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Business theme 2 > 2.3/2.4 > Flashcards

2.3/2.4 Flashcards

1
Q

percentage change in profit (eq)

A

Current years profit-previous years profit / previous years profit

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2
Q

gross profit (eq)

A

Total revenue - cost of sales

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3
Q

Operating profit (eq)

A

gross profit - other operating expenses

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4
Q

Net profit (eq)

A

operating profit - interest

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5
Q

Statement of comprehensive income

A

shows how much money has been into the business (revenue) and how much is going out of the business (costs) over a period of time

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6
Q

What should a statement of comprehensive income include (3 things)

A

-Cover one whole accounting year
-Should also contain previous years data for easy comparison to see what’s changed
-PLC’s must publish accounts

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7
Q

GPM

A

Gross Profit / revenue x100

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8
Q

OPM

A

Operating profit / revenue x100

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9
Q

NPM

A

Profit for the year / revenue x100

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10
Q

profit (def)

A

the money the business has left from revenue once costs have been paid

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11
Q

cash (def)

A

the money the business has now to pay its bills.

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12
Q

Statement of financial position

A

Shows the value of business’ assets and it’s current liabilities as well as showing the value of its capital

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13
Q

non-current assets

A

assets the business is likely to keep for more than a year e.g property or land

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14
Q

current assets

A

assets the business is likely to exchange for cash within the accounting year

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15
Q

current liabilities

A

debts which need to be paid off within a year

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16
Q

non-current liabilities

A

debts a business can pay off over several years

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17
Q

liquidity of an asset

A

how easily it can be turned into cash

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18
Q

Current ratio (eq)

A

Current assets / current liabilities

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19
Q

What is the ideal current ratio

A

Between 1.5-2

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20
Q

Acid test ratio

A

(current assets - inventory) / Current liabilities

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21
Q

Working capital (def)

A

the amount of cash the business has to pay off day-to-day debts

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22
Q

Working capital (eq)

A

current assets - current liabilities

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23
Q

Internal factors that cause business failure (financial)

A
  • poor management of working capital- not enough finances to pay day-today debts
    -poor efficiency- costs aren’t as low as they could be (makes business less competitive)
  • Bad decisions about how a firm is financed. e.g reliance on overdrafts will mean costs may be high in the long term
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24
Q

Internal factors that cause business failure (non-financial)

A
  • poor communication between different departments reduces efficiency. Problems don’t get solved quickly
  • Inadequate market research means the business fails to monitor changes to the market e.g change in customer needs
    -poor marketing means demand for product is decreased leading to less sales of the product
    -failure to innovate
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25
External factors that cause business failure (financial)
- economic recession means consumers have less money to spend (can hit luxury items harder as more elastic) - Exchange rates e.g if the pound strengthens then foreign firms exporting goods to the uk will have cheaper prices then firms in the uk. Demand falls for domestic products
26
external factors (non-financial)
- Actions of competitors e.g selling a similar quality of product at lower price - change in consumer trends -poor communication outside the business e.g failure to communicate with suppliers
27
Job production
One-off items produced by skilled workers
28
Advantages of job production
Charge higher prices as product is handmade or unique
29
Disadvantages of job production
- Higher staffing wages - decreased productivity -time consuming -can’t benefit from economies of scale
30
Flow production
-Uses an assembly line to produce lots of identical products -e.g chocolate bars
31
Advantages of flow production
- benefit from economies of scale - more automated as half process is machinery (saves wages) -can produce and sell large volumes
32
Disadvantages of flow production
-machinery may brake -high set up costs of machinery - human workers may be bored as it is repetitive ( a solution could be to give financial incentive of being paid per item)
33
Batch production
Same equipment is used to make smaller batches of different products.
34
Advantages of batch production
- benefit from economies of scale -higher productivity levels then job production as can make more then one product -sell products at lower prices
35
Disadvantages of batch production
- Between each product, equipment has to be adjusted therefore productivity is lower than if flow production was used -cost and inconvenience of storing raw materials
36
Cell production
When a flow is divided in set of tasks, each task being completed by a work group.
37
Advantages of cell production
- prevention of boredom in workers as they will be completing different tasks. - this can motivate the employee and increase their productivity - Workers therefore may deliver a higher quality product -easier to customise certain parts to meet customer needs
38
Disadvantages of cell production
- dependant on staff being well trained in their specific role - can increase costs for staff training - product removed from flow decreases productivity
39
Productivity
Measured as the output per unit of input, per unit of time. Rate of production from each input.
40
Benefits and drawbacks of a capital intensive work force
- machinery, set up costs can be high but after this a machine can be more productive than a human as it can work faster and work more hours in a day - However, it will cost to maintain the machines which increases overall time taken to produce the products - More difficult to alter production than a human as it will need to be re-programmed - more precise -
41
Benefits and drawbacks of a labour intensive workforce
+ easily adaptable - training costs and time - ambitious targets can demotivate + can solve problems
42
Efficiency
When production happens at an overall minimum average cost.
43
Ways to increase efficiency
-increasing productivity -cutting costs in the production of a product -reconsider a products design mix so its easier and cheaper -lean production
44
Capacity
Maximum output they can produce in a given time period
45
Capacity utilisation (eq)
Current output / maximum possible output x100
46
Drawbacks of 100% capacity
- difficult to work at max capacity and keep quality levels high -may have to turn customers away because it can’t increase capacity anymore -no downtime can reduce lifetime of machines -mistakes more likely if working flat out -can’t rest to large increases in demand for one-off orders
47
Ways to increase capacity
- work more in the working week e.g bank holidays -more machinery -increase staff levels e.g seasonal staff -outsourcing
48
How firms deal with under-utilisation
- stimulate demand e.g more promotion -fill spare capacity with outsourced work -reduce length of working week -close down parts of production facilities
49
Benefits of buffer stock
- avoid running out of stock therefore can react to surges in demand this is especially crucial in the mass market -benefit from economies of scale if bought in bulk
50
Drawbacks of buffer stock
-Storage costs -Wastage costs e.g perishable goods -capital tied up in stock is unproductive and can be used elsewhere
51
Lean production benefit
Improved rate of output and quality Less waste, more efficient, lower costs= competitive advantage
52
Benefits of JIT stock
-reduced storage costs and improved cash flow as money isn’t tied up -less waste - business is more flexible as can cope with surges in demand
53
Drawbacks of JIT stock
- reliant on frequent deliveries from suppliers -unreliable supplier - no economies of scale
54
Quality
Meeting or exceeding customer expectations of what a product should do.
55
Quality control
Assumes that errors are unavoidable Detects errors and puts them right Inspectors are responsible for quality
56
Quality assurance
Assumes errors are avoidable Prevents errors and gets it right first time Employees check their own work
57
Total quality management
Means quality is at the centre of everything the business does. Every employee and department focuses on quality in order to improve overall quality
58
Benefits and drawbacks of TQM
+ helps build bonds as a team as everyone is involved +enhances brand image +Leads to fewer faulty products - time consuming to introduce -demotivate staff due to more effort needed -expensive
59
Quality circles
Discuss at regular intervals to discuss quality control issues aim to identify an solve problems that occur with quality
60
Kaizen
Lean production, employees should be improving their work all the time. Improves efficiency Makes workers feel more involved with quality assurance

Business theme 2 (4 decks)

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