3.2.1 - growth Flashcards
1
Q
what are the growth objectives?
A
increase market power
grow business and shareholder value
increase market share and brand recognition
achieve economies of scale
increasing profits
2
Q
economies of scale
A
- when unit costs fall and output increases
- calculation = total production costs in period / total output in period
3
Q
increased market power
A
- businesses become more dominant when they grow
- rivals are left with smaller market share and weaker businesses may be forced to shut down
4
Q
increased market share and brand recognition
A
gives businesses:
- more power
- greater brand recognition
- customers become more aware of the brand name
5
Q
what can be done when a brand becomes stronger
A
- launch new products more easily
- enhance product recognition
- create customer loyalty
- differentiate from rivals
- charge higher prices
- develop an image
6
Q
increased profitability
A
- profit grows = returns to owners grow
- if a business grows and increases profitability, it will have more profit for investment and innovation
7
Q
problems arising from growth
A
- opportunity cost
- if it fails
- communication can become harder
- diseconomies of scale
- overtrading
8
Q
diseconomies of scale
A
- lead to a rise in unit costs
- happens when a business expands beyond an optimum size and becomes less efficient
- can be due to: control problems, co-operation, negative effects of internal politics
9
Q
overtrading
A
- when a business expands too quickly without having the financial resources to support such a quick extension
- most likely to happen when: growth is achieved through significant capital investment, sales are made on credit, significant growth in inventories
10
Q
symptoms of overtrading
A
- high revenue growth but low gross and operating profit margins
- persistent use of bank overdraft
- increase in the current ratio
- low levels of capacity utilisation
