Business Unit 3 Flashcards
What is Quantitative research
Focusses on numbers, uses mathematical analysis and data to show statistics for a business and the market
What is Qualitive research
Focuses on people, involves finding out what people think and why they think it
What is price elasticity of demand (PED)
Measures the sensitivity of demand to a change in price. Price elasticity is always negative as the increase in price will lead to a fall in sales and conversely, a reduction in price will lead to a rise in sales
What does it mean if something is price elastic
That a change in in price will cause a more than proportional change in the quantity demanded. The level of demand is sensitive to a change in price. Drastic change in demand
What does it mean if something is price inelastic
That a change in price causes a less than proportional change in the quantity of demanded. Minimal change in demand
What is Income Elasticity of Demand
Measures how sensitive demand is to a change in income
What is the formula for Income Elasticity of Demand
Percentage change in quantity demanded / Percentage change in income
what does it mean if something is Unitary inelastic
That a change in in price will cause an equal and proportional change in the quantity demanded
What is sales forecasting
Projection of achievable sales revenue, based on historical sales data, analysis of market surveys and trends, and salespersons’ estimates. It forms the basis of a business plan because the level of sales revenue affects practically every aspect of a business
What is Moving Averages
Extrapolation involves identifying the underlaying trend in past data and projecting this trend forwards. Extrapolation predicts future trends based on what has happened in the past. It assumes that nothing much is going to change.
What is a Three-point moving average
The mean of the data values for that time period, the previous time period, and the next timer period.
What is meant by the term Extrapolation
The use of trends established by historical data to make predictions about future values
What is Time series analysis
A statistical technique to analyze the pattern of data points taken over time to forecast the future. Main components that are analyised are: Trend Increase or decrease in the series of data over longer a period.
What is Positive Correlation
A relationship between two variables that tend to move in the same direction. A positive correlation exists when one variable tends to decrease as the other variable decreases, or one variable tends to increase when the other increases
What is Negative correlation
A negative relationship exists where as the independent variable increases in value, the dependent variable falls in value. No correlation: There is no discernible relationship between the independent and dependent variable
What is Non-existent Correlation
There is no relationship between the two variables.
What is a Stakeholder
Any person, group of people or other organisation that has an interest in the activities of a business.
What is Intuition
An experienced manager is often able to predict sales based on intuition or a ‘hunch’. The use of intuition is cheap, and fast. But gut feeling and experience should not be the only guide.
What is Brainstorming
When employees who have experience of the market will get together to bounce’ ideas off each other in order to determine their collective best estimate of what is likely to happen in the future. Use might be made of previous life cycles of similar products.
What is the Delphi Method
Idea of using expert opinion to predict the future, on the basis that better predictions are made by human experts than from extrapolating trends.
Advantages of the Delphi method
- It is flexible enough to be used in a variety of situations and be applied to a range of complex problems
- Participants have time to think through their ideas leading to a better quality of response
- Creates a record of the expert group’s response and ideas, which can be easily accessed when needed
Disadvantages of the Delphi method
- It assumes that experts are willing to come to a consensus and allow their opinions to be altered by the views of other experts
- Monetary payments to the experts may lead to bias in the results of the study
- Very time consuming, and can be very costly in terms of research time
External factors affecting Sales Forecasting
- Economic factors - Business cycle, Exchange rates
- Consumer factors - Changing tastes, and fashions
- Competition factors - They will have their own strategies and plans
What are Qualitative factors
Qualitative Factors:
- Production factors - will new machinery be compatible with the existing machinery? Will new supplier be reliable? (Spaces after sales service, etc.)
- Personnel factors - will new machinery or network suit the staff? (Training/Safety/ Redundancies/Morale/ Motivation.)
- Image - gaining prestigious order, good PR, better quality product
- Aims of the organisation - if the business places a high value on social issues it might reject a profitable investment if it is considered to exploit the workplace or damage the environment.
What are Quantitative Factors
- Businesses which are unprofitable eventually go out of business.
- Reliability of quantitative data based on market research and predictions. Figures predicted 5 years ahead may be inaccurate, undermining investment appraisal.
- Recessions/Booms.
- The economy can impact upon quantitative predictions. A rise in interest rates will require a project to be more profitable in the future.
What is Budgeting
A financial plan for the future, without this plan businesses are likely to get into financial trouble
What is a Sales revenue budget
A budget that sets out a businesses planned revenue from selling its products. Important information includes expected level of sales and the likely selling price of the product.
What is a Expenditure budget
A budget that sets out a businesses planned expenditure on labour, raw materials, fuel and other items essential for production
Advantages of Budgeting
- A means of controlling income and expenditure.
- They act as a review and allow time for corrective action to take place.
- They allow delegation without loss of control - subordinates can be set their own targets.
- They help in the co-ordination of a business and improve communication between different sections of the business.
- Budgets provide clear targets to be met and should help employees to focus on costs.
- Can act as a motivator for staff if budget is met.
Limitations of Budgeting
- They can be time consuming for managers in small businesses; especially for those who are not particularly numerate.
- Some personnel can resent having to meet budget targets that they have had no part in constructing. Poor motivation and missed targets can result.
