all Flashcards
adding value
the difference between the price of the finished products and the cost of inputs involved in making it
adding value benefits
charge higher prices
different to competitors
focus on target market more closely
adding value drawbacks
cost may be more than value added
price may restrict sales
competition may restrict price
elasticity make price changes hard to accept
primary sector
gathering of raw materials
secondary sector
turning raw materials into goods
tertiary sector
servuces
quaternary sector
research
stakeholder
any individual or organisation that has an interest in the activities and decision making of a business
sole trader advantages
less paperwork
be your own boss
make all decisions
no conflict
low barriers to setup/closing
sole trader disadvantages
unlimited liability
hard to raise finance
higher tax
business is owner and will suffer if owner ill etc
partnership advantages
more ideas
little paperwork
more likely to raise finance
specialist skills
partnership disadvantages
unlimited liability
more conflict
bound to decisions
complicated to sell
LTD advantages
shares just family and friends
limited liability
be own boss
easier to raise finance
LTD disadvantages
more paperwork
companies house, others can see
time consuming to set up
may require outside help to manage its finances
PLC advantages
raise finance through shares
shareholders have limited liability
economies of scale
PLC disadvantages
require min £50,000 setup
include more detail in reports
greater risk of takeover
more complex accounting requirements
franchiser advantages
brand
carefully select applicants
franchiser controls products/brand
may not have to spend money to expand
franchiser disadvantages
not in full control
always small risk
possible conflict
major supporting costs
franchisee advantages
lower risk
marketing done for you
training/advice
easier to raise finance
established brand and product
franchisee disadvantages
shared profit
fees
less independence
cannot sell firm without permission
fixed period
stuck in contract
cooperative
a business owned and run by its members
cooperative advantages
usually limited liability
legally straightforward to establish
higher quality of service likely
loyal customers
cooperative disadvantages
limited capital
possible weak management
slower decision making
employees want more
business sizes
small- 50
medium- 50–>250
large- 250–>
merger
2 businesses join to make a new business
takeover
one business takes control of another
joint venture
agreement between 2 participants, a new entity is formed
strategic alliance
agreement between 2 parties to meet an agreed goal whilst remaining independent
aim
overall target, long term plan
mission statement
overriding goal of the business/reason for existence written in a statement to stakeholders
corporate objectives
objectives that cover a range of key areas in the business set at a corporate level
functional objectives
objectives specific to the functions of the business
individual targets/business unit
objectives more focused on individuals
market orientated
a business that prioritises the needs and desires of the market/consumers
product orientated
business focused solely around n products alone
job production
products are made for specific requirements of the customer
batch production
many similar items produced together, each batch goes through one stage of production at a time
flow production
continuous production process
cell production
mass production where it is split into teams for each component
PERT
O+P+(Lx4) / 6
total float
amount of time that the activity can be delayed without delaying finish time
total float calculation
LFT — duration — EST = TF
Free float
amount activity can be delayed without delaying the next
free float calculation
EST(next) — duration — EST(this) = FF
purchasing economies of scale
buy larger quantities
financial EOS
cheaper loans
managerial EOS
more specialist managers
technological EOS
purchase more effective capital
marketing EOS
more effective marketing
risk bearing EOS
spread risk (e.g. diversifying)
concentrated EOS
skilled labour or suppliers nearby etc
information EOS
easy access of data
infrastructure EOS
gov build facilities
productivity calc
output/input
labour productivity
output/employees
capacity utilisation
percentage of total productive capacity that a business is achieving
capacity utilisation calc
actual output/potential output x100
stock control
the process and controls used by a business to ensure that it has sufficient stock for its purpose
lead time
time between order and delivery
benefits of holding stock
meet demand
fluctuations in demand
EOS (sell extra units for less)
unexpected orders
seasonal changes
delay from suppliers
cost of holding stock
storage
opportunity cost
depreciation
security
admin
insurance
stock lose value
average stock calc
max stock+min stock / 2
JIT
company receives goods just in time for when they are needed
JIT benefits
reduced costs
eliminate waste
less tied up capital
less buildup of work in progress
keep up with demand
drawback of JIT
lose out on EOS
highly dependant on suppliers
no room for mistakes
need specialist systems
lean production
cutting waste and improving quality
kaizen
constant improvements/small changes
ergonomics
changing work environment to fit the limitations of employees
TQM
long term success through customer satisfaction, continuous improvement in employees ability
Jidoka
automation, machines stop working when defects are detected
kanban
JIT
kitemark
checking quality of safety products
ISO 9000
international standards on quality assurance
