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1
Q

Markets definition

A

MARKETS are defined as ‘the meeting place between customers and suppliers’.
They can be local, national or international.
They can also be either physical or electronic.

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2
Q

Market size means

A

MARKET SIZE means the measurement of all the sales by all the sellers within a particular market. It can be measured by volume or value

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3
Q

Market growth means

A

MARKET GROWTH means the percentage increase in the size of a market, usually calculated over a period of one year

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4
Q

Market share

A

MARKET SHARE means the percentage of total sales within a particular market for which one business is responsible.

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5
Q

Market size can be calculated by:

A

Sales for one business ÷ the market share of that business expressed as a decimal

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6
Q

Market growth is calculated by:

A

Increase in market size ÷ Market size in the earlier of the two years x 100

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7
Q

Market share is calculated by:

A

Sales for one business ÷ Sales for the whole market (or industry) x 100

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8
Q

The sales of ONE business may be calculated by:

A

The Market share of that business x Sales of the whole market (or industry)

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9
Q

The sales of ONE business may be calculated by:

A

The Market share of that business x Sales of the whole market (or industry)

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10
Q

POSITIVE CORRELATION means

A

means that an increase in one numerical variable causes an increase in another numerical variable (and vice versa).

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11
Q

NEGATIVE CORRELATION means

A

means that an increase in one numerical variable causes a decrease in another numerical variable (and vice versa)

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12
Q

STRONG CORRELATION

A

(positive or negative) means that the two variables are closely related. If shown on a scatter diagram, the points would almost be in a straight line.

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13
Q

CONFIDENCE INTERVALS show

A

show the possible range of outcomes for a given confidence level. For example, 95% confidence that sales revenue will between two figures.
Confidence intervals are stated numerically. They are stated ‘± a certain number’.

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14
Q

EXTRAPOLATION means

A

Means forecasting sales in the near future based on what has happened in the recent past. We assume that recent trends will continue in the foreseeable future.

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15
Q

PRICE ELASTICITY OF DEMAND means
Is it positive or negative

A

PRICE ELASTICITY OF DEMAND means
the responsiveness of demand to a change in the selling price.
The formula for PED = % Change in demand ÷ % Change in price
PED is always negative.

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16
Q

Range if ped is inelastic

A

If PED is between 0 and -1 (e.g. – 0.5), demand is INELASTIC and an increase in price causes an increase in revenue.

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17
Q

Ped value if elastic

A

If PED is lower than -1 (e.g. -2), demand is ELASTIC and a decrease in price causes an increase in revenue. However a decrease in price may not cause an increase in profit.

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18
Q

INCOME ELASTICITY OF DEMAND means

A

INCOME ELASTICITY OF DEMAND means the responsiveness of demand to a change in consumers’ levels of income.

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19
Q

INCOME ELASTICITY OF DEMAND formula

A

The formula for IED = % Change in demand ÷ % Change in income

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20
Q

IED positive or negative for normal goods?
What happens for demand when increase in consumer income

A

IED is POSITIVE for NORMAL GOODS.
This means that demand increases when there is an increase in consumers’ income. Vice versa

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21
Q

IED negative or positive for inferior goods?
What happens to demand when increase in consumer income?

A

IED is NEGATIVE for INFERIOR GOODS.
This means that demand decreases when there is an increase in consumers’ income and vice versa

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22
Q

Market segments are

A

MARKET SEGMENTS are groups of consumers with similar needs and wants.

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23
Q

4 segments and list them in each one

A

Demographic (based on age, gender, marital status or family size)
• Geographic (based on where customers live; region, country, urban or rural)
• Behavioural (based on consumers’ life-style, hobbies & interests and buying habits)
• Income (based on how much people earn)

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24
Q

TARGETING means

A

Targeting means choosing which segment(s) at which to aim your products.

