PAPER 1 - Advanced info Flashcards
1
Q
What is a sole trader?
A
Only one person owns the business.
2
Q
Advantages of being a sole trader?
A
- Quick + Easy to set up
- One person benefits financially
- Minimal paperwork
- Owner has complete control over decision-making.
- Easy to close
- No set up costs
3
Q
Disadvantages of being a sole trader?
A
- Unlimited liability
- Limited source of finance
- The business is the owner e.g. business suffers if owner is ill
- Pay more tax than a company
4
Q
What is a private limited company (Ltd)?
A
- The business is a seperate legal entity to the owner.
- Owned by shareholders (privately sold shares)
5
Q
List some advantages and disadvantages of being a private limited company.
A
Pros:
- Limited liability
- Wider access to capital - easier to borrow money
Cons:
- Must undergo incorperation at Companies House
- Higher set up costs.
6
Q
What is a public limited company (Plc)?
A
- Large public owned company
- External shareholders due to stock market floatation
7
Q
List some advantages and disadvatages of being a public limited company.
A
Pros:
- Raise capital by selling shares to public
- Ability to take over other businesses
- Shareholders have limited liability
- Benefit from economies of scale
Cons:
- Can lose control of the business
- Pressure to pay dividends to shareholders
- Min. set up cost of £50,000
8
Q
What are non-profit organisations?
A
Trade in order to benefit the community.
9
Q
What is limited liability?
A
Shareholders of the business are legally responsible for the debts of the business only to the extent to the value of the shares in the business.
10
Q
What is unlimited liability?
A
The owner is responsible for the total amount of debts and obligations of that business.
11
Q
What is the private sector?
A
Part of the national economy that is not under direct state control.
12
Q
What is the public sector?
A
Part of the economy that is controlled by the state, e.g. NHS
13
Q
What are social enterprises?
A
Trades goods and services for a social purpose. i.e. surplus goes towards social aims.
14
Q
What is ordinary share capital?
A
An ordinary share represents equity ownership in a company proportionally with all ordinary shareholders, according to their % ownership in the company.
15
Q
What are preference shares?
A
Shares where the owner gets paid dividends before ordinary shareholders. If the company goes bankrupt, owners of preference shares are entitled to get paid from companies assets.
16
Q
What is market capitalisation?
A
- The value of the company on the stock market.
- Share price x number of shares
17
Q
What are dividends?
A
Sum of money regularly paid to a companys shareholders from their profits.
18
Q
What do political influences include?
A
- Services
- Infrastructre
- Tax policy
- Change of government
19
Q
What do economic influences include?
A
- Growth rate
- Inflation
- Labour costs
- Unemployment/employment rates
- Exchange rates
- Stock market
20
Q
What do social influences include?
A
- Demographic
- Education
- Cultural
- Imcome
21
Q
What do technological influences include?
A
- Online/digital developments on sales/marketing
- Robotics/automation on processes e,g. manufacturing
- New product developments which may make others obeslete.
- Payment methods
22
Q
What do legal influences include?
A
- Regional laws e.g. employment legislations
- Law of enforcement
- Court system
23
Q
What do environmantal influences include?
A
- Resource management
- Energy availability
- Climate change
24
Q
What is competition?
A
Rivalry among sellers
25
What are market conditions?
Charecteristics of a market that the business is selling in e.g. intensity of rivalry and growth rate.
26
What are interest rates?
The price of borrowing money.
The reward for saving money.
27
What are demographics?
Statistical data relating to the population and particular groups within it.
28
What is scientific decision making? How is the data represented?
* A systematic approach of collecting data in times of uncertainty and where the outcome will have a major impact on the long-term future of the organastion.
* Represented by Decsion Trees.
29
What are the advantages of scientific decision making?
* Accurate
* Evidence based
* Methodical
* Lots of research
* Financial stability
* Helps to review desicions
* Easier to obtian finance (credibility)
30
How do you calculate the Expected value from a decsion tree?
The financial value of an outcome calculated by: multiplying the estimated financial effect by its probability.
31
How do you calculate the Net gain from a decsion tree?
Net gain is calculated by adding together the expected value of each outcome and deducting the costs associated with the decision
32
What is Intuative decision making?
Using a combination of experience and 'feel for the future' to make decisions.
Commonly reffered to as a 'Hunch'.