zero defects
everything done right first time
internal standards
set of guidelines in certain areas of a business
reshooting
returning production and manufacturing back to the companies original country
offshoring
basing some of a companies processes over seas to take advantage of lower costs
outsourcing
hiring a party to perform services or create goods
benefits of reshoring
certainty around delivery and quality
minimise supply chain risks
collaborate with home suppliers easy
communication
benefits of offshoring
lower manufacturing costs
higher skilled workers
free trade
target markets
spare capacity over seas
subcontracting
part of production is undertaken by another firm
plan do review
plan- establish objectives
do- implement plan
review- evaluate the process
contingency planning
planning for unexpected outcomes to minimise the impacts
crisis management
process which an organisation goes through to deal with an event that threatens the business
3 elements of crisis management
management response- asses severity
operational response- implement contingency plan
communication response- contact stakeholders
ansoff matrix
assess the risk of growth strategies
ansoff- market penetration
existing products in existing markets
least risk, least reward/loss
don’t need market research
ansoff- product development
new products in existing markets
effective market research
existing customers
first to the market better
ansoff- market development
existing products into new markets
when existing markets are declining
more risky that P development
existing products may not suit market
ansoff- diversification
new products into new markets
risky
no experience
no EOS initially
porters five forces
threat of new entrants
degree of rivalry
threat of substitutes
bargaining power of suppliers
bargaining power of buyers
forecasting
use of existing data to predict future trends
qualitative forecast
based on opinions
delphi technique
experts asked opinions on likely outcomes, an average opinion is taken
trade credit
buy stock now and pay later
factoring
sell debt to a third party to find cash flow
hire purchase
make instalments before purchasing the good
debentures
long term debt lent by business
venture capital
investment in a high risk project
business angel
invests in new/growing businesses
consistency
accounts produced the smae
realisation
when ownership changes not when payment is taken
materiality
judgements need to be realistic
going concern
assume operating as normal
prudence
not overstating finance
matching
dates used to record transactions when it takes place
objectivity
information is realistic and reported in a non biased way
fixed cost
stays the same regardless of output level
variable cost
changes depending on output level
unit cost calc
total cost / total output
break even point
when total revenue = total cost
margin of safety
difference between sales and break even point
break even point calc
fixed cost / price - variable cost
contribution calc
price - variable cost
contribution
how many products needed to sell in order to cover fixed costs and then make a profit
total contribution calc
contribution x number sold
standard costing
expected cost of the production of a good/service
cost centres
specific part of the business where costs can be identified and allocated with ease
profit centres
seperately identifying profit, costs and revenue
absorption coating
all fixed costs absorbed by different cost centres
payback period calc
initial investment - return until you reach positive number, then divide needed cash to get 0 by the year it will become positive and x 12
ARR
revenue - investment / years
———————————————— x100
initial cost
Net present value
cash flow x discount factor for each year, add all present values together and then minus the initial investment
sales budget variance analysis
actual>forecast = favourable
forecast>actual = unfavourable/adverse
expenditure variance analysis
forecast>actual = favourable
actual>forecast = unfavourable/adverse
zero budgeting
all budgets set to zero, managers justify the need for funds
causes of cash flow problems
low profit
too much production capacity
excess stock
allowing too much credit
overtrading
seasonal demand
working capital
= current assets - current liabilities
fixed/non-current asset
used over and over, stays the same
current asset
used once, changes all the time
liabilities
what you owe
depretiation
an accounting estimate of the fall in the value of a fixed asset over time
reasons for depretiation
wear and tear
outdated tech
out of fashion
trends
not brand new/used by someone else
net book value
cost of machine minus depreciation
(end of the year
accumulated depreciation
added up over the years
residual value
value at the end of life
straight line method
reduces equally every year of its life
reducing balance method
constant percentage of depreciation
advantages of straight line method
amount of depreciation is low at start
lower depreciation = higher value asset
low depreciation = profits appear higher
easier to calculate
suitable for small businesses
disadvantages of straight line method
estimate of residual value is required
assume the life of the asset is known
lower at start may be misleading
repairs and maintenance will be needed
reducing balance method advantages
realistic, more depreciation at start
no estimate required
receive larger tax benefit early on
reducing balance disadvantages
higher initial depreciation lowers value
above reason mean borrowing against assets is harder
some assets don’t lose value quickly
more complicated
