published statistics, company records, internet sources.
• Quantitative (structured, statistical) vs. qualitative (focus groups, depth interviews).

3.3 Segmentation, Targeting & Positioning (STP)

• Segmentation criteria – demographic, geographic, psychographic, behavioural.
• Targeting strategies – undifferentiated, differentiated, concentrated, micromarketing.
• Positioning – value‑proposition map, perceptual mapping.

3.4 The Marketing Mix (4 P’s)

Product	Price	Place	Promotion
Product life‑cycle (introduction, growth, maturity, decline). Branding, packaging, labelling, product line & mix. Boston Matrix (Stars, Cash Cows, Question Marks, Dogs).	Pricing objectives – profit, market‑share, status‑quo. Methods – cost‑plus, target return, penetration, skimming, value‑based, dynamic pricing. Price discrimination – first, second, third degree.	Distribution channels – direct, indirect, intensive, exclusive, selective. Logistics, warehousing, inventory management. E‑commerce, omnichannel retailing.	Advertising, sales promotion, direct marketing, public relations, personal selling. Branding, packaging, sponsorship, event marketing. Digital marketing – SEO, social media, email, analytics, CRM.

---

4. Operations Management (AS)

4.1 Transformational Process & Factors of Production

• Inputs – labour, capital, land, entrepreneurship.
• Transformation – manufacturing, service delivery, information processing.
• Outputs – goods or services.

4.2 Production Methods

Method	Characteristics	Typical Use
Job	Highly customised, low volume, skilled labour.	Custom engineering, bespoke tailoring.
Batch	Medium volume, set‑up change between batches.	Bakery, printed circuit boards.
Flow (mass)	High volume, low variety, continuous flow.	Automobile assembly, soft‑drink bottling.
Continuous	24‑hour operation, highly automated.	Chemical production, electricity generation.

4.3 Capacity Planning

• Measuring capacity – output per period, machine hours, labour hours.
• Capacity utilisation = (Actual output ÷ Design capacity) × 100 %.
• Strategies:
  • Increase capacity – new equipment, extra shifts.
  • Decrease capacity – lay‑offs, plant closure.
  • Manage excess – subcontracting, off‑peak pricing.

4.4 Inventory Management

• Economic Order Quantity (EOQ) model – optimal order size to minimise holding + ordering costs.
• ABC analysis – classifying stock by value (A = high, C = low).
• Just‑In‑Time (JIT) – minimise buffer stock, rely on reliable suppliers.
• Re‑order point = (Average demand × Lead time) + Safety stock.

4.5 Quality Management

• Total Quality Management (TQM) – continuous improvement, customer focus.
• ISO 9000 standards – certification for quality systems.
• Six Sigma – DMAIC methodology, aim for 3.4 defects per million.
• Cost of quality – prevention, appraisal, internal failure, external failure.

4.6 Outsourcing & Offshoring

• Reasons – cost reduction, focus on core activities, access to expertise.
• Risks – loss of control, quality issues, cultural differences.

---

5. Finance & Accounting (AS)

5.1 Basic Financial Statements

• Income Statement – revenue, cost of sales, gross profit, operating profit, profit before tax, profit after tax.
• Balance Sheet – assets (current, non‑current), liabilities (current, non‑current), shareholders’ equity.
• Cash Flow Statement – cash from operating, investing, and financing activities.

5.2 Primary Accounting Ratios (Introductory)

Ratio	Formula	Interpretation
Gross Profit Margin	Gross profit ÷ Sales × 100 %	Efficiency of production/purchasing.
Net Profit Margin	Profit after tax ÷ Sales × 100 %	Overall profitability.
Current Ratio	Current assets ÷ Current liabilities	Short‑term liquidity.
Quick Ratio	(Current assets – Stock) ÷ Current liabilities	Liquidity excluding inventory.

5.3 Sources of Finance

• Internal: retained earnings, sale of assets, working‑capital optimisation.
• External:
  • Bank loan, overdraft, hire‑purchase, leasing.
  • Equity – issue of ordinary shares, preference shares.
  • Debentures, bonds, commercial paper.

5.4 Working‑Capital Management

• Components – inventories, trade receivables, cash, trade payables.
• Cash‑conversion cycle = Inventory period + Receivables period – Payables period.
• Techniques – tighter credit control, early payment discounts, supplier negotiations.

5.5 Cash‑Flow Forecasting

• Direct method – list cash receipts and payments.
• Indirect method – adjust profit for non‑cash items and working‑capital changes.
• Rolling 12‑month forecast for budgeting and liquidity monitoring.

5.6 Costing Techniques

• Full (absorption) costing – all production costs allocated to units.
• Variable (direct) costing – only variable costs allocated; fixed costs treated as period costs.
• Contribution margin = Sales – Variable costs.

5.7 Break‑Even Analysis

• Break‑Even Point (units) = Fixed costs ÷ (Selling price per unit – Variable cost per unit).
• Margin of safety = (Actual/Projected sales – Break‑even sales) ÷ Actual/Projected sales × 100 %.
• Graphical representation – total cost line vs. total revenue line.

