Business

Question 1

Sole Trader

Answer 1

• one person - may employ others
• one person raises capital andtakes all profits/losses
• most do not grow
  
  • lack of training, knowledge
• Advantages = personal involvement of owner, faster decisions
• Set-up
• No legal stages to come to existance - need VAT/NI registration

Question 2

Partnership

Answer 2

• All partners have equal responsibility
• More skills/capital
• Detailed earnings submitted
• Problems occur thru lack of trust
• Set up - Usually have deed of partnership

Question 3

Registered company

Answer 3

• Annual audited accounts required by law
• Most have long life
• Limited liabilities
• Shareholders have legal control
• Set up - legal procedures must be followed - Companys Act 1980

Question 4

Business Plan

Answer 4

• Management - legal form of the company (ltd, plc etc)
• Product/service - description, USP, competition etc.
• Market Description - CUstomer profiles, competitors, marketing plan
• Operations - place of trading, systems, equipment
• Finance - cash flow, investment, budget
• Legal - Taxation, employment, insurance, H+S

Question 5

Risk management in engineering design

Answer 5

• Legal requirement for risk analysis and mitigation at design stage
• Risk Assessment - design, build and use
• Show application of engineering judgment
• Record risks + mitigations and pass onto user

Question 6

Business structures

Answer 6

• Functional organisational structure
  
  • General manager
    
    • Marketing, accounts, HR etc
• Product organisational structure
  
  • Aorcraft Wing Structures
    
    • Tailing edge, fuel systems, covers etc

Question 7

PEST Analysis

Answer 7

Consider a range of factors that could affect the business and use for risk management/mitigation

• Political
  
  • laws, restrictions, political stability, taxes, grants, employment
• Economic
  
  • Cashflow, investment, unemployment
• Socio-cultural
  
  • Demographics, lifestyle, consumerism, education levels
• Technological
  
  • Research + development, product lifestyle, speed of technology change

Question 8

Role of marketing

Answer 8

• The basic role of marketing is to match the resources of anorganisation to the needs and wants of its environment. To dothis it must:
  
  • Determine the internal factors which govern the total output of theorganisation (i.e. Assess ability to supply goods / services)
  • Determine the external factors that influence the selection of goods /

services

Question 9

Consumer goods

Answer 9

• Convenience goods:
  
  • Items bought everyday, which customers do not expect to shop aroundfor, e.g. milk and bread in any supermarkets
• Shopping goods:
  
  • Items for which a customer will look at what is available in several retail outlets, e.g. Clothing and shoes
• Speciality goods:
  
  • Items for which a customer will require speciality advice, and for which they are prepared to travel to purchase, e.g. ski and professional levelsports equipment

Question 10

Industrial goods

Answer 10

• Raw material:
  
  • Basic raw material for further processing
• Capital equipment:
  
  • Items that are purchased for long term use , e.g. Machine tools, vehicles andcomputers
• Components:
  
  • Items that are used/assembled in other products with minimum work being done on them, e.g. Nuts and bolts
• Supplies:
  
  • Items used by an organisation but not incorporated into their products, e.g. Electricity, paper, overalls

Question 11

Supply + Demand

• High prices
• Low prices
• Shortage

Answer 11

• High prices = high productivity = profit
• Low prices = no profit - little production
• Shortage = prices rise = extra profit = others produce too = prices fall

Question 12

Factors affecting supply

Answer 12

• Weather, natural disaster, civil disruptions – e.g. snow, industrialstrikes, flooding
• Technology – available technology, take up of technology bysuppliers and customers
• Taxation and subsidies – their impact on organisational decisionmaking
• Change in factors affecting production – such as governmentaldecisions

Question 13

Factors affecting demand

Answer 13

• Weather - annual cycles, changing sales depending on weather
• Prices of other products – this can cause changes in buying pattern, e.g.steep rise in petrol price can cause people to cut down on meals out, orswitch to public transport
• Fashion – normal fashion cycles, products which suddenly arise and fadeas quickly such as merchandise attached to movies
• Credit availability – loosening or tightening credit terms can impact decision on major purchases such as cars and houses
• Advertising and promotion – a successful campaign can have significanteffect on sales.
• Confidence about future – this will determine if people save or decide tospend as they earn (even spending on credit)

