Business C2 Flashcards
Definition and purpose of index numbers
An index number is used to analyse data trends over time by establishing a base year with a value of 100 and then expressing subsequent years as percentages of this base year. As the guide notes, “An index number enables data to be analysed in a much easier way. Index numbers work when a particular year is given as the base year with an index of 100”.
Index numbers Use in Marketing
: By using index numbers, businesses can more easily identify growth or decline in key marketing metrics, such as sales revenue or customer numbers, over a series of years, relative to a chosen starting point. For example, if sales revenue is 110 in the following year after a base year of 100, this indicates a 10% increase.
Definition and Purpose of Pie Charts and Histograms
visual tools used to present data distributions. A histogram is a bar chart that displays the frequency of numerical data, while a pie chart shows the proportion of different categories as segments of a circle.
Pie charts and histograms Use in Marketing
: Pie charts and histograms are valuable for summarising findings from market research. For instance, a pie chart can clearly show the market share of different competitors, or a histogram can illustrate the distribution of customer spending at different price points
Price Elasticity of Demand (PED) definition
PED explores how changes in the price of a product affect the quantity demanded by consumers
formula for PED
“Price elasticity of demand (PED) = % change in quantity demanded / % change in price”.
What does it mean if the PED value is greater than 1
demand is considered elastic, meaning that a change in price leads to a proportionally larger change in quantity demanded. Products with elastic demand are often those with many substitutes or are not considered necessities.
What does it mean if the PED value is less than 1
demand is inelastic, indicating that a change in price results in a proportionally smaller change in quantity demanded. Necessities or products with few substitutes often have inelastic demand.
Income Elasticity of Demand (YED) Definition
YED examines how changes in consumers’ income affect the quantity demanded of a product
The formula for YED
”% change in quantity demanded / % change in income”
What is the YED of inferior goods
YED has a negative value (YED < 0). As income rises, the demand for these goods tends to fall (e.g., own-brand products)
What’s the YED of normal goods
YED has a positive value between 0 and +1 (0 < YED < +1). As income rises, the demand for these goods also increases, but at a slower rate than the increase in income (e.g., milk, bread)
What’s the YED of luxury goods
YED has a positive value greater than +1 (YED > +1). As income rises, the demand for these goods increases at a faster rate than the increase in income (e.g., holidays, luxury cars).
Three-point moving average:
This technique calculates the average sales data over a specific three-period window (e.g., three months) and moves this window forward to smooth out short-term fluctuations and identify underlying trends
Scatter graphs and line of best fit
Sales data is plotted against time on a scatter graph. A line of best fit is then drawn through the points to visually represent the underlying trend. This line can be extrapolated into the future to forecast sales.
Qualitative Sales Forecasting Techniques
These methods rely on expert opinions, market knowledge, and insights rather than historical numerical data to predict future sales.
Such as intuition, brainstorming, and the Delphi method.
What’s the intuition approach
based on the experience, gut feeling, and understanding of the market by managers or individuals within the business. It is useful for very short-term forecasts or when historical data is limited
What’s the Brainstorming approach
This involves gathering a group of people, often from different departments, to generate ideas and predictions about future sales. The quality of this technique depends on the expertise and knowledge of the participants.
What’s the Delphi method
This is a more structured approach where expert opinions are collected anonymously through multiple rounds of questionnaires. After each round, the responses are summarised and fed back to the experts, who then revise their opinions. This process continues until a consensus is reached. This method aims to reduce bias and groupthink
Budget Variance Analysis
This compares the budgeted sales, costs and profit to what actually happened. The difference can be favourable or adverse
favourable variance
when income or profit is higher than expected, or when costs are lower than expected
adverse variance
income or profit is lower than expected, or when costs are higher than anticipated.
Why’s it important to understand budget variances
can help businesses identify areas of strong or weak performance and take corrective actions.
Income statement
A profit and loss account shows how much profit or loss the company made in a financial year after accounting for taxation
Key components of a profit and loss account
Sales Revenue, Cost of Sales, Gross Profit, Expenses, Net Profit,
Gross profit formula
Sales Revenue - Cost of Sales
Gross profit margin
Gross Profit / Sales Revenue × 100
The Net (operating) Profit Margin
(Net (operating) Profit / Sales Revenue × 100)