33
What are the advantages of Intuative decision making?
* Decisions made quickly
* Logical
* Qualitative
* Enthusiastic
* Less cost
* More understanding
34
Give some examples of internal and external stakeholders.
_Internal stakeholders:_
* Employees
* Managers
* Shareholders
_External stakeholders:_
* Suppliers
* Customers
* Local community
* Government
35
What is a stakeholder?
Groups or individuals who have an interest in the business. Different stakeholders can have a different impact on the organisation, however not all have the same wants and needs.
36
What is stakeholder mapping?
Stakeholder maps are decision making tools to assess the interest and power of stakeholders in order to make decisions on how to manage them.
**However**, they do not provide businesses with clear solutions on how to manage stakeholders.
37
What are the internal influences on Stakeholder relationships?
* Management and leadership styles
* Objectives to allign with interests. E.g. growth/profit
* Size and ownership
38
What are the External influences on Stakeholder relationships?
* Market conditions E.g. demand, competition
* Stakeholder power E.g. majority shareholders have more focus
* Government policy E.g. employment legislation
39
Name 4 types of marketing objectives.
* Sales volume and sales value
* Market and sales growth
* Market share
* Brand loyalty/image
40
Give examples of internal and external influences on marketing objectives and decisions.
**Internal:**
* Finance
* Operations
* Human Resources
**External:**
* Political
* Economic
* Social
* Competitors
41
What are the methods of segmentation?
* Behavioural = E.g. consumer habits + brand loyalty
* Income = how much people earn
* Geographic = location
* Demographic = e.g. age, gender.
42
What is the scale of segmentation in a market?
43
What are the 7 P's?
* Product: goods/services
* Price: matches product
* Place: channel distribution
* Process: transaction
* Promotion: awareness
* People: customer service
* Physical environment: layout
44
What are the different types of consumer goods?
* Convenience: ⬇ price, widespread distribution, mass promotion
* Shopping: **↑** price, selective distribution, retailer promotes
* Speciality: ↑ price,exclusive distribution, targeted promotion
45
What are the 3 main types of industrial product?
(business to business distrinution)
46
What is the value of new product development?
All products must have a balance of design, function and cost.
E.g. improving design = decreased quality
47
Draw a product life cycle. What are the stages?
\*note, extention strategy can be applied after maturity stage\*
48
Pros and cons of product portfolio analysis?
**Pros:**
* Useful for making decisions on where funds are allocated
* Predict future sales, plan production + distribution
**Cons:**
* Products/markets don't usually follow a pattern
* No clear solutions provided
* Simplifies complex issues, businesses can have a wide range of products
49
Describe a Boston Matrix model
50
What is price skimming?
Setting a high initial price then lowering the price when the product is no longer new.
51
What is penetration pricing?
Initial low price in order to penetrate market and undercut competitors. Over time, price increases as demand grows.
52
What is dynamic pricing?
Applied to products where price fluctuates with level of demand. E.g. hotel rooms.
53
List some promotional methods.
* Advertising - (e.g. above the line = mass ads)
* Sales promotions - (special offers)
* Sponsorship - (paid association)
* Social media - (facebook, instagram)
* Public relations (PR: media attention e.g. a blog)
* Direct marketing - (communication with customer)
54
What is the importance of branding?
* Adds value to product
* Builds trust
* Premium price charged
* Helps business position itself
* Makes product recognisable
55
List the different possible channels of distribution
56
What is the importance of digital marketing/ e-commerce?
* Allows small business to reach global audience
* Business can gather customer info easily
* Easier to target specific segments
57
What is efficiency?
Using the minimum level of resources to acheive more desired products at the right quality. Efficiency is directly linked to unit costs, therefore it is a key route to **maximising profits.**
58
What are the benefits of improved efficiency?
* Increased labour productivity
* Unit costs fall
* Profit margins increase
* Ability to charge lower prices and therefore improve competitiveness
* Resource rellocation e.g labour, expertise and time
* Improved flexibility
* Opportunity to explore new ventures - such as new product lines
59
How can a business increase efficiency and labour productivity?