- The budget must not be too inflexible as business opportunities might be missed.
- Poorly constructed budgets can lead to poor decision making.
What are Budget Variances
A variance is any unplanned change from the budgeted figure. They occur when an actual figure for sales or expenditure differs from the budgeted figure. Variances can be favourable (F) or adverse (A):
What is a favorable variance
A favourable variance exists when the difference between the actual and budgeted figures will result in the business enjoying higher profits than shown in the budget. For example, when:
- expenditure is less than expected
- revenues are higher than expected.
What is a adverse variance
An adverse variance occurs when the difference between the figures in the budget and the actual figures will lead to the business’ profits being lower than planned. For example, when:
- expenditure is higher than expected
- revenues are lower than expected.
Reasons for change in favourable sales variances
• an effective bonus scheme for salesmen
• a successful advertising campaign
• favourable weather
• the demise of a competitor.
Reasons for change in adverse sales variances
- the successful activities of competitors
- ineffective advertising
- logistical problems that meant that stock did not arrive with the customer on time
- bad weather
- general economic conditions (recession)
Reasons for favourable cost variances
- employees may have been better trained/motivated leading to improved labour productivity
- reduced costs of imported components due to a strengthening of Sterling
- raw material costs may have fallen.
Reasons for adverse cost variances
- a strike by employees
- bad weather in the growing region for crops such as sugar or coffee
- a devaluation of Sterling
- unexpected price rises from suppliers.
What is a Balance sheet
A measure of the assets and liabilities of a business
What are fixed Assets
Items owned by the business which do not change in the short term/they last a long time/used repeatedly, e.g. buildings/machines/vehicles.
What are current assets
Current Assets: Assets which can be converted into cash quickly, e.g. stock, debtors, cash in till/bank.
What are current liabilities
What the business owes, and which must normally be paid within 12 months, e.g. overdraft, creditors.
What are long-term liabilities
Money owed to others that will take more than a year to pay back, e.g. bank loan and debentures.
What is capital employed
The total money that has been invested in the business such as shareholders’ funds (share capital); owners’ capital; retained profit and reserves
[Capital Introduced + Retained Profit + Long Term Liabilities]
What are Debtors
- People who owe the business money.
- They represent the total value of sales to their customers for which payment has not yet been received.
What are trade creditors
- Businesses to which the business owes money.
- A business is likely to have purchased goods from suppliers or services on credit so that payments are still outstanding.
- These debts must be be paid within 12 months/a short period of time.
What is Working capital
- The day-to-day finance available for running a business.
- Formula: current assets - current liabilities = working capital.
What is capital expenditure
- Spending on new fixed assets - such as machinery, buildings, polytunnels.
Usefulness of using a Balance Sheet
- Shareholders are able to see how well the business is doing doing.
- Gives a picture of the assets/what the business owns and the liabilities/what the business owes.
- If the current liabilities are a lot more than the current assets in each year, then the business could have a problem in paying its debts.
Can be compared over time.
What is Depreciation
The difference between what the value was and what it is now. Depreciation represents the fall in the value of these fixed assets, either due to their use, due to time, or due to obsolescence.
What is meant by the term Return on capital employed (ROCE)
Shows the profitability of the investment by calculating its percentage return. This measures the efficiency with which the business generates profits from the capital invested in it.
What is a current ratio
measures a company’s ability to pay current, or short-term, liabilities (debts and payables) with its current, or short-term, assets, such as cash, inventory, and receivables.
What is a Acid test ratio
a liquidity ratio that measures how sufficient a company’s short-term assets are to cover its current liabilities.
What is a gearing ratio
A measure of the business’ capital structure. It measures the proportion of total capital that has been obtained from debt or loan sources rather than from equity sources.
What does it mean if something is highly geared
- > 50%
The higher the gearing of a business the greater the level of risk due to the enhanced exposure to changes in interest rates. Highly geared businesses may experience problems in raising new finance as the business is seen as a risky investment for the ordinary shareholder. However, it may be adventurous in its expansion plans leading to high potential profits in the future.
What does it mean if something is lowly geared
- <50%
A business with a gearing ratio of less than 50% is said to have ‘low gearing’, since its monthly debt repayments do not form a significant proportion of its monthly outgoings. It can be perceived as a weakness - failing to borrow to expand can indicate an overly cautious management. An investment in a business with low gearing would be safe, but dull. However, there is not much to repay and so not much interest to pay.
What is a Profit and loss account
Forms part of a business’ financial statements and shows whether it has made or lost money. It summarises the trading results of a business over a period of time (typically one year) showing both the revenue and expenses.
What is Window dressing
Window-dressing is the manipulation of financial accounts by a business to improve the appearance of its performance.
This could be done by using financial graphs with distorted scales, Overstating brand valuations, Hiding the cost of poor investments, Sale and leaseback to improve liquidity
What is Demand
The amount of a product or service that customers are willing and able to pay for at a given time.
What is Inflation
the sustained increase in the general price level of goods and services in an economy over a period of time
What is a Customer attitude survey
A survey that can provide you with insights on not only how a customer feels about a product, but how they approach your business, and how you compare to competitors. Understand why they selected your product in the first place, or find out if they’d purchase your product again, and if not, why not.