5.8 Budgeting & Variance Analysis

• Types of budgets – static, flexible, rolling, master budget (sales, production, cash, profit & loss, balance sheet).
• Variance = Actual – Budgeted.
  • Favourable (F) – result better than budget.
  • Unfavourable (U) – result worse than budget.
• Common variances – sales volume, material price, labour efficiency, overhead absorption.

---

6. External Influences (A‑Level)

• Macro‑environment – extended PESTEL, globalisation, sustainability, digital transformation.
• Micro‑environment – competitors, customers, suppliers, intermediaries, public.
• Government policy – taxation, subsidies, trade restrictions, regulation.
• Economic indicators – GDP growth, inflation, exchange rates, interest rates, unemployment.

---

7. Business Strategy (A‑Level)

• Strategic analysis tools – SWOT, TOWS matrix, Porter’s Generic Strategies (cost leadership, differentiation, focus).
• Strategic planning process – vision & mission, long‑term objectives, strategic options, implementation, monitoring & control.
• Growth strategies – Ansoff Matrix (market penetration, market development, product development, diversification).
• Strategic control – financial control, strategic audit, balanced scorecard, KPIs.

---

8. Advanced HRM (A‑Level)

• Strategic HRM – aligning HR policies with overall business strategy.
• Hard vs. soft HRM – performance‑oriented vs. people‑oriented approaches.
• Talent management – succession planning, career pathways, retention programmes.
• Performance management – objectives, KPIs, Management by Objectives (MBO), 360° feedback, reward systems.
• Industrial relations – collective bargaining, trade‑union influence, dispute resolution mechanisms.
• Flexible contracts – part‑time, zero‑hours, gig‑economy, remote working.
• Impact of technology – HRIS, AI recruitment, data‑driven people analytics.

---

9. Advanced Marketing (A‑Level)

• Advanced segmentation – psychographic, behavioural, benefit‑based, lifestyle.
• Brand management – equity, extensions, co‑branding, repositioning.
• Integrated Marketing Communications – synergy of advertising, PR, direct, digital, sponsorship.
• Pricing strategies – value‑based, dynamic, price discrimination, bundle pricing, psychological pricing.
• International marketing – standardisation vs. adaptation, entry modes (exporting, licensing, franchising, joint venture, wholly owned subsidiary).
• Digital analytics – web traffic, conversion rates, ROI of online campaigns.

---

10. Advanced Operations (A‑Level)

• Operations strategy – linking capacity, technology and process to competitive priorities (cost, quality, flexibility, delivery).
• Lean production – waste elimination, Kaizen, value‑stream mapping, 5S.
• Quality improvement – benchmarking, statistical process control (SPC), Six Sigma DMAIC.
• Supply‑chain management – vertical integration, outsourcing, logistics optimisation, bullwhip effect.
• Project management – Gantt charts, Critical Path Method (CPM), risk assessment, project budgeting.
• Sustainability in operations – eco‑design, life‑cycle assessment, carbon footprint reduction.

---

10.2 – Investment Ratios & Methods of Improving Investor Return

Key Investment Ratios

Ratio	Formula (using published accounts)	What it Shows
Earnings Per Share (EPS)	(Profit after tax – Preference dividends) ÷ Number of ordinary shares outstanding	Profit attributable to each ordinary share.
Dividend Yield	Dividend per share ÷ Market price per share × 100 %	Cash return on the investment.
Price‑Earnings Ratio (P/E)	Market price per share ÷ EPS	Market’s willingness to pay for each £ of earnings.
Return on Equity (ROE)	Profit after tax ÷ Shareholders’ equity × 100 %	Efficiency of using shareholders’ funds.
Dividend Payout Ratio	Dividends per share ÷ EPS × 100 %	Proportion of earnings returned as dividends.
Dividend Cover	EPS ÷ Dividend per share	Number of times earnings cover the dividend (≥ 2 × is safe).
Market · Value Added (M·A)	Market value of equity – Book value of equity	Market’s valuation premium (or discount) over accounting net assets.
Gearing Ratio (Debt‑to‑Equity)	Total interest‑bearing debt ÷ Shareholders’ equity × 100 %	Financial risk from borrowing.
Return on Capital Employed (ROCE)	Profit before interest and tax ÷ (Shareholders’ equity + Non‑current liabilities) × 100 %	Overall profitability relative to total capital employed.
Price/Earnings‑Growth Ratio (PEG)	P/E ÷ Expected annual EPS growth (%)	Adjusts P/E for growth; PEG ≈ 1 suggests fair value.

Interpreting the Ratios

• Benchmark against industry averages and the firm’s own historical trend.
• Look for consistency (e.g., rising EPS, stable dividend cover).
• Consider external influences – interest‑rate changes, tax reforms, macro‑economic conditions.
• Use a balanced set of ratios (liquidity, profitability, efficiency, gearing) rather than relying on a single figure.

