Business test p1

Question 1

Define debt factoring (external source of finance)

Answer 1

Where a business can raise cash by selling their outstanding sales invoices (money owed by customers) to a third party at a discount. This is a short term source of finance and is useful when the business has a cash flow problem

Question 2

Define trade credit (external source of finance)

Answer 2

When a business buys raw materials, components, services and other goods from another business but agrees to pay for those at a later scheduled date

Question 3

Define margin of safety

Answer 3

Shows how much a producer can reduce output before the business starts to make a loss

Question 4

Evaluate the usefulness of break-even analysis to a business
P - representation of
HIDO - linear
LTQ

Answer 4

(+)Provides a simply and easily understood representation of costs, revenue & potential profit ->aid decision making ->risk of making wrong decisions and therefore wasting time and money is reduced.

H) assumed that relationship between costs and revenue is linear. In reality, costs can rise and fall at different levels of output.

LTQ) although it has benefits such as aiding decision making and help when seeking bank loan if used in business plan, it is not always accurate and useful

Question 5

Evaluate the usefulness of break even analysis to a business (paragraph 2)
P-what if
H-products
LTQ- only useful for…

Answer 5

(+)useful for ‘what if’ analysis ->can be used to judge the impact on profitability on a number of costs and revenue variables e.g. effects of raising costs by 10% can be easily judged ->aiding financial decisions

HIDO)type of business/products->assumes only 1 product is produced and sold. Not the case for many businesses which have diverse product portfolios

LTQ)may only be useful for businesses which sell homogenous or similar line of products such as sandwich shop, then the average costs & revenue per customer can be estimated

Question 6

2 examples of internal sources of finance

Answer 6

1)retained profits
3)Sale of assets

Question 7

Factors that cause the demand curve to shift

Answer 7

P-population
A-advertising
S-substitutes (price of)
I-income
F-fashion and taste
I-interest rates
C-complements (price of)

Question 8

Factors that cause the supply curve to shift

Answer 8

P-productivity
I-indirect taxes
N-number of firms
T-technology
S-subsidies
W-weather
C-cost of production

Question 9

Does demand shift left or right when demand decreases?

Answer 9

left

Question 10

Define private sector businesses

Answer 10

Businesses that are owned and ran by private individuals. Aims and objectives may include survival, market share, profit maximisation, growth, maximise sales revenue, increase share value

Question 11

Define public sector businesses

Answer 11

organisations which are owned and run/funded/controlled by the government (local and national)

Question 12

Difference between a sole trader and ltd

Answer 12

-liability
-size: sole traders are owned and run by one individual (may have employees)

Question 13

what factors may explain why some businesses regard conducting market research as a priority? (3 factors)

Answer 13

• the expense of launching new products
• the importance of maintaining market share
• the importance of preserving the profile and brand value of existing products.

They need to understand their markets, in order to design products and marketing campaigns that meet the needs of customers.

Question 14

Factors affecting location

Answer 14

-costs (want to minimise)
-government influence (e.g. taxation and legislations)
-the market and competition
-access to customers
-access factors to production
-social reasons
-infrastructure