Nature And Purpose Of Business Flashcards
Why do businesses exist?
Businesses create employment
Businesses create wealth
They create new products and services
Can enhance a country’s reputation
What does a business do?
Production:
The process of resources being converted into a product or service that is intended to satisfy the needs of consumers
What does added value mean?
The process of modifying resources with the intent to add worth to them. Generally businesses develop their Unique Selling Point.
What are factors of production?
C - capital- goods that are made in order to produce other goods services
E - enterprise -the act of bringing all the factors of production together in order to provide a product or service
L- land- all the natural resources that could be used for production
L- labour- describes the mental and physical effort involved in production
What is mission statement?
It is the overall purpose or main corporate aims, intended to make stakeholders aware of what the business does and why, encouraging employees to work towards its aims
What is a corporate objective?
The goals of the business as a whole, it will depend of the size of the business.
What are functional objectives?
The objectives of the departments, they are more detailed than corporate objectives, they help the business work towards the corporate objectives.
A functional objective must be SMART, what does this stand for?
Specific Measurable Agreed Realistic Timely
What are the four main objectives that businesses will produce and follow?
Profit objectives
Growth objectives
Survival objectives
Cash flow objectives
What are social objectives?
They relate to benefiting society or people in need
What are ethical objectives?
Based on moral principles about how businesses treat people and the environment
What type of businesses set and work towards social and ethical objectives?
Non profit organisations such as charities or social enterprises
What is the difference between short term and long term objectives?
- long term objectives tend to set the direction of a business, such as long term growth
- short term objectives includes survival and making short term profit
What is revenue?
The value of sales - amount of money generated by sales of a product before any deductions are made.
How would you work out the revenue?
Revenue = selling price per unit x quantity of units sold
What is the definition of fixed costs? Give examples?
They are costs that don’t change with output, such as rent on a factory and senior managers salaries
What is the definition of variable costs? Give examples.
They are costs that rise and fall as output changes. Examples of variable costs would be hourly wages, raw material costs and packaging costs.
How would you work out total variable costs?
Total variable costs = variable cost per unit x number of units sold
What are semi variable costs?
They have fixed and variable parts. Telephone bills are semi variable costs.
How do you workout total costs?
Total costs = fixed costs + variable costs
How would you workout profit?
Profit = total revenue - total costs
Explain how large scale production help keep costs low?
The more a business produces, the lower the cost per unit produced. This is because the fixed costs are shared out between more items.
Give three reasons why profit is important?
Profit can motivate people
Profit is a good source of finance
Profit can be used to attract investors
Describe the difference between an romanisation being in the public sector compared to being in the private sector?
Public sector organisations are run by the government -they usually aim to provide a service rather than making a profit and they’re funded by the UK tax system.
Private sector organisations are owned and run by private individuals, they mostly aim to make a profit.
Non profit organisations such as charities, are they in the private or public sector?
Private sector
What does it mean for a business to have unlimited liability?
The business and the owner are seen as one under the law. This means the business debts become the personal debts of the owner, which is a huge financial risk.
What does it mean for a business to have limited liability?
Owners aren’t personally responsible for the debts of the business. The shareholders of the business will only lose their investment into the business in limited liability company
Describe what a sole trader business is?
It is an individual trading in his or her own name, they are self employed. They have full responsibility for the financial control of the business and meeting running costs and capital requirements.
What is capital requirement?
The money invested to set up a business or fund growth
What are the advantages of being a sole trader?
Freedom - their own boss
Profit - they get to keep all the profits
Simplicity -book keeping is less complicated
Savings on fees - no legal costs for ownership agreement
What are the disadvantages of being a sole trader?
Risk - no one to share the responsibility
Time - long working hours
Expertise - limited skills on their own
Finance - limited to the money they can access
Venerability - no cover for illness
Unlimited liability - responsible for all the debts
What is ordinary share capital?
Money raised by selling shares
What is the market capitalisation?
The total value of all the ordinary shares issued by a company
What formulae would you use to find the market capitalisation?
Market capitalisation = number of issued shares x current share price
Why are new businesses not usually set up as PLC’s?
Because they need at least 50,000 of share capital to start with, and most new businesses usually cannot raise that sort of money.
