Analysing the Strategic Position of a Business (3.7) Flashcards

Question 1

Q

Savings is setting aside…

Answer

A

Setting aside some money for future use (mainly by individuals or retained profit in businesses).

Question 2

Q

Investment is the purchase of a…

Answer

A

The purchase of a fixed asset (valuable, stay with businesses for a long time).
- Using your money to make money.

Question 3

Q

Difference between Savings & Investment :

Answer

A

Savings carry almost no risk, investments always carry significant risk.

Question 4

Q

ROI :

Answer

A

Operating Profit
———————– x 100
Capital Invested

Question 5

Q

Why investment is undertaken :
1) To replace or renew…
2) To introduce additonal, new…

Answer

A

1) To replace or renew assets that have worn out (depreciated) or become obsolete.
2) To introduce additional, new assets in order to meet increased demand for the firm’s products.

Question 6

Q

Risk of investment (5) :
1) Market may…
2) ___________________ conditions may…
3) Fixed assets purchased may be…
4) ___________________ cost may be higher than expected…
5) ____________________ may develop…

Answer

A

1) The market might change e.g. new demand might not materialise as expected.
2) Economic conditions may change (e.g. high inflation).
3) The fixed assets purchased may be faulty or of low quality.
4) Opportunity cost may be higher than expected (e.g. other possibilities which might have been more profitable might have been missed).
5) Technology may develop more quickly than expected.

Question 7

Q

3 Methods of Investment Appraisal :

Answer

A

1) Payback period.
2) Average rate of return (ARR).
3) Net present value (NPV).

Question 8

Q

Investment Appraisal involves making a judgement as to…

Answer

A

Making a judgement as to whether a new investment opportunity being considered by a business is going to be worthwhile.

Question 9

Q

Payback is assessing how long a particular…

Answer

A

Assessing how long a particular project will take to break-even and move into profit.
- Useful for comparing 2 projects, which pays back the most quickly is the lower risk but not necessarily the best.
(answer is in years/months)

Question 10

Q

Payback Period is the time it takes for a business to…

Answer

A

Time it takes for a business to payback its initial investment.
- The shorter, the better.
- Results will be generated in time.

Question 11

Q

How to calculate Payback Period :

Answer

A

1) Calculate NCF if not already (inflows-outflow).
2) Add up each years NCF until you get to the cost of the initial investment (which was Year 0).
3) If the cost of initial investment is in between a year, do this formula.

amount of investment not recovered/revenue generated in the next year x 365

Then add the days and how many years to get payback.

Question 12

Q

Benefits of Payback Period (4) :

Answer

A

1) Simple, easy to calculate + understand.
2) Focuses on cash flow which is key to business finances.
3) As it deals with speed of return its particularly relevant for hi-tech, rapidly changing industries.
4) Easy to compare one project with one another.

Question 13

Q

Drawbacks of Payback Period (2) :

Answer

A

1) Ignores cash flows after payback is reached e.g. machine may continue to payback for 20 years.
2) Money value in 3.5 years may be worth less than money today (e.g. inflation).

Question 14

Q

ARR (Average Rate of Return) calculates the annual…
- Useful for comparing the potential return with other…
- It’s better than PB as…
- The _________________ the better.

Answer

A

Calculates the annual % profit from an investment.
- Useful for comparing the potential return with other ways in which the business could use it’s money.
- It’s better than PB as it includes profits made after break-even when PB doesn’t.
- The higher the better.

Question 15

Q

How to calculate ARR :

Answer

A

1) Add up positive cash flows of each year, (not Year 0).
2) Subtract the cost of initial investment e.g. 8M.
3) Divide by lifespan of investment.
4) Divide by cost of inital investment to find %.
4) E.g. NCF all added together is 11. So 11-8 (inital investment) = 3/5 (years) = 600,000 per year, 600,000 as a % of 8m is 600,000/8,000,000 x 100 = 7.5% = ARR.

Question 16

Q

NPV (Net Present Value) calculates what any…
- Better than ARR because the future…

Answer

A

Calculates what any potential return is worth in “real terms”.
- This is better than ARR as the future profits are more realistic. They take into account inflation whereas ARR doesn’t.

Question 17

Q

How to calculate NPV :

Answer

A

1) Multiply the NCF by the discount factor for that year.
2) Pick the correct discount factor based on the % change, e.g. 10%.
3) Get NPV by adding them up together.
4) Minus this NPV from initial investment to calculate return.