What is a Employee attitude survey
A management tool business owners or managers use to learn about the views and opinions of their employees on issues pertaining to the company and their role within the organisation.
What is Market Share
Measures the sales of a business relative to the market size
What is Productivity
This is the output produced in relation to the inputs used. For a given time period this could be; output per worker; output per machine; output per site.
What is a company environmental record
A company’s environmental record refers to its history and performance in managing its impact on the environment, including compliance with laws, sustainability efforts, resource use, emissions, and any environmental incidents.
What is a Vision statement
A vision statement is a clear and inspirational declaration of a company’s long-term goals and aspirations, describing what it aims to achieve in the future and the impact it wants to have.
What are Objectives
A vision statement is a clear and inspirational declaration of a company’s long-term goals and aspirations, describing what it aims to achieve in the future and the impact it wants to have.
What are Aims
aims are the broad, long-term goals a business sets to outline its overall purpose and direction.
What does SMART stand for
Specific
Measurable
Achievable
realistic
Time limited or constrained
What is a Mission Statement
A business mission statement is a description of what a business sets out to achieve in the medium to long term. It should provide a clear guide to senior management of the future direction of the business and help to direct strategic decision-making across the business.
What is meant by Strategy
the way a business operates in order to achieve its aims and objectives. The formulation of strategy is basically the same thing as constructing a business plan.
Implementation is putting the plan into practice.
What is cooperate strategy
The overarching plan and direction a business adopts to achieve its long-term objectives, aligning its resources and operations across various divisions or markets to create value and sustain competitive advantage.
What is Strategic strategy
The overall path a business takes to achieve its long-term objectives, including decisions about which markets to operate in, what products to offer, and how to position itself competitively.
What is Divisional Strategy
The plan and actions developed for a specific division or business unit within a company, focusing on achieving its objectives while aligning with the overall corporate strategy.
What is Functional Strategy
Refers to the specific actions and plans developed by individual departments (e.g., marketing, operations, finance) to support and achieve the broader business or divisional objectives.
What are Tactics
The specific actions or steps taken to implement the strategy and achieve short-term goals.
Tactics are detailed and action-oriented, focusing on the “how” and
“when” of executing the strategy.
What is a corporate plan
A corporate plan is a statement of organisational goals to be achieved in the medium- to long-term. It will be based on management assessments of market opportunities, the economic situation and the resources and technologies available to the business.
What does SWOT stand for
Strengths, Weaknesses, Opportunities, Threats
What is Porters Five Forces framework
Porter, believes that large businesses can exert an influence on the markets in which they operate. He believed businesses are influenced by 5 external forces. Managers can use this to devise appropriate strategies, to maximise profitability.
- Barriers to entry - Factors that prevent new competition entering the market
- Competition - How much competition exists in the market
- Buyer power - The power of the customers
to determine prices - Substitutes - Threat or risk of alternative products or services
- Supplier power - The ability of suppliers to set prices
What is the Ansoff matrix
Considers a business’s product portfolio and outlines the options open to businesses if they wish to grow, with the view to increase and profitability. It considers weather the marketing strategy is targeted at existing customers or new ones, and if existing products should be used, or if new ones should be developed
What is Horizontal integration
The merging of business which are at the same stage of production. Often the firms are both providing the same service and selling similar goods
Benefits of horizontal Integration
- May benefit from increased economies of scale
- Increases market power, to compete with market leaders by spreading the brand
- Combination of new ideas/innovation
Potential drawbacks to horizontal integration
- A larger organization may become bureaucratic, slowing decision-making processes and reducing adaptability to market changes.
- Redundancies are common in horizontal integration, as overlapping roles are eliminated. This can lead to job losses and negative public perception.
- Combining two companies may lead to conflicts between different organizational cultures, management styles, or employee expectations. Poor integration of company cultures can lead to employee dissatisfaction, reduced morale, and lower productivity.
What is Vertical integration
The merging of two businesses at different stages of production.
Benefits of Vertical integration
- Control over quality
- Removal of middleman, means that all profits are kept, due to not having to buy raw materials from a third party outlets.
- Improves supply chain co-ordination
Potential drawbacks for Vertical Integration
- Vertical integration often ties the company closely to one specific industry or supply chain, increasing vulnerability to industry-specific risks.
- By relying on its own supply chain or distribution, a business may miss opportunities to source better materials or sell through alternative channels.
The company may also find it challenging to diversify its supplier or customer base. - Vertical integration may raise concerns with competition authorities, especially if it restricts access to key supplies or distribution channels for competitors.
What is Organic / Internal Growth
When a business expands by selling more of its existing products. A slow growth strategy
What is External Growth
Growth by acquisition, takeover or merger. A quicker method of growth
Arguments for Growth
- Eliminate competition
- Increase market share
- Benefit from economies of scale
Arguments against growth
- Costs involved
- diseconomies of scale
- Bad publicity
What are Merges
Where two existing, independent companies combine to form a new, singular legal entity
What are Takeovers
The process by which one company acquires control of another company by purchasing a majority of its shares
