Paper 1 - Key areas

Question 1

privatisation

Answer 1

when the government sells a business in the public sector (sells shares)

Question 2

Nationalisation

Answer 2

when the government takes over a business in the private sector (buys the shares)

Question 3

Market capitalisation=

Answer 3

number of shares x current share price → value of the business

Question 4

5 stages of the Product life cycle:

Answer 4

R&D
Introduction
Growth
Maturity
Decline

Question 5

Return on investment =

Answer 5

(profit from investment/cost of the investment) x 100

Question 6

2 reasons why equity is safe:

Answer 6

Capital obtained from the sale of shares doesn’t need to be repaid
No dividends are due to shareholders

Question 7

2 reasons why debt is dangerous:

Answer 7

A loan must be repaid with interest

The bank can take court action - risk of liquidation

Question 8

5 ways of assessing financial performance:

Answer 8

Using budgets 
Using cash flow forecast
Using break-even point 
Using profit margins 
Using receivables and payables ratios