Question 18

Q

Difficulties with conducting appraisals for investment :
- Difficult to predict…
- R________ and…
- Unforseen…
- New…
- Higher than expected…

Answer

A

Difficult to predict cost and revenues.
Risks and uncertainties.
Unforeseen technical difficulties.
New technology superseding the investment.
Higher than expected inflation, or a recession.

Question 19

Q

To overcome these difficulties when conducting investment appraisals businesses should :

Answer

A

Make ‘contingencies’.
Calculate alternative results.
Set more demanding targets to allow for risks (e.g. higher ARR).

Question 20

Q

Advantages of Net Present Value (NPV) (4) :
+ Takes account of time…
+ Looks at all…
+ Use of discounting reduced the…
+ Has a…

Answer

A

+ Takes account of time value of money, placing emphasis on earlier cash flows.
+ Looks at all cash flows involved through life of the project.
+ Use of discounting reduces the impact of long-term, less likely cash flow.
+ Has a decisions-making mechanism - reject projects with negative NPV.

Question 21

Q

Disadvantages of NPV (3) :
- More…
- Difficult to select the…
- The NPV calculation is very…

Answer

A

More complicated method.
Difficult to select the most appropriate discount rate - may lead to good projects being rejected.
The NPV calculation is very sensitive to the initial investment cost.

Question 22

Q

Factors to consider, Investment Appraisals, Influence Risk (4) :
- Length of…
- Source of…
- Size of…
- Economic and…

Answer

A

Length of project.
Source of data.
Size of investment.
Economic and market environment.

Question 23

Q

Qualitative influences on Investment Appraisals (4) :
- Product…
- Consistency of…
- Business’ brand…
- A business’ responsibility to…

Answer

A

Product quality + customer service.
Consistency of investment decision with corporate objectives.
Business’s brand and image, including reputation.
A business’ responsibilities to society & other external stakeholders.

Question 24

Q

Sensitivity Analysis (Investment Appraisals) created to understand the impact a…

Answer

A

Created to understand the impact a range of variables has on a given outcome, e.g. changing discount factor,
- Allows for more informed decision, do multiple calculations,

Question 25

Q

Ratio Analysis is when a business assesses…

Answer

A

When a business assesses the strengths and weaknesses of their finances.

Question 26

Q

The Balance Sheet desrcibes the financial…
- Summary of…
- Liabilities (…)
- Tells where capital invested has…

Answer

A

Describes the financial position of a company at a particular point in time.
- Summary of assets (things a company owns).
- Liabilities (things a company owes).
- Tells where capital invested has come from e.g. retained profit and share capital.

Question 27

Q

(Balance Sheet) Non-Current Assets/Fixed Assets is what the business ________ with a lifespan of…
- e.g. …

Answer

A

What the business owns with a lifespan of more than a year. They are used repeatedly as part of the firm’s operations and will not regularly be sold.
- e.g. Land, machinery, vehicles.
Add these up together to get total.

Question 28

Q

(Balance Sheet) Current Assets are _____________ by a business and likely to be turned into cash within…
- e.g. …

Answer

A

Assets owned by the business that are likely to be turned into cash within one year. These assets continually change form.
e.g. Receivables (debtors, people who owe you money = customers), Inventories (stock), Cash.
Add together to get total.

Question 29

Q

(Balance Sheet) Current Liabilities, ________-term debts of the business, will have to be repaid within…
e.g. …

Answer

A

Short-term debts of the business, will have to be repaid within one year.
e.g. Payables (creditors = people you owe, e.g. suppliers).

Question 30

Q

(Balance Sheet) Net Current Assets (Working Capital) Formula :

Answer

A

Current Assets - Current Liabilities

Question 31

Q

(Balance Sheet) Non-current/Long-term Liabilities are debts that need to be __________, but not within…
e.g. …

Answer

A

Debts that need to be repaid, but not within one year. Also known as : creditors falling due after a year.
e.g. Long-term loans & mortgages.

Question 32

Q

(Balance Sheet) Net Assets (Companies value) Formula :

Answer

A

Total assets - non current liabilities.
SHOULD BALANCE WITH TOTAL EQUITY

Question 33

Q

(Balance Sheet) Capital & Reserves show how the asset and…

Answer

A

Shows how the asset and business have been financed.
e.g. Share capital, Reserves (retained profit)

Question 34

Q

(Balance Sheet) Total Equity (Shareholder’s funds) Formula :

Answer

A

Share Capital + Reserves.
NET ASSETS = TOTAL EQUITY.