Methods of Improving Investor Return

1. Increase Net Profit
   • Revenue growth – new markets, product‑line extensions, price optimisation, up‑selling.
   • Cost control – lean processes, economies of scale, outsourcing non‑core activities, supplier negotiations.
   • Enhance pricing power – strong brand, differentiation, value‑added services, dynamic pricing.
2. Optimise Capital Structure
   • Refinance high‑cost debt to lower interest rates and reduce interest expense.
   • Maintain an optimal debt‑to‑equity mix to minimise WACC and boost ROE.
   • Consider convertible securities to balance risk and potential upside.
3. Adjust Dividend Policy
   • Raise dividend per share to improve dividend yield – signals confidence.
   • Keep payout ratio within a sustainable band (typically 30‑60 %) to retain funds for growth.
   • Target a dividend cover of at least 2 × to reassure investors.
4. Share Buy‑backs
   • Repurchase shares to reduce the number of shares outstanding, lifting EPS and ROE.
   • Signal that management believes the shares are undervalued.
   • Use excess cash or debt‑financed buy‑backs judiciously to avoid excessive gearing.
5. Growth Initiatives
   • Invest in research & development for innovative products or services.
   • Enter emerging geographic markets with high growth potential.
   • Form strategic alliances, joint ventures or acquisitions that provide synergies and accelerate earnings growth.
6. Financial Restructuring
   • Divest non‑core assets to improve ROA and free cash for shareholders.
   • Improve working‑capital management – tighter inventory control, faster receivables collection, extended payables where appropriate.
   • Replace high‑cost short‑term financing with longer‑term, lower‑cost options.
7. Improve Market Perception
   • Transparent, timely reporting and regular investor briefings.
   • Clear strategic narrative – explain how current actions will drive future earnings.
   • Maintain a strong corporate governance framework to build trust.

---

10.3‑10.5 – Ratio Analysis of Published Accounts

Step‑by‑Step Approach

1. Collect the most recent annual report (income statement, balance sheet, cash‑flow statement).
2. Calculate the key ratios listed in the table above.
3. Prepare a comparative table showing:
   • Current year, previous year, and industry average.
   • Percentage change year‑on‑year.
4. Analyse each ratio:
   • Identify strengths (e.g., high ROE) and weaknesses (e.g., high gearing).
   • Explain causes – operational, financial, market‑related.
5. Summarise findings and suggest actions (link back to the methods of improving investor return).

Example (Illustrative)

Ratio	Year 1	Year 2	Industry Avg.	Interpretation
EPS (£)	0.45	0.58	0.52	EPS ↑ 29 % – out‑performs industry.
Dividend Yield %	2.8	3.2	2.5	Higher yield reflects increased dividend.
Gearing %	55	48	60	Gearing falling – reduced financial risk.
ROE %	12	15	13	Improving efficiency of equity use.

---

Limitations of Ratio Analysis

• Historical data – ratios are based on past performance and may not predict future results.
• Different accounting policies – e.g., inventory valuation (FIFO vs. LIFO) affect profitability ratios.
• One‑off items – extraordinary gains/losses can distort ratios.
• Industry differences – ratios are only meaningful when compared with appropriate peers.
• Quantitative focus – ignores qualitative factors such as brand strength, management quality, market trends.

---

Summary

• Business studies requires a holistic understanding of how enterprises create value, manage people, market products, operate efficiently and finance growth.
• For AS units, the focus is on core concepts and practical tools (e.g., PESTEL, 4 P’s, EOQ, break‑even).
• A‑Level units build on these foundations with strategic analysis, advanced HRM, international marketing, and sophisticated operations techniques.
• Investment ratios provide a snapshot of a company’s profitability, risk and market perception; improving investor return involves profit growth, capital‑structure optimisation, dividend policy, share buy‑backs, growth projects, financial restructuring and effective communication.
• Always interpret ratios in context, consider limitations, and link analysis to actionable recommendations.

---

Practice Questions

1. Explain how a company can use the PESTEL framework to anticipate changes that may affect its investment decisions.
2. Calculate the break‑even point (in units) for a firm with fixed costs £120 000, a selling price of £50 per unit and a variable cost of £30 per unit. Show the impact on the break‑even point if the selling price is increased to £55.
3. Using the table below, compute the EPS, dividend yield and ROE for Year 2. Comment on the trend compared with the industry averages.
   

   	Year 2	Industry Avg.
   Profit after tax (£)	9,200,000	—
   Preference dividends (£)	200,000	—
   Ordinary shares (m)	40	—
   Dividend per share (£)	0.30	—
   Market price per share (£)	6.00	—
   Shareholders’ equity (£)	48,000,000	—

4. Discuss two advantages and two disadvantages of a share buy‑back programme from the perspective of existing shareholders.
5. Identify three ways a manufacturing firm can improve its ROCE and explain the underlying mechanism for each.