3.1.1 Understanding the nature and purpose of business Flashcards
What does SMART stand for?
Specific Measurable Achievable Realistic Timely
What are the 6 major business objectives?
Profit, growth, survival, cash flow, social and ethical objectives.`
Profit formula
P=TR-TC
What is profit maximisation?
Its the prociess that companies undergo in order to determine the best output and price levels in order to achieve its goals.
Profit maximisation is the aim of most businesses because…
It is the aim of most businesses because it will give them the capital needed to expand and grow.
What are the two ways a business can grow?
Organically: by taking on more staff or opening more stores or producing more goods.
Inorganically: with the help of another company, through merger or takeover.
What point of a businesses life is survival most important?
The first year whilst it builds a customer base and establishes itself in the market.
What is survival?
It is where a business reaches a sustainable level of sales that allows the business to reach its breakeven point.
What does having a positive cash flow mean?
It where a business has enough money to pay their day to day expenses and that the business would not have to borrow from a bank, usually through an overdraft which can be expensive.
What can social objectives also be called?
They are also known as corporate responsibility.
What may social objectives involve?
Reducing impact on the environment
Fair wages
Helping society
Compliance with laws
What are ethics?
They are moral principles behind human behaviour: the idea that a business knows right from wrong.
What do ethical objectvies go beyond?
They go beyond the law.
What is a mission statement?
It is a formal phrase that sets out the aims and values of a business or organisation.
What does a mission inspire?
It inspired the objectives and strategies of the business.
What position of the pyramid of corporate vision is a mission statement?
Its at the top of the pyramid.
What are the levels of the pyramid?
- Mission statement
- Corporate strategy
- Business objectives
- Functional objectives
What are objectives?
They are a series of goals or markers to show if the business is progressing in the right direction.
What can the performance of a business be measured against?
How well it has med its set objectives.
What are total costs?
Fixed costs + Variable costs
What are fixed costs?
They are costs that do NOT vary with level of output e.g. rent
Examples of fixed costs:
Rent, mortage, loans, insurances, lease of machinery, saleries.
Formula of fixed costs:
FC=TR-TVC-Profit
What are variable costs?
They are costs that DO vary with level of output e.g. raw materials.
Examples of variable costs:
Costs of stock sold, raw materials, fuel, packaging, wages (not saleries) of casual staff.
Formula of variable costs:
TVC=TR-FC-Profit
What is revenue?
It is income into a business through sales or investments.
Examples of sales revenue:
Money into your till: cash, cheque, card payments, apple pay or paypal.
Sales revenue formula:
TR=Profit+TVC+FC