Question 14

Prodyct life cycle

Answer 14

• Conception
• Early growth
• Strong growth
• Maturity
• Decay
• Death

Continually redesigning prevents decay

Question 15

Risks with new products

Answer 15

• Sales may not be achieved
  
  • Competitors’ actions e.g. Earlier launch of better product
  • Lack of market response
  • Unattractive pricing
• Design shortcomings
  
  • Lack of technology experience
  • Patent infringement
  • User / manufacturing unfriendly design
• Manufacturing shortcomings
  
  • Unreliable components
  • Quality problems
  • Late launch or insufficient demand
• Servicing shortages
  
  • Untrained personnel
  • Shortage of spare parts

Question 16

Needs for a forecast

Answer 16

• Capacity requirements – determining the labour, equipment and machineryrequirements
• Production planning – deciding how much/many to make, and when to makethem
• Raw materials – deciding what to purchase, the quantity and date of purchase
• Personnel – deciding how many people will be needed, skills and trainingrequirements
• Budgeting – determining cash budget requirements, and whether profit will bemade
• Technology – determining the change in the process or product due to changein technology
• Marketing campaigns – determining the best time to launch a product, whatproduct?

Question 17

Assets

Answer 17

• Tangible assets – Plant, machinery, buildings, products, raw materials etc.
• Intangible assets – Patents, staff, contracts, credits,software etc.

Question 18

Value of a Company

Answer 18

An organisation’s value is measured through:

• Profit calculations
  
  • The Profit and Loss accounts show the financial performance of anorganisation over a set period. It includes the sales income, cost to produce the sales and otheroperating expenses and the net profit.
• Balance Sheet statements
  
  • This shows at a given time where the money is in an organisation,what the organisation owes as well as what is owed to it by the outside world.
• Share price
  
  • For publicly trading organisations, this shows the market value of the organisation. It also reflects the markets expectation of the organisations’ potential for return to investors.
• EBITDA
  
  • Earnings Before Interest, Tax. Depreciation, Amortisation – Valuation is multiple of EBITDA

Question 19

The companies act 1985 and 1989 require private limited companies to provide annually:

Answer 19

• Profit & loss – Shown for any one trading season over another,usually a 12 month period.
• Balance sheet – Provided as part of the audited declaredaccounts
• Information on – Trading of the organisation, important eventse.g. change in ownership etc, likely future developments
• Auditors – Publish auditors report

Question 20

Liabilities

Answer 20

All the obligations of the company to outsiders or claims against the assets.

Question 21

Return on investment/capital employed (ROI/ROE):

Answer 21

Question 22

Quick ratio and current ratio (Cash flow)

Answer 22

Question 23

Earnings Per Share (EPS):

Answer 23

Is the after-tax profit available for ordinary shareholders. EPS is a measure of profit performance used to judge development (growth) from one year to the next

Question 24

Interest Cover

Answer 24

This is the ratio of the Profit before interest and tax (PBIT) to the interest charges. It is used to
measure a company’s financial risk. A cover less than 3 indicates a very high level of risk.

Question 25

Finance Sources

Answer 25

* Bank * Public Floatation * Private Equity * Venture Capital * Innovation Grant

Question 26

Liquidity/cash ratio values

Answer 26

* Liquidity/quick ratio \<1 is a danger sign. * Quick ratio of 2 is an indication ofgood cash flow management. * A current ratio of 2 or more is also a good indicator of good cash management. Anything less than 2 is something to worry about.

Question 27

Finance Sources - Bank

Answer 27

* Low risk lending * Loans only * Personal guarantees, property at risk etc.

Question 28

Finance Sources - Venture Capital

Answer 28

* High risk lending * high loan amount for equity stake * lower guarantee requirement * lose equity

Question 29

Finance Sources - Private Equity

Answer 29

* Medium loan size * Equity Stake * Business assistance * Loss of equity

Question 30

Finance Sources: Innovation Grants

Answer 30

* Low guarantee requirements * Competition * Low success rate

Question 31

Finance Sources: Public Floatation

Answer 31

* Low risk * large value * loss of control