* **Training :** invest in training to improve workers skills and motivation
* **Introduce new reward systems :** in order to create an incentive to work harder (more output)
* **Better management :** improve supervision, direction and leadership of the workforce
* **New technology :** speed up processes and reduce human error
* **New ways of working :** job design of workforce to be more effective
\*analysis - link to kotter and schlesingers resistance to change\*
60
What are the difficulties in increasing efficiency and labour productivity?
"The trade-off" : Increasing the output of a worker may increase productivity and lower unit costs in the short term.
But high levels of output can cause:
* stress and burnout
* comprimised quality
* compromised customer service
* compromised creativity
* costly mistakes/faults
* product returns and complaints
61
What is lean production?
Lean production involves practices that reduce waste in the operational process. The main forms of lean production are focused on reducing defects, time wasted and inventory levels.
62
What are different types of waste that a business can reduce?
1. motion - unnecessary movement of people
2. transport - innecessary movement of products or materials
3. inventory - cash tied up in stock
4. defects - faulty products
5. waiting - for processes tp finish before others can begin (\*network path analysis)
6. extra processing - adding features that do not add value
7. overproduction - producing products that cannot be sold easily
63
What are the ways that a business can reduce waste?
* Designing work areas within a business so that employees are in close proximity to the resources they require
* Using effective stock control systems
* Adopting quality assurance techniques to minimise defaults
* Designing products/services to meet the exact needs of customers
* Using a range of forecasting techniques to predict demand and match production accordingly
64
Lean production method 1: Explain "just-in-time"
The supply of products and raw materials is triggered by demand from customers.
Stock levels are kept to a minimum and resources and capital are freed up.
However this relies on effective communication and systems for order processing and delivery.
65
Lean production method 2 : explain Kaizan
Kaizen is a japanese concept of continuous improvement over time e.g. making marginal improvements in efficiency.
66
Lean production method 3: explain lean organisations
Organisations that only use processes that add value and are effective. Removing anyting that is not necessary.
E.g. Re-designing the following aspects in an organisation: meetings, processes and organisational structure
67
What are the difficulties of adopting lean production?
* If there are disruptions in production, businesses may be vulnerable if there is no inventory.
* It creates over relliance on suppliers to deliver on time
* There is a danger of stripping away processes and features that employees and customers value
* It puts pressure on workforce to "self check" and monitor their own work - \*do they have the skills?\*
* Kaizen can bring about change that mey be resisted by the workforce
68
How can a business increase capacity?
* sub-contract out production to another business
* offer overtime pay to the workforce
* employ workers on temporary contracts
69
How can a business decrease capacity? (retrenchment)
* redundancies
* sale of assets
* sub-contract in work from another business
70
What is the optimal mix of resources?
When a businesses production process is either labour intensive or capital intensive. The balance of the two might depend in the nature of the product and the target market.
71
Real world examples of capacity and technology efficiency?
* ROBOTS in the production process speed up production and reduce human error.
* COMMUNICATION SYSTEMS e.g. phones allow workers to communicate more effectively
* ONLINE ORDERING SYSTEMS (stock management) to improve efficiency in logistics. These processes also allow for greater customisation for the customer.
72
What is the importance of quality to a business?
Quality is the key to acheiving customer needs.
Some businesses will differentiate themselves as having premium quality, so products must have high quality to be able to compete at the right price point.
e.g. Stevenson Pizza Company in Canada sells a pizza for $850 featuring high quality ingredients such as caviar and other exotic seafood.
73
How can a business improve quality?
* work with high quality suppliers
* quality assurance policy
* invest in tech ology
* train employees in quality procedures
* understand customer needs because quality is subjective
74
What are the two quality management systems?
Quality control
Quality assurance
75
What is quality control?
* quality control is about the **product**
* quality is checked at the end of the production process
* focus is on identifying faults
* this is a specific role for one person
76
What is quality assurance?
* quality assurance is about the **process**
* all employees are involved in quality assurance
* quality is considered at every step of the production process
* focuses on continuous improvement of quality (kaizen)
77
What are the consequances of poor quality for a business?
* product recalling can be expensive e.g. Toyota recalled 2 million cars for faulty accelerator pedals
* damages brand reputation
* legal costs if customers sue the company
* correcting poor quality can be expensive
78
Why is quality sometimes difficult to improve?
* customers perceptions are constantly changing
* a business could let quality decline if there is no incentive to compete with rival businesses
* improving quality can increase the workload for the workforce
* measuring quality is difficult and expensive
79
What is the importance of financial objectives to a business?