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25
ADVANTAGES OF TARGETING SPECIFIC MARKET SEGMENTS Businesses can make better decisions about:
• Products that meet your customers’ needs and wants. • Prices that customers are willing to pay. • Promotional methods (e.g. advertising media and content of advertisements) • Places where your products are sold • Primary research so that it is aimed at suitable people
26
DISADVANTAGES OF TARGETING SPECIFIC MARKET SEGMENTS
• They might be inaccurate, so you could make incorrect decisions about products, prices, promotional methods, etc. Businesses might limit their level of sales by not appealing to a larger market.
27
POSITIONING means
means how businesses differentiate themselves from their competitors It can be based on product range, prices, customer service or any other relevant factors.
28
MARKET MAPPING means:
➢ identifying two key features of products or businesses in a market (e.g. price, quality or other aspects of the products or customers) ➢ placing each product or business in a grid against those two features.
29
RETAINED PROFITS are.
the profits kept in a company after tax and dividends have been subtracted. However, they can only be used as a source of finance if they are CASH
30
SHARE CAPITAL
is money received from the shareholders, who own a company and vote whether to reappoint the directors at the AGM. They receive dividends depending on the profitability of the company
31
VENTURE CAPITALISTS
provide funds for small & medium sized firms who are considered too risky by banks. They usually provide a combination of loan and shares.
32
ADVANTAGES & DISADVANTAGES OF USING SHARE CAPITAL OR VENTURE CAPITAL
Advantages No repayments, which helps cash flow The amount paid in dividends depends on how well the business has done No security is needed DISADVANTAGES Profits have to be shared for as long as the other investors own the shares You can lose control of the business if you sell more than 50% of it
33
BANK LOAN is a
fixed amount that must be repaid, plus interest, over a stated amount of time in equal monthly instalments. Security must be provided
34
ADVANTAGES & DISADVANTAGES OF USING A BANK LOAN
ADVANTAGES The repayments only last for a fixed period of time You don’t lose any control of the business DISADVANTAGES Repayments must be made, which can damage cash flow The interest is an additional fixed cost, which reduces profits You may need to be able to offer security
35
CROWD FUNDING
means inviting a large number of investors to each provide a relatively small loan or amount of share capital. The large number of inventors means that the total raised is relatively large.
36
OVERDRAFT
means that the bank account is allowed to have a negative balance. Interest is paid of the exact amount overdrawn, and security may be required.
37
DEBT FACTORING
means obtaining finance from a specialist factoring company against unpaid sales invoices.
38
CASH FLOW means
Means cash received by a business (inflows) and cash paid by a business (outflows). It mainly refers to money received and paid through a business’ bank account
39
Revenue
REVENUE means the total value of goods & services sold
40
Cost of sales
COST OF SALES are the costs to the business of buying or making the goods or services that it has provided. These are the variable costs of the business, such as materials.
41
Gross profit calculation
GROSS PROFIT = Revenue – Cost of sales
42
What are operating expenses
OPERATING EXPENSES are the fixed costs of the business (rent, salaries, etc
43
OPERATING PROFIT (also called PROFIT FROM OPERATIONS)
= Gross Profit – Operating expenses
44
PROFIT FOR THE YEAR =
PROFIT FOR THE YEAR = Operating profit + Profit from other activities – Finance costs (Interest) – Tax on profits
45
INCOME STATEMENT is
the document that shows the calculation of profit, from Revenue down to Profit for the Year.
46
CAPITAL STRUCTURE means
the percentage of long-term funding that is debt.
47
Debt includes… Other long-term funding includes…
bank loans, mortgages and debentures, which have to be repaid. share capital and retained profits (after tax and dividends). These do not have to be repaid.
48
CAPITAL EXPENDITURE means
nvestment in non-current assets that a business intends to use for more than one year (land, buildings, machinery, equipment, vehicles & furniture)
49
RETURN ON INVESTMENT (expressed as a percentage) =
Return (impact on profit) ÷ Cost of the investment x 100
50
BUDGETS
are plans of the income and expenditure of a business or part of a business over a period of time.
51
VARIANCES are…
are the differences between budgeted figures and actual ones. They can be either ADVERSE or FAVOURABLE.
52
ADVERSE VARIANCE
cause the actual profit of a business to be lower than budgeted. Revenue is lower than budgeted or costs are higher than expected.
53
FAVOURABLE VARIANCE
cause the profit of a business to be higher than budgeted. Revenue is higher than budgeted or costs are lower than budgeted.
54
CONTRIBUTION PER UNIt means Calculation?
means the amount each unit sold contributes towards the fixed costs of a business. It is calculated by: Selling Price – Variable Costs per Unit
55
TOTAL CONTRIBUTION =
Contribution per unit x Number of units sold
56
BREAK-EVEN POINT is
the level of sales where revenue is exactly equal to total costs.
57
Break even point calculation
Fixed costs divided by contribution per unit
58
The purposes of calculating a break-even point are to
set sales targets, • assess the viability of a business, • help obtain a bank loan.
59
Break even point disadvantages
However • the forecast figures for costs and selling price may not be accurate, • without market research we don’t really know whether the BEP is viable, • most businesses sell a variety of products at different prices.
60
MARGIN OF SAFETY =
Actual level of sales – Breakeven level of sales
61
NET CASH FLOW =
= Total inflows – Total outflows
62
CLOSING BALANCE =
Opening balance + Net cash flow
63
OPENING BALANCE =
The previous month’s closing balance
64
Break even point graph
X axis labeled quantity Y axis labeled sales

Businesss (2 decks)

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