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A-Level Business > 1) What is Business? (Newton) > Flashcards

1) What is Business? (Newton) Flashcards

1
Q

Why do businesses exist?

A

To provide products and services to satisfy customer needs and wants in a profitable manner.

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2
Q

What is presumed to be the main goal of a company?

A
  • profit maximisation
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3
Q

List 7 key business objectives

A
  • Profit maximisation
  • Survival (e.g. ensure costs are met, market share is retained e.t.c)
  • Growth (e.g. no. of shares, outlets e.t.c)
  • Ethical/environmental (cruelty free, net zero emissions)
  • cash flow
  • social (e.g. enhance brand image, reputation)
  • Diversification to spread risk
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4
Q

What is a mission statement

A

States the overriding goal of a business.

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5
Q

Benefits of setting a mission objective

A
  • can become a slogan (marketing tool)
  • To improve communication with key stakeholders - employees, suppliers, customers.
  • Motivates employees by giving them a sense of belonging.
  • Help set a direction for decision making.
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6
Q

Disadvantages of setting a mission objective

A
  • Could be seen as a marketing ploy
  • Only done because competitors do one
  • Can be very vague and irrelevant to what the business actually does.
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7
Q

What is the relationship between missions and objectives?

A

Business and corporate objectives are designed to help a business achieve its mission.

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8
Q

Why do businesses set objectives? (5 points)

A
  • Focusses decision making on achieving mission
  • Provides point of reference
  • Measure of success or failure
  • Can motivate employees
  • Aids communication
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9
Q

What makes up a SMART objective?

A
  • specific
  • Measurable
  • achievable
  • Realistic
  • Timely
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10
Q

Define revenue

A

The total value of all products sold
- quantity sold x price

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11
Q

Define fixed costs w/ examples

A

Costs that don’t change depending on output e.g. rent, mortgage, salary

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12
Q

Define variable costs w/ examples

A

Costs that change depending on output e.g. wages, raw materials

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13
Q

Define total costs

A

variable costs + fixed costs

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14
Q

How do you calculate profit?

A

revenue - total costs

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15
Q

Why is profit so important?

A
  • Seen as a reward for risk taken.
  • Attracts investors (shareholders gain dividends)
  • Re-invest in R+D for further growth
  • Allows for purchasing EOS, proof a firm will be able to pay back a loan.
  • Comparison of profits to competitors
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16
Q

Which factors affect what different business form is chosen?

A
  • finances ( including source of)
  • size
  • taxes
  • liability
  • risk
  • profit (who shared with)
  • ownership and control
  • registrations and payment
17
Q

What is unlimited liability?

A
  • Owners are personally responsible for debts of a business. This means their personal possessions such as their houses and cars would be at risk if the business was to go bankrupt.
18
Q

What is limited liability?

A
  • The business has its own legal identity, so the owner(s) possessions are not at risk. Only assets that belong to the business can be taken to pay off debts.
19
Q

What is a sole trader?

A

A person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses.

20
Q

What is a private limited company (LTD)?

A

A type of privately held small business entity, in which owner liability is limited to their shares, the firm is limited to having 50 or fewer shareholders, and shares are prohibited from being publicly traded. A company becomes an independent legal structure when it incorporates.

21
Q

What is a public limited company (PLC)?

A

A company that has offered shares of stock to the general public. The buyers of those shares have limited liability, meaning that they cannot be held responsible for any business losses in excess of the amount they paid for the shares.

22
Q

What are the strengths of a sole trader?

A
  • Simple to set up (no registration, only need to tell HMRC)
  • Owner gets to keep all profit.
  • Have complete control of the company and its decisions.
  • No communication issues.
23
Q

What are the weaknesses of a sole trader?

A
  • Unlimited liability
  • Owner may be overworked
  • Can’t sell shares to make money
  • Sole responsibility for capital contributions.
24
Q

What are the strengths of an LTD?

A
  • Limited liability
  • Easier to raise finance
  • Better access to credit.
  • Owner can retain control, as long as they hold over 50% of shares.
25
Q

What are the weaknesses of an LTD?

A
  • Profits must be shared with shareholders in the form of dividends.
  • More complex administration means decision take longer.
  • Have to pay corporation tax.
26
Q

What are the strengths of a PLC?

A
  • Limited liability
  • Raising capital through the public issue of shares.
  • Enhanced credibility and corporate reputation.
27
Q

What are the weaknesses of a PLC?

A
  • Slower decision making
  • Loss of control as founders get liquidated
  • Profit must be shared with shareholders as dividends
  • corporation tax
  • It requires having a nominal share capital of at least £50,000
28
Q

What is the private sector?

A

Part of the economy which is not state controlled, and run by individuals and companies, usually for profit.

29
Q

What is the public sector?

A

Refers to all businesses and organisations owned and run by the government.

30
Q

What is a shareholder?

A

The owners of a limited company via shares.

31
Q

Why are shareholders important?

A

They play an important role in the financing, operations, governance and control of a business.

32
Q

What 2 ways do shareholders gain their financial reward from share ownership?

A
  • A share of the profits earned by a company, paid out by a dividend.
  • Growth in the value of their shares, which is ‘realised’ when the shares are sold.
33
Q

What influences share prices?

A

When the demand for shares increase, the price increases too.
- Number of shares available
- Business expansion (opportunity for more dividend due to increased profit margins)
- Publicity
- A recession

34
Q

What is market capitalisation?

A

Represents the total market value of the issued share capital of the company.

Current share value x number of shares issued

35
Q

What are the effects of different types of ownership on mission and objectives?

A

Sole trader - achieve a work life balance
PLC - pressure to maximise shareholder return
NGO - focused on achieving social actions

36
Q

What areas of the external environment can affect a business?

A
  • competition
  • market conditions
  • incomes
  • interest rates
  • demographic factors
  • environmental issues and fair trade.
37
Q

List some factors which affect demand?

A
  • Price
  • Income
  • Substitutions
  • Supply
  • Market trends
  • Complimentary goods
  • Marketing and advertising
  • Seasons
  • Government actions and laws

A-Level Business (3 decks)

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