* financial measures such as profitability and shareholder value are driving forces why people INVEST in businesses
* financial measures determine the success of all other functional areas such as marketing, operations and HR
* Financial objectives are easier to manage and measure, with a quantitative element amd timescale
* long term DEBT increases risk. A business may set objectives to lower proportion of long term funding that is debt.
80
What is the difference between cash flow and profit?
Profi is measured over a period of time.
*profit = total revenue - total costs*
Cash flow considers the timing of payments and receipts.
*net cash flow = cash inflows - cash outflows*
**a business can be very profitable but still run out of cash!**
81
What is the difference between revenue and gross profit?
gross profit is all direct costs such as raw materials taken away from the total revenue.
82
What is the difference between gross profit and operating profit (net profit)?
operating profit is all indirect costs such as salaries and overheads taken away from gross profit.
83
What is the difference between operating profit and profit of the year?
profit of the year is when other incomes such as interest are taken into account and tax is deducted from operating profit
84
What is the importance of revenue objectives?
Revenue objectives helps drive a business's ambition to grow.
Increased revenue indicates popularity of a product.
Suitable for 'not for profit organisations' e.g charities
85
What is the importance of cost objectives?
Lowering costs may be important when a business is trying to improve efficiency.
Cost is an important factor in recessions when businesses compete on price.
86
What is the importance of profit objectives?
A key performance indicator for a business.
Will encourage inestment as there is more potential for dividends.
87
List 3 cash flow objectives a business may include.
* Maintaining a specific level of cash reserves
* extending payment periods to suppliers (payables days)
* reducing payment periods from customers (receivable days)
88
What are some investment objectives that a business may set?
* May set a target for capital investment over the year to support a strategy for GROWTH.
* Or a business may set an objective to reduce capital expenditure over the year in order to reduce DEBT.
89
How do you calulate Return on Investment? (ROI)
ROI = (operating profit ÷ capital invested) x 100
90
What are capital structure objectives?
The BALANCE between capital from borrowing (loan capital) and the capital from selling shares (share capital) in the company.
91
What are some Internal influences on financial objectives?
* Corporate objectives - all functional objectives
* Nature of the product - the length of the product life cycle may dictate the importance of setting sales revenue objectives
* Other functions - e.g. setting operational objectives to improve efficiency... financial objectives of reducing costs may be appropriate.
92
What are some External influences on financial objectives?
* Technological - determines how a business invests and creates opportunities to cut costs and increase revenues
* Economic environment - e.g. setting lower profit objectives if inciators suggest the market is shrinking
* The competitive environment - setting objectives to compete on investments, price and quality.
93
What is a budget? What's their value to businesses?
A budget is a financial plan for the future with 4 different types:
* Revenue budget
* Expenditure budget
* Profit budget
Setting budgets helps a business acheive it's financial objectives.
94
What are the disadvantages of budgets?
* A budget is only as accurate as the data on which it is based
* Past trends can be a poor indicator of what is likely to happen in the future. So, difficult to forecast sales
* Unexpected changes e.g. interest rate increases so interest paid on business loans increase.
* Budget can be unrealistic
95
What is vairance analysis? What do favourable/adverse variances mean?
Variance analysis compares the forecast data to the actual figures, and can be used to analyse the accuracy of the budgets to help inform future adjustments.
* Favourable: better than the budgeted
* Adverse: worse than the budgeted
96
Describe how you construct a Cash flow forecast.
97
What is the value of cash flow forecasting?
* Used to support an application for lending money (\*note: window dressing of figures can happen e.g. by postponing payments to suppliers so closing balance is higher)
* Supports the budgeting process
* Identifies potential cash flow crisis (by analysing payables+receivables days)
98
What are the steps for constructing a break-even chart?
1. Plot total revenue line (starting at 0)
2. Plot fixed costs line ( doesn't change with level of output = horizontal line)
3. Plot total costs line
4. Where total costs = total revenue, is the break-even point.
5. If output is below break even = loss. If output above = profit.
99
How do you calculate break-even output?
Fixed costs ÷ contribution per unit
100
How do you calculate margin of safety?
current level of output - break even output
101
How do you calculate contrinution per unit?
Total contribution?
selling price - variable cost per unit
total contribution: total output x contribution per unit
102
How will raising the price by £2 affect the break even chart?
