3.1 What is business?

Question 1

Key business objectives:

Answer 1

To make money
To provide a service
Provide employment opportunities
Fill a gap in the market
Help the community (social enterprise)
Be environmentally friendly
Improve existing products
Survive

Question 2

Mission Statement

Answer 2

This provides the overriding goal of a business and the reason for its existence; and a strategic perspective for the business and a vision for the future

Question 3

Main functions of objectives:

Answer 3

A clear statement of what needs to be achieved
Focus’ on all activities of the business (marketing, operations, finance, human resources)
Provides targets for individual and group achievements
A means of measuring performance (business, departments, individual employees)
Provides a clear focus for decision making and a target to aim for
Provides criteria for evaluating performance

Question 4

Profit

Answer 4

Profit = revenue – total costs

Question 5

Total Costs

Answer 5

= fixed costs + variable costs

Question 6

Fixed costs

Answer 6

Stay the same regardless of output eg rent

Question 7

Variable costs

Answer 7

Change in relation to the number of items produced

Question 8

Unlimited Liability

Answer 8

Owners are personally responsible for the debts of the business. This means their personal possessions such as their cars etc would pay for debts should the business go bankrupt

Question 9

Limited Liability

Answer 9

The business has its own legal identity

Question 10

Shareholders

Answer 10

They are the owners of a limited company and they gain their financial reward from share ownership in two ways:
A share of the profits earned by the company – paid out as a dividend
Shareholders play an important role in the financing, operations, governance, and control aspects of a business

Question 11

Private sector

Answer 11

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

Question 12

Public sector

Answer 12

This refers to all the businesses and organisations which are owned and run by the government

Question 13

Market Capitalisation

Answer 13

This represents the total market value of the issued share capital of the company.

= the current share value x the number of shares issued
When demand for shares increases, the share prices increase too

Question 14

Factors that affect share price:

Answer 14

Number of shares available
Business expansion
Investment
Publicity
E-commerce
A recession – this will devalue shares significantly

Question 15

Factors that affect demand:

Answer 15

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