Question 35

Q

(Balance Sheet) Working Capital tells us about the…
- A firms ability to…
- What’s the ideal ratio?
- Formula :

Answer

A

Tells us about the liquidity of a business.
- A firms ability to pay its short-term liabilities (debts).
- Ideally, a business will have £2 of current assets to be able to pay every £1 of current liabilities it owes (2:1)

Current Assets - Current Liabilities

Question 36

Q

Tangible vs Intangible Assets :

Answer

A

Tangible Assets : Non-current assets that exist physically.

Intangible Assets : Non-current assets that don’t have a physical presence but still have value.
- Most common is goodwill, which includes value of firm’s name, copyright, patents etc.

Question 37

Q

(Income Statement) : Describes the…
- Things on it : (6)
- Gross Profit Formula :
- Operating Profit Formula :
- Profit for Year :

Answer

A

Describes the income and expenditure of a business over a period of time, usually a year.
- Revenue, Cost of Sales, Gross Profit, Expenses, Operating Profit, Profit for the Year.
GP : revenue - cost of sales
OP : GP - expenses
PFTY : operating profit - interest and taxation

Question 38

Q

(Ratio Analysis) Liquidity Ratio’s measure whether a business can pay…
- Includes (2) :

Answer

A

Measure whether a business can pay its short-term liabilities (debts).
- Includes Current Ratio & Gearing.

Question 39

Q

(Ratio Analysis, Liquidity Ratio)
Current Ratio estimates whether the business can…
- Formula :
- Answer is expressed ___ : ___
- Recommended ratio is ____ : _____, but things like JIT mean…
- If too high, firms aren’t…

Answer

A

Estimates whether the business can pay debts due within one year out of the current assets.
Current Assets / Current Liabilities
- Then answer is expressed x : 1
- Recommended is 2:1, but things like JIT mean firms are able to operate at a lower level.
- If too high, firm’s aren’t investing enough to further expand the business.
(BALANCE SHEET)

Question 40

Q

(Ratio Analysis, Liquidity Ratio)
Gearing Ratio shows what proportion of…
- Formula :
- If a business has a value higher than 50%, it is…
- ____% is considered low, means a firm has raised…

Answer

A

Shows what proportion of capital invested in the business comes from loans.
non-current liabilities
—————————— x 100
total equity + non-current liabilities
- If a business has a value higher than 50%, It is highly geared, not very good as it means a firm has borrowed a lot of money, high interest repayment.
- 25% is considered low, means a firm has raised capital through alternative finances e.g. retained profits.
(BALANCE SHEET)

Question 41

Q

(Ratio Analysis, Profitability Ratios)
Return on Capital Employed/Investment (ROCE) lets owners/potential investors understand how…
- Helps shareholders to gain…
- Formula :

Answer

A

Lets owners/potential investors understand how efficient the business is at producing profit based on capital invested.
- Helps shareholders to gain idea of potential return on investment, however, unlikely shareholders would get 100% of profit made.

operating profit or profit before tax
————————————————- x 100
(total equity + non-current liabilities)
(BALANCE SHEET+ INCOME STATEMENT)

Question 42

Q

(Ratio Analysis, Efficiency Ratios/Financial) Definition :
Measures how efficiently the business manages its…
- Includes…

Answer

A

Measures how efficiently the business manages its current assets and liabilities, which will also impact a firm’s liquidity.
- Includes inventory (stock) turnover, Receivables (debtors) days and Payables (creditors) days.

Question 43

Q

(Ratio Analysis, Efficiency Ratios\Financial)
Inventory (stock) Turnover measures how quickly…
- Formula :
- Measured as a…
- Higher the figure the better for the firm’s…

Answer

A

Inventory (stock) Turnover : Measures how quickly inventory is converted into sales.

cost of goods sold / average inventory held
(INCOME STATEMENT & WILL GET TOLD)

Measured as a number, not ratio. The number of times the average value of stock held is sold.
Higher the figure the better for the firm’s cash flow and liquidity as it implies they are selling goods & shifting stock more quickly.

Question 44

Q

(Ratio Analysis, Efficiency Ratios\Financial)
Receivables (debtors) days shows the number of days it takes to…
- Most of the time, the ________________ the better.
- Formula :
- Firms that offer…
- Businesses that deal mainly in cash or…

Answer

A

Shows the number of days it takes to convert receivables into cash, i.e. how long it takes to collect debts from customers
- Most of the time, the shorter the better but it depends.

Receivables (debtors)
—————————— x 365
Revenue

Firms that offer long credit periods will have high figures.
Businesses that deal mainly in cash or do not offer credit sales will have lower figures.
(BALANCE SHEET+INCOME STATEMENT)

Question 45

Q

(Ratio Analysis, Efficiency Ratios\Financial)
Payables (creditors) days shows the number of days it takes to…
- Formula :
- A firm that recieves long credit periods will…
- A firm will want a…

Answer

A

Ratio shows the number of days it takes to pay any payables owed, i.e. how long it takes to pay the suppliers.