* Increased revenue line
* Lower break- even output
103
How will using a cheaper supplier affect the break-even chart?
* Lower variable costs = lower total costs line
* Lower break-even point
104
How will an increase in rent of £200 per month affect a break-even chart?
* Increased fixed costs line
* Increased total costs line
* Increased break-even point
105
Give some uses of break-even analysis
* Simple + easy to use
* Helps decide whether a business idea is profitable
* Identifies the level of output and sales needed to generate profit (the scale of the business)
* Analyses the impact of varying prices, costs and customers on the profit
106
Give some limitations of break-even analysis
* Over simplifies a complex process, since bsuinesses can have a large product portfolio
* Costs are rarely constant and presumes that costs stay the same over many levels of output
* Presumes that all businesses sell all their output at the same price
107
How do you calculate the gross profit margin? Why is it useful?
(Gross profit ÷ sales revenue) x 100
Useful to analyse how a business has performed in terms of direct costs incurred e.g. raw materials.
Also used to determine the success of products
108
How do you calculate the operating profit margin? How is it useful?
(Operating profit ÷ sales revenue) x 100
OP takes into account the direct and indirect costs(salaries/overheads), therefore analyses business performance more fully.
109
How do you calculate Profit of the year margin? How is it useful?
(Profit of the year ÷ sales revenue) x 100
This ratio takes into account all revenues and costs incurred by the business.
It is a good measure for annual performance.
Also may help identify potential to pay dividends to shareholders.
110
How is financial data important in business decision making?
Because all business decisions must be financially viable.
However, managers must also take into account the issues behind the numbers. e.g. human or ethical factors.
111
List some internal sources of finance
* Retained profit - where net profit is reinvested back into the business instead of being returned to the owners.
* Sale of assets - selling up items to free up capital
* Owners capital - personal savings used to start or expand a business.
112
List some external sources of finance
* overdrafts
* debt factoring - selling debt to a third party
* share capital
* bank loans
* overdraft
* venture capital - capital invested at an early stage 'seed funding' by a person or company in return for equity in the business.
* crowd funding - contributions from a large number of people
113
Name an advantage and disadvantage of retained profit
PRO: free source of finance with no interest
CON: shareholders may wish to receive this back via dividends
114
Name an advantage and disadvantage of selling assets
PRO : frees up capital to be invested elsewhere in the business
CON : the business loses the benefit of the asset e.g. no longer owning a delivery vehicle.
115
Name an advantage and disadvantage of using owners capital
PRO: free source of finance with no interest
CON: owners can lose their personal investment
116
Name an advantage and disadvantage of using overdrafts
PRO: flexible way to fund working capital, actas as a buffer to fund day to day expenses
CON: bank may ask for repayment at any time, high interest rate, depends of the overdraft limit available and the size of the business.
117
Name an advantage and disadvantage of debt factoring
PRO : business can receive cash immediately
CON: customers could be aware of this and lose faith in the business.
118
Name an advantage and disadvantage of bank loans
PRO: long term and can be negotiated to meet bsuienss requirements
CON: pay high interest and offer a collateral (a pledge of an asset) to secure it.
119
Name an advantage and disadvantage of venture capital
PRO: expertise into the business
CON: owner may not want input elsewhere in the business
120
Name an advantage and disadvantage of using share capital
PRO: can access very large amounts of capital and no interest
CON: only available to Ltd and Plc
121
Name an advantage and disadvantage of crowd funding
PRO: cheap and easy to set up
CON: not suitable for raising large amounts of money because the the business would need a lot of awareness.
122
How can a business improve their cash flow?
_Speed up inflows by:_
* incentivise early repayment e.g. give customers a discount
* reduce trade credit given to customers
* sell stock at a lower price to free up cash
* inject capital into the business
_Slow dow outflows by:_
* delay paymemts to suppliers
* increase trade credit agreements with suppliers
* cut costs - find cheaper alternatives or postpone spending on ads or training.
123
What are some of the causes of poor cash flow problems?
* overtrading
* innacurate cash flow management
* unexpected costs
* poor credit control
124
How can you improve profits by increasing revenue?
* increase prices
* create awareness through marketing
* add value to product to product by increasing benefits and features
125
how can you improve profits by decreasing costs?
