Lines Of Analyssis Flashcards
Private limited company
Choose shareholders
Shareholders have same image of growth
Less care for short term cash back
Care more about future investment
Build scale, brand, sales, customer relationship
Little negative publicity from public results
Public limited company
Stock market floatation
Sell stocks publicly
Raise very high capital
Invest capital in growth, brand awareness, non current assets
Financial EOS
Differentiation
Increased differentiation
Unique from competitors
USP
Price inelastic
Customers less sensitive to price change
Higher prices with same demand
Increased profit margins
Income elasticity of demand
High unemployment
Lower average income
More inferior products purchased
Less demand for luxury products
Pressure on businesses to expand product range or make redundancies
Price elastic goods
Goods are price elastic
Prices increase leads to
Demand fall greater than price increase
Fall in revenue
Business needs to charge lower prices
Fall in gross profit margins and lower dividend payments/less retained profit
Price inelastic goods
Price inelastic good
Customers loyal to brand
Prices rise
Demand falls a small amount
Gross profit margin increases
More retained profit from increased operating profit leading to more non current assets, scale etc
Purchasing economies of scale
Sales increase
Increase in volumes needed to be produced
Can buy supply for new sales in larger quantities
Supplier may give discounts for bulk buying
Increased gross profit margins
Financial Economies of Scale
Large businesses have many non current assets
This gives them more collateral to secure bank loans against
Banks see business as low risk
Lower interest rates
Lower fixed costs
Lower unit fixed costs
Higher gross profit margins
Marketing economics of scale
Increased sales
Increased volume sold
Marketing costs spread over more units
Lower fixed cost per unit
More marketing possible
Liquidity
High liquidity
High cash reserves
Use cash to pay off current assets
No need to sell non current assets
No disruption to running of business
Reduced risk of failure
1)
Lower risk = low interest rates
High GPM
2)
More attractive to investors
More capital for expansion
Specialisation
Focus cash on one area or product
More R&D on one product only
More advanced product development
Competitive advantage
Increased volume sold
Fixed costs spread over more units
Inflation (cost push)
Raw materials increase in price
Cost of sales increase
Raise prices to counteract
Demand fall for PE goods
Inflation (demand pull)
Prices remain stable
Wages increase
More demand and spending
Prices up to capitalise
Unemployment
Less in work so average income down
Less luxuries bought
More inferior goods bought