Payables
—————— x 365
Cost of Sales

-A firm that receive long credit periods will have high figures; those that pay suppliers in cash will have low figures.
- A firm will want a high figure, preferably higher than their receivable days, so they are not paying their debts too quickly and before they receive their revenue, this should improve their liquidity and cashflow.

(BALANCE SHEET+INCOME STATEMENT)

Question 46

Q

Corporate Aim :

Answer

A

Long-term goals, what a business wants to achieve.

Question 47

Q

Mission Statement :

Answer

A

There to inspire, puts corporate aim into words.

Question 48

Q

What factors influence the mission of a business? (6)
- Change in…
- Business…
- Activities…
- Nature of…
- C_______________.
- E_____________.

Answer

A

Change in leadership.
Business size.
Activities undertaken by the business.
Nature of owners/stakeholders.
Competitors.
Economy.

Question 49

Q

Corporate Objectives :

Answer

A

Medium-long term targets for the whole enterprise.

Question 50

Q

Internal/External influences on corporate objectives + decisions (7) :
- Business…
- Power of…
- E_______.
- Business…
- Resource…
- Pressure for…
- External…

Answer

A

Business ownership.
Power of stakeholders.
Ethics.
Business culture.
Resource constraints.
Pressure for short-termism (just focusing on short term goals).
External environment.

Question 51

Q

Functional Objectives :

Answer

A

Objectives for each department.

Question 52

Q

Types of objectives (6) :

Answer

A

Profit, growth, survival, cash flow, social and ethical objectives.

Question 53

Q

Strategy is a _______________/_______-term plan of..
- Can only be put in place once an…
- Can be clearly defined… or a sequence of…

Answer

A

Medium/long-term plan of action developed to achieve the business’ objectives.
- Can only be put in place once an organisation has outlined its missions/aims and objectives.
- Can be clearly defined plans (for large companies) or a sequence of business decisions made over time with the aim to reach a particular goal (for a small business).

Question 54

Q

Tactics :

Answer

A

Short-term plans for implementing strategy.
- These are more day to day activities.

Question 55

Q

Order of a Corporate or Strategic plan (5) :

Answer

A

1) Mission/Corporate Aim
2) Corporate Objectives
3) Functional objectives
4) Strategies
5) Tactics

Question 56

Q

SWOT Analysis allows a business to…
- Assess their overall…

Answer

A

Allows a business to make decisions on their future.
- A technique that allows an organisation to assess their overall position, or the position of one of its divisions, products and activities.

Question 57

Q

What does SWOT stand for & which are INTERNAL and which are EXTERNAL?

Answer

A

Strengths, Weaknesses, Objectives, Threats.
- S&W are internal.
- T&O are external.

Question 58

Q

PESTLE :

Answer

A

Political, economical, technological, legal and environmental.

Question 59

Q

ADVANTAGES of SWOT (4) :
+ Leaders can analyse what a business…
+ Competitive advantage through…
+ Highlights…
+ Will support a business to help…

Answer

A

+ Leaders can analyse what a business needs to do to counter threats/target opportunities.
+ Competitive advantage through developing strengths/fixing weaknesses.
+ Highlights current + potential threats.
+ Will support a business to help achieve it’s objectives through supporting decision making.

Question 60

Q

DISADVANTAGES of SWOT (2) :
- Time…
- External…

Answer

A

Time-consuming.
External factors can change rapidly.

Question 61

Q

Measures of HR Effectiveness (3) :
Measures of Operational Effectiveness (4) :
Measures of Marketing Effectiveness (4) :

Answer

A

HR : Staff Turnover, Labour Productivity, Absenteeism.
Organisational : Capacity Utilisation, Quality reports, Waste levels, Environmental targets.
Marketing : Market Share, Customer Satisfaction, Recognition levels, Customer Loyalty.

Question 62

Q

Employee Retention Formula :

Answer

A

Number of employees with one
or more years’ service
—————————————— x 100
Overall workforce number

Question 63

Q

Labour Turnover Formula :

Answer

A

Number of employees leaving
during period
——————————————- x 100
Average employed during period

Question 64

Q

Disadvantages of high Labour Turnover (4) :

Answer

A

Higher costs.
Increased pressure on remaining staff.
Disruption to production + productivity.
Hard to maintain quality/ customer service.