* reduce production costs
* improve efficiency
* use capacity more fully
* eliminate unprofitable processes such as unprofitable product lines
* reduce variable costs - negotiate deals with suppliers
* lower overheads - move to a cheaper location
126
What are the difficulties of improving cash flow and profitability?
* lowering costs = lower quality/functionality
* advert capaigns only boost sales revenue if right audience is reached
* impact on stakeholders - delayed payments could upset suppliers
* spend money to make money - incentivising customers to pay early or spending on ads
* short term solutions - efforts can boost cash flow in short term but limit long term success by lowering reinvestment to return profit to shareholders.
127
How do you calculate labour productivity?
total output per time period ÷ number of employees at work
128
What are the lilitations of labour productivity figures?
* doesn't account for **wage rates** - a factor affecting employee performance
* doesn't acount for technology/automation in production process
* this figure can be affected by disruptions or the nature of the task
129
how do you calculate unit labour costs?
labour costs ÷ units of output
considers the full cost of labour compared to output
this figure should decrease as labour productivity increases
130
what affects the unit labour cost figre?
* labour costs will rise if employees receive training, HOWEVER this will increase labour prodictivity in the long term
* lowering unit labour costs will be innefective if other bsuiness costs rise.
131
how do you calculate employee costs as a percentage of revenue?
(employee costs ÷ sales revenue) x 100
this figure will be higher for service sector businesses
132
how do you calculate labour turnover/retention rates?
number of staff leaving/employed in a year ÷ average number of staff
this can indicate worker happiness and motivation
133
how is labour turnover/retention interpreted by businesses?
* high labour turnover = increased recruitment/training costs
* high labour turnover = low job satisfaction
* can be used as a KPI as businesses try to retain talented employees as a competitive advantage
* some industries with seasonal contracts expect high labour turnover e.g. holliday parks
134
when can HR resource performance data be applied in human resource decsion making?
* organisations objectives
* demand for labour (skills, new roles, number of employees)
* supply of labour (changes in existing work practice, forecast of staff leaving)
* human resource flow (recruitment, training, redundancies, redeployment)
135
what is the hackman & oldham job characteristics model?
describe the five aspects.
Hackman & Oldham argue that it is possible to design jobs that add to employee motivaton. Their model suggests five job charecteristics that can be studies to help predict job satisfaction.
* skill variety
* task identity
* task significance
* autonomy
* job feedback
136
What are the influences on job design?
* technology available
* skill of the workforce
* motivation of employees
* legal requirements - health and safety
* opportunity for flexible working practices (contracts)
137
What are the three aspects of job design?
* Job enlargement/rotation - more variety
* Job enrichment - adds challenges + responsibility, supports on the job training
* Empowerment - adds autonomy, encourages intrapreneurship
138
what are the key factors in organisation design?
* authority
* levels of hierarchy
* span of control
* delegation
* decsion making -centralised/decentralised
139
what is delegation?
The process of passing down authority through the organisation. this can lead to job enrichment for junior members of staff.
However it may not be suitable in certain situations where employees don' have the skills or in times of crisis e.g flux.
140
what is the chain of command in an organisation?
Refers to the levels in the hierarchy. As organisations grow, the number or levels naturally increase.
many levels = tall
few levels = flat
141
what is the span of control in an organisation?
Refers to the number of employees that a manager is directly responsible for.
wide span = flat, encourages delegation
narrow span = tall
142
Examples of organisational structure:
143
What is centralisation?
A decsion making process where decsion making is usually led by senior managers.
* works well for standardisation
* applied when employees are low skilled
* suited to authoritarian leadership styles
* suitable in times of crisis
144
What is decentralisation?
where decsion making is spread throughout the organasion and delegated to managers in charge of regions, functions.
* appropriate where business os spread over a wide geographic area where local needs are important
* reduces workload of managers, promotes skills and autonomy of subordinates
* allows for flexible working conditions and supports job enrichment
145
What is the value of changing job design?
* To meet customer needs so that the job revolves around meeting customer expectations
* Lowering init labour costs such as utilising employees elsewhere
* Better employer image
* Boost motivation and morale
146
What is the value of changing organisational design?
* improves efficiency and communication by delayering
* more competitiveness where a firm can respond quicker
* better emplyer reputation
* motivation and morale
147
Human resource flow:
