Business IGCSE 2018 Flashcards
Inflation
This is when there is an increase in the average price of levels of goods and services
Unemployment
This is when someone wants to work but is unable to find a job
Economic growth
This is when a countries GDP increases (more goods and services are sold compared to the previous year)
Payments
This records the difference between a countries exports and imports
Real income
This is the value of income. It falls when prices rise faster than money income.
GDP - gross domestic product
This is the total value of goods and services in a country in one year.
Recession
This is a period of time in which the GDP is falling
Exports
This is when goods or services are sold from one country to another.
Imports
These are the goods and services brought in from another country.
Exchange rate
This is the price of one currency in terms of another.
Exchange rate depreciation
This is the fall of value of the currency when compared with other currencies.
Exchange rate appreciation
This is the rise of the value of the currency when compared to another currency
Currency depreciation
This happens when the value of the currency falls, meaning it buys less than it did before.
Currency appreciation
This is when the value of the currency rises, it buys more than it did before.
Fiscal policy
This is the changes of tax-rates or public-sector spending made by the government.
Direct taxes
This is paid directly from an income
Indirect taxes
These are added to the price of the good or service and the tax payers pay that tax when they purchase the good. Eg. VAT.
Disposable income
This is the level of income a taxpayer has after paying the income tax
Import tariff
This is the tax on an imported product
Import quota
This is the restriction to the number of goods that can be imported.
Monetary policy
This is the change in interest rates by the government or central banks.
Social responsibility
This is when a business decision benefits the stakeholders rather than the shareholders.
Consumer boycott
This is when customers decide not to buy products from a business that does not act in a socially responsible way
Ethical decision
These are the decisions taken based on what is seen to be right
Globalization
This is used to describe the increase in worldwide trade, movement of people and capital between countries.
Free trade agreements
This is when countries agree to import and export without any barriers such as tariffs or quotas.
Protectionism
This is when the government protects domestic firms from foreign competitors by using tariffs or quotas
Multinational / transitional businesses
These are the businesses with factories or service operators in more than one country
Business / trade cycle
Growth - GDP is rising, unemployment rate decreasing.
Boom - caused by too much spending. Prices rise and shortage of skilled workers.
Recession - caused by too little spending. GDP falls. Business demand and profits fall. Workers may loose their jobs.
Slump - a serious and long drawn out recession. Unemployment will reach high levels. Many businesses fail to survive at this point.
Effect of higher interest rates
Firm with existing variable interest loans may have to pay more interest to the banks
Managers thinking about expanding their business and borrowing money will have to delay their decision
Supply side policy
Privatization - the aim is to use profit motive to improve business efficiency.
Improve training and education
Increase competition in all industries
Economic problem
Limited resources, but people have unlimited wants and needs. Therefore, people have to make decisions (opportunity cost). This creates scarcity.
Scarcity
The lack of sufficient products to fulfill the total wants of the population
Factors that affect production
Land
Labour
Capital
Enterprise
Specialization
This occurs wen people Ajd business concentrate on what they do best. Increasing competition means that they have to keep costs low.
This can be done by division of labor.
- when the production process is split up into different takes and each worker performs one of these tasks.
Advantages and disadvantages of division of labor
Advantages: workers are trained and specialized with increases the efficiency and output.
Less time is wasted moving from one work bench to another.
Disadvantages: workers can get bird of doing only one job, which may lead into a drop in efficiency.
If one worker is absent and no one else can do the job then production is stopped.
Added value
Difference between selling price of a product and the cost of bought in materials and components.
Primary sector
Extracts and uses the natural resources of the earth to produce raw materials that can be used by other businesses.
Secondary sector
Manufacturers goods using the raw materials provided by the primary sector
Tertiary sector
Provides services to the consumers and other sectors of the industry.
Public sector
Provides services for the country. These are usually owned by governments: such as public schools, hospitals, transportation services.
Private sector
Is where businesses make profits and is owned by private individuals or groups of people. This is a legal form of business that are registered to pay taxes
Mixed economy
This when public enterprises and organizations join with the private organizations to satisfy everyone’s wants and needs.
Nationalization
This is when a business or company move from the private sector to the public sector.
Privatization
This is when a business or a company moves from the public sector to the private sector.
Business plan
Document containing the business objectives and important details about the Finance and owners of the business.
Why do governments support start up businesses
- reduce unemployment
- increase competition
- increase output - benefits the economy
- benefit society
How?
-Finance: loans at low interest rates
- Grants:
- labour: train employees
Research: encourage universities to make their research facilities available.
Sole trader
A business owned and operated by just one person- the owner is the sole proprietor
Liability
The responsibility for debt
Insolvent
When a business gets into debt that they cannot pay
Limited liability
When business closes or gets into debt it cannot pay, owners only loose the amount of money they invested. They cannot loose any personal belongings.
Unlimited liability
When business gets into debt it cannot pay, the owners are responsible for the total debt of the business. They can also loose personal belongings so that the debt can be paid.
Continuity
When business is still operational even after the owners leave or die.
This can only happen if the business has a separate legal identity (LLC and PLC)
Legal entity
When a business has its own name, assets and liabilities. If business is in debt, the creditors approach the business and not the owners.
Franchise
A business that uses the name, promotional logos and trading methods of an existing successful business.
Franchisor
Sells the franchise to the franchisee
The company grants the independent operator (franchisor) the right to distribute its trademarks, products and techniques.
Franchisee
Buys the franchise from the franchisor. The franchisee buys the license to operate this business from the franchisor.
Franchise agreement
A document which contains the provisions covering.
Joint venture
This is when two businesses agree to start a new project together, sharing the capitals, risks and the profits.
Business objectives
The aims or targets that a business works towards to help make the business successful and help with decision making.
- survival
- profit
- return to shareholders
- growth
- market share
- provide service to society
Stakeholder
Any person with a direct interest in the performance and activities of the business.
Market share
Proportion of total market sales achieved by one business.
Social enterprise
Has social objectives as well as making profit so that the profit can be invested back into the business.
This is operated by private individuals (private sector)
Dividends
These are payments made to shareholders from the profits (after tax) of a company as a reward for investing in the business.
Incorporated businesses
Are companies that have separate legal status from their owners
Unincorporated businesses
Does not have separate legal identity.
Shareholders
These are the owners of a limited company. This is done by buying shares which represent the ownership of the company.
Annual General Meeting - AGM
This is a legal requirement for all companies. Shareholders may attend and vote on who they want to be in the board of directors for the coming year.
Internal growth
Opening new branches
Introducing new products
Producing more of the same products
External growth
Horizontal merger - business in one particular industry merged with another in the same industry.
Vertical merger - two businesses in the same industry merge with each other, different stages of manufacturing.
Conglomerate - a random merger with no connection. This is done to spread the risk, if one industry fails or is under threat the other keeps it running.
Size of businesses
Capital intensive - money spent on machinery.
Labour intensive - money spent on wages and salary
Sales (value of output)
Amount of capital employed (total value of capital used in the business)
Profits made
Why businesses choose to stay small
Remain exclusive
Keep the service personal
Avoid risk
Owners might want to keep their identity
Why do businesses want to grow
Lower costs, higher profits
Wider range of products, which is safer.
Prevent competitors from gaining advantage, as you would be gaining more control of the market)
Marketing
Includes the activities of a business that are aimed at providing products and services that meet the need of its target market and selling it at a price that ensures the business makes a profit and maintain or grow its market share.
Marketing objectives
Raise customer awareness of the product
Increase sales revenue and profitability
Increase or maintain market share
Improve image of the product or business
Target a new market or market segment
Develop new products
Role of marketing
Businesses use marketing to identify the customers needs by finding out what products or service they want and how much they are willing to pay and from where they will buy it. After identifying those needs, it is then the businesses aim to try and satisfy those needs so that they can achieve good sales. Furthermore, this gives the business information about their customers which builds a relationship with them that could help them understand why customers buy a specific product and therefore use it to improve their marketing.
Market segment
An identifiable sub group of the whole market in which consumers have similar characteristics or preferences. This can be by age, gender, location…
Mass market
Very large number of sales of a product
Advantages:
Risk is spread
Economics of scale
Opportunity for growth
Disadvantages:
High levels of competition
Lots of advertising needed
Standardized products, so customers needs not always meet.