Answer 65

A

Nature of business e.g. seasonal.
Pay.
Working conditions.
Competition poaching staff.
Poor communication.

Answer 66

A

Effective recruitment & training.
Competitive pay and benefits.
Job enrichment.
Reward staff loyalty.

Answer 67

A

Output per period (units)
———————————– x 100
Number of employees at work

Answer 68

A

Labour costs are normally a high % of costs.
Efficiency/profitability is closely linked to productive use of labour.
Competitiveness depends on unit costs.

Answer 69

A

Extent and quality of fixed assets e.g. equipment/IT.
Ability and motivation of workforce.
Method of production.
External factors e.g. reliability of suppliers.

Answer 70

A

Measure performance + set targets.
Streamline production processes.
Invest in better capital equipment/employee training.
Improve layout/organisation of workplace.

Answer 71

A

Number of staff absent
———————————- x 100
Number employed during period
OR
Number of days taken off for unauthorised absence (during period)
———————————————— x 100
Total days worked by the workforce over the period

Answer 72

A

Investigate and understand causes.
Have clear absence + sick policies.
Set targets + monitor trends.
Reward good attendance.
Consider wider staff motivation issues.

Answer 73

A

Marketing : Sales growth, market share, brand loyalty, social media presence, sales volume, portfolio analysis (BM).
Operations : capacity utilisation, VC per unit, time to make products, age + condition of machinery, process used).
HR : Absenteeism, labour turnover, labour costs as % of revenue, staff morale, retention rates, HR training and recruitment.

Answer 74

A

The unique strengths of a business that cannot easily be replicated by a competitor.
- These are strengths critical to the success of a business, e.g. specific piece of technology or understanding their customers.
- Should be adapted and changed to meet demands of the market.
- Allows business to gain a competitive advantage.
— Example of Apple : I.O.S, branding, loyal customers.

Answer 75

A

There’s not always widespread agreement on desirable levels.
Usually quantitative.
Non-financial methods usually interdependent.
Financial methods often reflect what has happened and what will happen.

Answer 76

A

Management who describe themselves as this tend to emphasise certain performance methods, such as :
- Share price.
- Revenue price.
- Gross and operating profit.
- Unit costs and productivity.
- Return on capital employed.
NEED TO HAVE BOTH ST + LT (PIE)

Answer 77

A

Customer loyalty.
Reputation.
Labour turnover.
Sustainability and social responsibility.
Quality & innovation etc.
— Could include : stock market investors focussing on mainly latest financial performance, reliance on bonuses based on ST performances & frequent changes in leadership & strategy.

Answer 78

A

Management bonuses/financial incentives based on achievements of short-term objectives.
Low or falling investment in R & D.
High dividend paying rather than reinvesting profits.
Overuse of takeovers rather than internal growth.

Answer 79

A

Tendency for management to focus on LT gains.
- These measures show the ability of a business to sustain or grow its current operations.
e.g. core competences, quality, market share, innovation and people.
- Disadvantages is that it takes longer to earn money from this approach which shareholders may not like.
NEED TO HAVE BOTH LT + ST (PIE).

Answer 80

A

An attempt to help firms measure business performance using both financial and non-financial data.
- Enables managers to understand clearly how their business is performing, believes looking at non-financial indicators helps predict future performance whereas financial focuses on just the previous accounting period.
— Example : Tesco Clubcard, combines customers with financial.

Answer 81

A

Financial : generating revenue, profit and shareholder management.
Internal Processes : considers systems in place to ensure the business is successful, lead time/unit costs.
Learning & Growth : focus on the resources & infrastructure, e.g. effectiveness of teams + innovation, technology investment.
Customer : Extent to which the customer is satisfied, levels of returns.
e.g. Tesco

Answer 82

A

+ Measurable.
+ Links performance to long-term (mission & vision).
+ Involves all stakeholders in the business.
+ Highly flexible, KPI’s chosen by business.
- Doesn’t consider sustainability (out-dated).
- Have to monitor frequently, time-consuming/expensive.
- Difficult to have balance between the four perspectives.

Answer 83

A

Believes that firms should have three separate bottom lines.
- ‘Profit’, ensuring that the bottom line in the profit & loss account is as high as it can be.
- ‘People’, ensuring an organisation undertakes business in a way that ensures that staff and other stakeholders are considered, socially responsible, e.g. fair wage and conditions, customers have their feedback listened to.
- ‘Planet’, conducting business in an environmentally sustainable manner, business often forced between lower-cost option or environmentally-friendly alternative, very difficult to measure, e.g. carbon footprint & waste management.
e.g. Ikea : fair wages, invests in renewable energy.

