3.1 What is business Flashcards
What are the 5
main business aims/objectives
Survival
cash flow
profit
growth
social and economic objectives
give an example of two business aims/objectives conflicting with eachother
social and ethical objectives may clash with aims of profit
being ethical may increase costs in turn reducing profit
what is a mission statement
a qualitative statement of an organisations overall mission or purpose
why are mission statements used
- provide a clear goal/ sense of direction
- to communicate to stakeholders
- create a sense of identity and a unique selling point
- enables a business to set clear goals to achieve its mission
- review it a business has achieved its goals
what are corporate aims
the medium-long term goals that will enable a business to achieve its mission
what are corporate objectives
short term goals that will enable the company to achieve their aims
what are functional objectives
specific targets set for each functional area in
why do businesses use smart objectives
to make the aim clear
what does SMART objectives stand for
Specific Measurable Agreed Realistic Time
why do business set goals/objectives
- stepping stones to fulfill a purpose
- provide clear targets for employees to work towards
- provide a framework for decision making
- motivational
- used to judge progress against
- provides incentives/pay structure
define profit
Profit is the difference between total revenue and total costs
what is the calculation/formula for PROFIT
profit = total revenue - total costs
P= TR-TC
define revenue / sales turnover
Revenue is the income received from an organisations activities
what is the calculation / formula for revenue
Total revenue = Price per unit X quantity of unit sold
TR= P x Q
define variable costs
Variables costs are costs that change directly in proportion to output
what is the calculation / formula to work out total variable costs
total variable costs = variable costs per unit X output
TVC= VCPU x O
name 4 examples of variable costs
raw materials
packaging
wages of staff e.g overtime
power
define fixed costs
fixed costs are costs that remain constant in the short run regardless of the output
give some examples of fixed costs
salaries
rent/rates
marketing
vehicles
heating/lighting
define total costs
total costs are all costs of production incurred by a business
what is the calculation/formula for total costs
total costs = variable cost+fixed cost
why is profit important for a business
contributes to long term survival of a business
attractive for stakeholders
it’s a measure of success
profit is a motivator for staff
a guide for future investment
used for ethical/social purposes
a source of finance
define legal structure
Legal structure refers to the ownership of a business
what does the legal structure of a business determine
- legal liability of a business
- sources of finance available
- degree of risk to owners
- responsibilities and rights of decision makers
- legal requirements for record keeping and publishing accounts
- tax and National insurance payments
define limited liability
An investors liability/financial commitment are limited to the total amount invested or promised in share capital.
define unlimited liability
The owners of a business are responsible of the total amount of debt of a business .
define incorporated
A business with a separate legal identity from its owners ; incorporated business include private and public limited companies
define unincorporated
a business and its owners have the same legal identity; the owner is therefore liable for all the actions of the business including debts.
name 2 types of businesses with limited liability
Private limited company (Ltd)
public limited company (Plc)
define sole traders
an individual who owns and runs their own business . It is unincorporated and therefore has unlimited liability
name some advantages of sole traders:
cheap and easy to set up
owner keeps all of the profits
sale responsibility for decision making
financial records remain private
motivation is high
name some disadvantages of sole traders:
unlimited liability
limited capital for investment
little specialist skills
define private limited company (ltd)
an incorporated business that is owned by a shareholders who tend to be family and friends as the entrepreneur. They benefit from limited liability.
advantages of private limited company’s
limited liability
potential to raise more funds through selling shares
separate legal identity
disadvantages of private limited company’s
financial records are publicly available
cannot sell shares on the stock market - limiting financing opportunities
suppliers may view limited liability as a risk
define public limited company (plc)
an incorporated business that is able to sell shares on the stock exchange to the public. owners benefit from limited liability
advantages of a public limited company (plc)
limited liability
potential to raise funds through selling shares on the stock exchange
separate legal identity
disadvantages of a public limited company (plc
risk of takeover
pressure for short term financial results from shareholders rather than long term performances
financial records publicly available
divorce of ownership
define public sector
organisations owned by the government and funded by tax payers for thr purpose of providing a service
why might a business privatise
to create a profit motive
generate wealth for owners and shareholders
better service for customers
increased efficiency- cost control and revenue generation
define private sector
the part of the economy owned by individuals and organisations rather than the state
define non profit organisation
organisations that are owned and managed in order to achieve objectives other than financial reward
define shareholders
the owners of a limited company who invest capital in return for decision making power and a share of a company’s profit
define market capitalisation
market capitalisation is the total value of issued shares in public limited company
what is the formula for market capitalisation
market capitalisation = number of issued shares x current share price
define dividend
a share of the company’s profit issued to shareholders on an annual basis
