Chapter 1

Question 1

Give me 3 business objectives

Answer 1

Survival, Cash flow, Growth

Question 2

3 reasons why a business would set objectives

Answer 2

Everyone works towards the same goal which increases efficiency, Motivation for employees, enables progress to be measured aiding future decision making

Question 3

3 reasons why a business has a missions statement

Answer 3

Establishes direction of the business, Forms the basis of alignment with the owners and employees, Informs the public why the business exists.

Question 4

3 variable costs

Answer 4

Raw materials, direct labour, fuel

Question 5

3 fixed costs

Answer 5

Management salaries, rent, Insurance

Question 6

What is the difference between the mission of a business and the objectives of a business.

Answer 6

The mission refers to the organizations long-term intentions and details its overall purpose

Objectives are SMART and set out how the aims of the organization will be achieved

Question 7

What is the difference between A private limited company and a public limited company

Answer 7

Many private limited companies are owned by families/friends i.e. there is control over who can buy shares in the business whereas there are no restrictions who can buy shares in a plc.
Minimum capital requirement for a plc is £50,000; there is no requirement for a Ltd

Question 8

What is the difference between limited liability and unlimited liability

Answer 8

Limited liability is the legal protection offered to shareholders in public and private limited companies whereas unlimited liability means that the owners of an unincorporated business, for example a sole trader, are responsible for all the debts of the business

Question 9

What is the difference between the objectives of a sole trader and the objectives of a public limited company

Answer 9

Sole trader: survival; being own boss and perhaps to provide sufficient income to have a comfortable standard of living. Public limited company: linked to efficiency, cost savings, increase in sales/market share, growth, profit maximisation, increase in share value

Question 10

What is the difference between private and public sector organisations

Answer 10

Private sector organisations are run by individuals or groups of individuals, rather than being run and controlled by the government. The public sector consists of those organisations which are owned and controlled by the government on behalf of the public

Question 11

What is the difference between ordinary share capital and market capitalisation

Answer 11

Ordinary share capital is the total value of the shares when first issued and is permanently invested in a company. Market capitalisation is the current value of the issued shares

Question 12

2 benefits and drawbacks of sole traders

Answer 12

Owner can keep all the profit and has full control over the business. However has unlimited liability and lack of capital.

Question 13

2 benefits and drawbacks of ltd

Answer 13

Limited liability and has full control over who can buy shares. However, More difficult to raise capital compared to a PLC.
More expensive and time consuming to set up compared to a sole trader

Question 14

2 benefits and drawbacks of plc

Answer 14

Limited liability and Able to raise large amounts via sale of shares on the stock market. However, Expensive to set up
Must publish detailed financial information

Question 15

Give an example of a non-profit organisation

Answer 15

Many different forms of non-profit organisation exist e.g. charities, social enterprises, community groups; they may make a profit, but the profits are reinvested back into the organisation in order to meet its objectives rather than being distributed to owners

Question 16

Give an example of a public sector organisation

Answer 16

Government provides public services to all citizens in the country: NHS, education
Local government provide municipal services to local areas: libraries, parks, leisure centres

Question 17

Give 2 reasons why share prices change

Answer 17

If the financial performance of the company is strong, the business may get favourable publicity which will push the share price up. Also if the economic outlook is uncertain, investors may lose confidence about the future and look to sell their shares.

Question 18

Give 2 reasons why share price changes are significant to the shareholders of a company

Answer 18

A falling share price may result in the company being taken over; the original founders/shareholders of the business may lose control. Also it will directly impact the value of their shareholding.

Question 19

2 reasons why shareholders purchase shares in a company

Answer 19

To receive dividends and to make a capital gain

Question 20

2 reasons why a ltd may turn to plc

Answer 20

To raise share capital to finance expansion. Also to increase exposure/reputation of the business

Question 21

Give 3 ways in which the mission and objectives of a business may be affected by its ownership

Answer 21

• Public limited companies may be more profit driven to satisfy shareholder needs which will subsequently impact their mission and overall objectives
• Non-profit organisations and social enterprises are not primarily driven by profit and therefore may have a more ethical mission and ethical objectives
• A sole trade may have more short-term objectives such as survival and may not have an overall mission given the size of most sole traders

Question 22

2 factors that can influence costs

Answer 22

Interest rates
Legislation such as min wage

Question 23

2 factors that can influence demand

Answer 23

Incomes
Demographics

Question 24

Why is profit important

Answer 24

Profit is important to a business as it is a key measure of success. Profit may also be retained in the business and used as a source of finance. In addition, a profitable business may find it easier to attract further investment

Question 25

What is the formula for total revenue

Answer 25

Selling price X number of units sold

Question 26

What is the formula for total costs

Answer 26

Fixed costs + total variable costs

Question 27

Formula for profit

Answer 27

Total revenue - total costs

Question 28

Formula Market capitalisation

Answer 28

Number of issued shares X current share price

Question 29

Define social enterprises

Answer 29

Businesses with mainly social objectives whose surpluses are reinvested for that purpose in the business or community

Question 30

Define demographic factors

Answer 30

A study of the population e.g. the UK has an ageing population

Question 31

Define dividends

Answer 31

The share of the profit that a company distributes to its shareholders according to the number of shares that they hold

Question 32

Define ethical objectives

Answer 32

Moral objectives that a business sets

Question 33

Define external environment

Answer 33

Factors that can influence business activity, but the business has no direct control over e.g. a change in legislation

Question 34

Define fair trade

Answer 34

Paying producers in developing countries fair prices for their products; farmers can then benefit from a better standard of living

Question 35

Define interest rates

Answer 35

The cost of borrowing or the reward for saving

Question 36

Define Market conditions

Answer 36

Characteristics of a market that a business/product will operate or operates in e.g. the growth rate, number of competitors

Question 37

Define competition

Answer 37

Rivalry between businesses that offer similar products and services

Question 38

Define ordinary share capital

Answer 38

Value of shares when they were first issued x the number of shares initially issued; funds that are permanently invested by shareholders

Question 39

Define shareholder

Answer 39

A part owner of a company who owns at least one share