Answer 84

A

+ Entices ethically conscious customers & investors.
+ May result in increased LT profitability.
+ Competitive advantage from being socially responsible.
+ May boost employee retention, improve brand reputation and customer loyalty.
- Might create potential conflict, benefits of social and environmental actions that a business engages in are LT, however could have negative impacts on profits in the ST.
- Most shareholders focus on ST (profit) results.
- Hard to reliably measure - no KPI’s.

Answer 85

A

POLITICAL : Competition policy, regulation, tax.
ECONOMICAL : Interest rates, ecnomic growth, consumer spending and income.
SOCIAL : Demographic change, pressure groups.
TECHNOLOGICAL : New productive processes, new technology.
LEGAL : Employment law, minimum wage, health and safety.
ENVIRONMENTAL : Sustainability, pollution and carbon emissions.

Answer 86

A

The government actions that impact on the strategic and functional decisions made by the business.
- They will impact heavily on the competitive environment and the infrastructure that allows businesses to operate effectively.
- The gov want to grow the economy, people will have to pay taxes.

Answer 87

A

Involves creating and enacting laws in order to protect individuals, businesses and society as a whole.

Answer 88

A

Look to promote fair competition in markets and stop the abuse of customers by businesses due to monopoly power.
- This means anticompetitive prices such as price fixing between businesses are illegal.
- Mergers and takeovers are monitored and won’t be allowed if deemed that they significantly reduce competition.

Answer 89

A

A monopoly exists where there is only one business in the market.
- At least 25% market share.
- Monopolies can exploit consumers by charging high prices, therefore, they’re regulated in order to protect the customer.
- Market Power is the ability of a business to set price above those that would be charged if there were competition.

Answer 90

A

Lower price, increased competition leads to a fall in market share.
Improved quality, in order to maintain a customer base within a competitive market, businesses will strive to better the quality of their products.
Increased choice for customers.
Innovation, businesses invest in R&D to draw in new customers, will benefit society as a whole, e.g. technological developments.

Answer 91

A

Equality Act protects things like age, disability, gender, race, pregnancy etc.
Employment Relations Act allows Trade Union membership.
Labour market law is designed to protect workers from discrimination within the workplace and make it easier for businesses to recruit workers.
Wage Discrimination occurs when businesses pay workers a different wage rate for providing the same job.

Answer 92

A

Environmental Law : Help to ensure that businesses do not have a negative impact on the environment.
e.g. Limits to emission levels, guidelines on waste disposal and quotas on finite resources.
Government can inspect businesses and impose fines on those failing to comply.
Environmental Protection Act and Environment Act aim.

Answer 93

A

Government looks to promote enterprise in the economy as it creates jobs and leads to economic growth.
Enterprise is the term that can be applied to any business.
Support start-ups : Provide employments, businesses will pay taxes, can help start-ups becoming environmentally friendly.
Can provide grants and training (e.g. financial, marketing, etc) to businesses.

Answer 94

A

Regulation undertaken by the government to create competitive markets.
Government creates rules and sanctions in order to modify the economic behaviour of firms.
Privatisation leads to monopoly power as most firms privatised operate in markers with barriers to entry such as economies of scale, this can be countered through regulation and regulation.
Deregulation : Opening up of markets to new competition through the removal of rules and regulations that created barriers to entry.

Answer 95

A

Government will look to improve the infrastructure to help businesses operation more effectively, e.g. improve transport network and increase the provision of utilities.
Pollution Permits : Allow businesses to produce a legal level of pollution every year, permits are tradable on the market and if a business doesn’t use all of theirs, they can sell them to other businesses, provides financial incentive to reduce pollution.
UK Trade and Investment (UKTI) helps businesses export to foreign markets and helps foreign companies in setting up production in the UK.

Answer 96

A

GDP (Gross Domestic Product) measures the value of goods and services produced in an entire economy over a period of time (usually a year).
- Calculated the measure the economic performance of a country/area/whole world.
- Calculated in Real Terms, meaning its adjusted so that inflation is ignored.

Answer 97

A

Consists of the key economic factors that influence the behaviour of businesses and their customers.

Answer 98

A

Businesses could import fewer products.
Increase the quality of labour by training staff.
Cutting taxes.
Investment.
Cutting interest rates.

Answer 99

A

+ Growth in GDP means higher revenue & profitability.
+ Gives potential for economies of scale.
+ Sustained growth increases confidence and therefore supports business plans for future.
- However, could lead to shortages of raw materials and skilled labour due to growth.
- If growth is too fast, can lead to a recession.