Niche market
Small amount of goods are sold to a specialized market segment
Advantages:
Suitable for small firms
Customers needs can be focused on and meet
Disadvantages:
Limited sales
High risks because of specialization
Market orientated business
Is when the main focus of the business is to do research to deliver products and services that the consumer needs.
Product orientated business
is when the main focus of the business is on the product itself
Marketing budget
A financial plan for the marketing of a product in a specified period of time so that the department know how much they can spend on advertising and developing the product.
Market research
Is the process of gathering, analyzing and interpreting information about a market
Primary research
Collection of original date via direct contact with potential or existing customers.
Questionnaires
Interview
Focus group
Observation
Secondary research
Information that has already been collected and is available for use by others. Information may be from either internal or external sources.
Role of promotion
To communicate marketing information to the consumer regarding the product, price and place using different types of promotional media.
Aims of promotion
- increase sales
- create brand image
- introduce new products to the market
- compete with competitors products.
Advertising
Informative- this is where the emphasis of advertising of sales promotion is to give full information about the product.
Persuasive- this is where the purpose of the advertising or promotion is to try and motivate/persuade the consumer that they should buy the product.
USP
Unique selling point
Diversification
Ways if expanding into either me market or existing markets.
Expanding into new markets means that the company or business sells prices to a new market segments
Expanding into existing markets means that he company or business sell more products to an existing group of customers.
Brand name
Unique name of a product that distinguishes it from the brands
Brand loyalty
Consumers keep buying the same brand over and over again instead of choosing the competitors brand.
Brand image
Image or identity given to a product which gives it a personality of its own and distinguished it from its competitors brand.
Role of packaging
To protect, promote and display the product.
Current assets
Assets owned by the business and used within one year
Non current assets
Items owned by the business for more than one year
Start up capital
The finance needed by a new business to pay for essential fixed and current assets before it can begin trading
Working capital
The finance needed by a business to pay its day to day costs.
Capital expenditure
Money spent in fixed assets which lasts for more than one year
Revenue expenditure
Money spent on day to expenses which do not involve the purchase of a long term asset
Internal finance
Retained profit
Sales of existing assets
Owners savings
External finance
Issue of shares
Bank loans
Grants
Overdrafts
Trade credit - delaying paying suppliers
Debenture - long term certificate
Factoring if debt
Hire purchase - buying an asset over a long period of time with monthly payments
Cash flow
This is the cash inflows and outflows of a business over a period of time
Cash inflows
The sum of money received by the business during a period of time
Cash outflows
The sum of money paid out by the business over a period of time.
Cash flow forecast
An estimate of future inflows and outflows of a business. This shows the expected cash balance at the end of each month.
Overcoming cash flow problems
- increasing bank loans
- delaying payments to supplier
- asking debtors to pay quicker
- delay/cancel purchases of capital equipment
Income statements
This is a document that records the income of a business and all costs incurred to earn that income over a period of time
Gross profit
Sales revenue - costs of good sold
Sales revenue
Income to a business during a period of time from the sales of goods
Net profit
Gross profit - expenses
Made by a business after all costs have been deducted from sales revenue
Retained profit
The net Profit invested back after all payments have been deducted.
Balance sheet
Shows the value of a business’s assets and liabilities at a particular time.
Working capital (formula)
Current assets - current liabilities
Liquidity
The ability of a business to pay back its short term debts.
Capital employed
This is the long term And permanent capital invested into a business.
Return on capital employed
(Net profit / capital employed) x 100
Gross profit margin
(Gross profit/sales revenue) x 100
Net profit margin
(Net profit / sales revenue) x 100
Current ratio
Current assets / current liabilities
Acid test ratio
(Current assets - inventories) / current liabilities
Productivity
This is the measurement of efficiency of a business.