Answer 100

A

— BOOM : A period characterised by high levels of consumer spending, business confidence, increasing prices etc.
- Consumer demand likely to be higher.
- Shortages of labour (including labour so people will demand higher wages).
- Profits and dividends increased.
— RECCESSION : A sustained decline in economic activity that occurs after a peak in the business cycle.
- Fall demand and business confidence.
- Can be caused by a drop in consumer spending, usually due to higher prices or lower incomes.

Answer 101

A

— SLUMP : Also known as a depression, is a prolonged period of economic decline when a country’s real GDP is at its lowest point.
- Unemployment will be high.
- Low business confidence.
- Increasing number of businesses failing.
- Lack of demand so prices lower.
— RECOVERY/UPTURN : Stage of economic cycle when an economy starts to grow again after a recession.
- Increasing business confidence.
- Rising investments.
- Employment increases.

Answer 102

A

The price of one country’s currency in terms of other currencies.
— Determined by supply and demand.
- An INCREASE in the value of a currency is called an APPRECIATION, this means the currency is worth more, e.g. £1 = $1.60
- A DECREASE in the value of a currency is called a DEPRECIATION, this means the currency is worth less, e.g. £1 = $1.40
— EXAMPLE : £120 into USD (£1-$1.8)
120x1.8= $216

Answer 103

A

— SPICED = Strong pound, Imports Cheaper, Exports Dearer.
- Businesses that import will be able to buy cheaper raw materials, they could utilise this and reduce prices, help in LT.
- Businesses that export may see less demand.
— WPIDEC : Weak Pound, Imports Cheaper, Exports Dearer.
- Greater demand from abroad for UK goods.
- Input prices will increase if raw materials are imported.
- If the business has a price elastic product it will be able to pass the increase in costs onto the consumer.

Answer 104

A

Could mean it costs more for raw materials.
People will have less confidence, spend less, luxury goods will suffer lots.
Supply issues.
Demand will be impacted.
SO, EXCHANGE RATES CAN PROVIDE THREATS & OPPORTUNITIES.
— Businesses can overcome these issues by looking at predictions, planning, taking advantage of when SPICED/WPIDEC if it suits them and use time series analysis.

Answer 105

A

— FUNCTIONAL :
- May affect budgets, may have to reevaluate them.
- May have to increase/decrease prices.
- May have to change suppliers/distribution channels.
— STRATEGIC :
- May affect their long-term goals of expanding their operations abroad.
- May need to restructure business.
- May have to retrench.
- May take advantage, export more

Answer 106

A

Inflation is a general rise in prices or a fall in the value of money.
- The rate of inflation shows how inflation has changed.

Answer 107

A

— Retail Price Index : A measurement of a ‘basked’ of goods and services representative of what people buy in the UK.
— Customer Price Index : Similar to RPI but mainly excluding housing costs.

Answer 108

A

— Cost Push Inflation occurs when there is an increase in the costs of production, causes firms to increase prices, e.g. wages.
— Demand and Pull is the process by which prices rise because there is excess demand in the economy. An increase in demand means an increase in price.

Answer 109

A

Views regarding future inflation.
- These can influence wage-setting behaviour and pricing in the economy.
- Potential Positives : Could prepare businesses e.g. switch to cheaper supplier, provide competitive advantage, increase consumer & business confidence, anticipate changes.
- Potential negatives : Could make bad decisions, can’t predict everything e.g. covid, doesn’t take extern factors into account.

Answer 110

A

Higher demand (especially for luxury goods).
More investments.
Decreased cost of goods, could charge lower.
Could increase wages, increase motivation.
Get better raw materials.

Answer 111

A

Lower demand (luxury brands will suffer the most).
Lower business & consumer confidence.
Invest less.
May have to get supplies from cheaper suppliers, could reduce quality.
May have to decrease wages (cut costs) or retrench.
Have to increase prices to cope with this.

Answer 112

A

Deflation is the opposite of inflation, so when there’s not enough demand so companies reduce their prices.
Could Cause :
- Fall in productivity.
- Lower prices.
- Rise in unemployment.

Answer 113

A

Income Tax goes up, less disposable income.
Corporation Tax ???
VAT goes up, less consume income.

Answer 114

A

Sets tax rates, sets government spending.
— It’s used to achieve a wide variety of objectives :
Keep inflation on target (2%).
Stimulate economic growth and employment during times of recession.
Maintain a stable economic cycle that minimises boom and bust.
— Government can spend money on : Education, business grants, welfare benefits, health, infrastructure.
MUST HAVE BALANCE OF SPENDING AND TAX.

Answer 115

A

Fiscal Policy is said to be ‘expansionary’ if the government is trying to positively stimulate economic activity.
Helps lower unemployment, give people more money to spend, HOWEVER, can cause inflation.
— Methods include :
Cutting tax may increase disposable income.
Raising government spending, e.g. on infrastructure or increasing pay of public sector workers.
Increasing the budget deficit, e.g. increasing borrowing, this can be spent on a variety of projects, however increases debt.

Answer 116

A

Fiscal Policy is said to be ‘contractionary’ if the government is trying to constrain demand, reduce debt or control inflation.
Rein in economic growth to a sustainable level, complete opposite of EFP.
— Methods include :
Increasing taxes, may discourage spending and reduce demand which will help control inflation.
Cutting government spending,
Cutting the budget deficit may help to stabilise economic growth as reduced debt payments in future can be reinvested into the economy.

Answer 117

A

Is the manipulation of the rate of interest, the money supply and exchange rates to influence the level of economic activity.
Main target is to maintain low inflation.
Delegated to the Bank of England who control money supply and set interest rates.
MPC meet every month to decide interest rates, they consider GDP, unemployment, exchange rates, house prices etc.
In theory, if inflation remains at the target level of 2%, it will give confidence to consumers (spending), businesses (investing) and workers (wages).

Answer 118

A

How will HIGH Interest rates affect :
- Consumer saving (increase), consumer borrowing (decrease), investments (decrease), house prices (increase).
- How will LOW interest rates impact :
- Consumer saving (decrease), consumer borrowing (increase), investments (increase), house prices (decrease).

Answer 119

A

International Trade is the exchange of goods and services between countries.

Answer 120

A

Free Trade exists when there are no restrictions on the flow of goods and services between countries, e.g. EU.
- No government intervention.

Answer 121

A

+ Improved international competition, means more choice for customers & potential lower prices to remain competitive.
+ Encourages reward and innovation.
+ Job creation in imports and exports.
+ Economic growth.
+ Businesses can access new markets.
- More competition for domestic businesses.
- Loss of domestic jobs if domestic business go bust.

Answer 122

A

Protectionism is when a government protects domestic businesses and jobs from foreign competition by giving subsidies, while improving tariffs and quotas on imported goods.

Answer 123

A

Tariffs : Tax/duty that raises the price of imported products and causes the level of imports into a country to fall.
Quotas : Quantitative (volume) limits on level of imports/value of imports.
Non-Tariff Barriers : Subtle controls, e.g. changing regulations.
Embargos : Forbidding trade with a particular country.

Answer 124

A

+ Helps domestic businesses improve profit.
+ Protects domestic jobs.
+ Helps small businesses.
- Less choice for customers, may mean higher prices.
- Businesses may struggle to expand into other countries.
- No place for surplus of goods.

Answer 125

A

Social Environment is influenced by the make-up of humans within a specific area or business.
- This influences the behaviour of businesses and customers.
- Demographics can include : Gender, age, ethnic background etc.

Answer 126

A

Urbanisation is the general movement of people towards cities and away from rural areas, (move towards jobs).
- Puts pressure on infastructure, i.e. traffic congestion.
- Cities have responded by redesigning.

Answer 127

A

Increase in global population, UK businesses can move into new markets.
An increase in average age of UK society, business will have to change their product range to satisfy older people.

Answer 128

A

More single person households.
Convenience.
Connected and mobile consumer.
Information overload, reviews.
Social conscience.

Answer 129

A

Customers are better informed, e.g. can compare prices/reviews.
Multichannel Distribution widens customer choice, can look online.
Businesses have adapted marketing to reflect changes in consumer lifestyle and buying behaviour :
Viral marketing, use SM.
Social Media.
Emotional branding, tap into consumer feeling.

Answer 130

A

Increased demand for gyms and healthy foods.
Led to a whole industry developing around health.
Allowed for highly differentiated niche markets with specialist businesses developing new products.

Answer 131

A

Corporate Social Responsibility is a businesses decision to accept responsibility to its stakeholders for its social, environmental and ethical actions.
- Stakeholders include employees, customers, suppliers and the environment.
- One measure of CSR can be a business’ willingness to accept responsibility above and beyond its legal duty.
- A business will create a CSR report to set targets that will be used to meet its social responsibilities and to assess how far it has met its previous targets.

Answer 132

A

+ Ethical.
+ Improves a business’ image and reputation.
+ Increases employee motivation.
+ Necessary to avoid regulation.

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Analysing the Strategic Position of a Business (3.7) Flashcards

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