Measured by: outputs / inputs
Increasing productivity
Improving quality control
Improve employee motivation
Introducing new technology
Improving inventory control
Train staff to become more efficient
Using machines instead of people
Why is increasing productivity important
because it increases the output relative to the input which could result in lower costs per unit allowing the business to use that money in different areas of the business. If fewer people are needed then the business can save money because they would have lower wage costs and so could increase the wage to motivate the workers.
Buffer inventory level
This is the inventory held to deal with any sudden changes in customer demand or delivery of the goods.
Types of waste in production
Overproduction
Transportation
Unnecessary inventory
Motion
Over processing
Defects
Lean production
Techniques used by businesses to cut down on waste to help increase efficiency.
Advantages of lean production
Production process is quicker
Less money tied up in inventories
Less storage of raw material
Kaizen
Is the Japanese term for continues improvement through the elimination of waste
Advantages of kaizen
Productivity increases
Less space needed for production processes
Unfinished work (work in progress) is reduced
Just in time
This is a method of production that focuses on reducing the holding inventory level.
This is done by having the products delivered only at the time they are needed
Advantages for just in time
Storage and warehouse spaces are not required which reduces costs.
The finished product is sold quickly which helps improve the business cash flow.
Cell production
Is when the production is divided into parts and each person or group is responsible for a specific part.
Job production
This is when there is only one product made at a time
Advantages of job production
Disadvantages of job production
Advantages :
Suitable for personal services - usually done to a high quality
Product meets requirements of customer
Disadvantages :
Skilled labor is often used
Costs are higher as it is labor intensive
Long production time
Materials might have to be specifically purchased, leading to higher costs.
Batch production
This is where a quantity of one product is made, then a quantity of another is made.
Advantages of batch production
Disadvantages of batch production
Advantages:
Flexible way of working
Offer some variety to the workers job
Production is not badly affected if machine breaks down
Disadvantages:
Machines have to rest between each production batch, causing a delay
Warehouse space will be needed for stock or raw materials
Flow production
This is where a large quantity of a product is produced in a continues process (mass production)
Advantages of flow production
Disadvantages of flow production
Advantages:
High output of specialized product
Costs are low and therefore prices are lower
Reduced labour costs, could be capital intensive
Benefits from economics of scale
Product produced quickly and cheaply
Disadvantages:
Very boring for workers so they can get de motivated
Storage is required which is costly
Setting up the production line is expensive
If one machine breaks down then the whole production will have to be paused
Advantages and disadvantages of break even chart
Advantages:
Managers are able to read off the expected profit or loss to be made at the level of output
Used to show how many sales are needed to exceed the break even point, safety Margin.
Disadvantages:
This is assuming all products are actually sold
Fixed costs might change if the the scale of production changes
It doesn’t help managers on reducing waste and how to increase sales
Fixed costs
Costs which do not change, they have to be paid whether the business is making sales or not
Variable costs
Costs which directly vary directly with the number if items sold or produced
Total costs
This is the fixed costs And the variable costs combined.
Economies of scale
The factors that lead to a reduction in Average costs as the business increases in size
Diseconomies of scale
The factors that lead to an increase in Avery’s exists as s business grows beyond a certain size
Revenue
Income of a business during a period of time from the sales of goods
Breaks even point
The quantity that must be sold for total revenue to equal total costs
Quality
This means to produce s good or service that meets the customers expectation
This is helpful to the business because it establishes a brand image and builds customer loyalty which will help increase sales and attract new customers. Bad quality risks loosing customers to the competitor brand and having to replace any faulty goods is time consuming and costly.
Quality control
This the checking for quality at the end of the production process
Advantages:
This helps eliminate errors or faults
Requires less training
Disadvantages:
Expensive as employees need to be paid to check
It identified the errors but doesn’t solve it or figure out how it was caused
Quality assurance
This is the checking for the quality standards throughout the production process.
Advantages:
Helps eliminate any faults or errors
Fewer customer complaints
Reduced costs of products do not have to be repeated
Disadvantages:
Expensive to train employees to check the product
Relies on employees following instruction
Total quality management
Advantages:
Eliminates all faults or errors before customer receives product
Waste is removed and efficiency increases
No customer complaints do brand image is improved
Disadvantages:
Expensive to train employees to check the product
Relied on employees following TQM ideology
