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Edexcel A Level- Business > Paper 2 exam > Flashcards

Paper 2 exam Flashcards

1
Q

what is person culture?

A

person cultue

  • democratic style
  • individuals employees believe themselves to be superior to the business
  • when individuals with similar training and backgrounds are encouraged to form groups to enhance their expertise and share knowledge
  • found in large complex organisations, or among professions such as accountants or lawyers
  • employees are highly skilled with professional qualifications
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2
Q

what is the difference between cash and profit?

A

Cash is the money available, the money circulating round a business at any time, this would not include part of a loan

Profit is the money generated by selling products, revenue - costs

  • profit is recorded straight away but cash will not be recorded until it is paid out or received which could be in a different trading year
  • a business can trade for many years without a profit but a profitable business may go bust if it runs out of cash to pay a supplier or staff
  • to improve profitability a business must either increase revenue or reduce costs but if owner introduce cash via savings or a loan this will not affect the profit figure
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3
Q

what is the definition of probability, expected value and net gain?

A 
Probability- the chance of an outcome happening 
Expected value- the financial value of an outcome calculated by multiplying the estimated financial effect by its probability
Net gain (or expected monetary reward)- the value to be gained from taking a decision, calculated by adding together the expected value of each outcome
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4
Q

what are two ways of doing sales forecasting?

A
  • extrapolation

- correlation

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5
Q

explain the factor that affects sales forecasts: consumer trends

A
  • Consumer tastes and habits change over time and these changes can be quite dramatic
  • A natural way for a forecaster to deal with this is to plot the past trends and then consider what the likely future pattern will look like
  • The factors that affect medium-to-long term consumer trends include: the changing tastes and habits, demographics, globalisation and the affluence of a population
  • documents like intel can help a business to identify an upcoming trend
  • trade fairs are also ways that a business can research what might be new popular products
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6
Q

what are the benefits and drawbacks of backward vertical integration

A

benefits

  • closer links with the suppliers aid new product development and gives more control over the quality and timing of supplies
  • should lower the cost of supply through absorbing the suppliers’ profit margins

drawbacks

  • can tie the business into a supplier that not always offer the best option
  • job losses may result from attempts to cut out duplication of support roles such as in personnel and accounting
  • the firm’s control over a supplier may reduce the variety of goods available
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7
Q

what are the benefits and drawbacks of conglomerate integration

A

benefits

  • diversifies the business, spreading the risk into different markets, widening product portfolio
  • gain synergies

drawbacks

  • potential failure to understand the target company as it will be in an unfamiliar market
  • may distract management from original business due to unfamiliarity and slowness to integrate
  • shift in focus, focusing less on each single brand
  • complication with different cultures and ethic
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8
Q

explain external economies of scale

A

External economies of scale- unit costs go down as the industry grows

  • Infrastructure to support the industry is built, e.g. jubilee line built for waterloo
  • Suppliers locate in clusters around firms in the industry, e.g. Cambridge science park, Silicon Valley
  • good levels of education, less need for training
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9
Q

what is handy’s classification of company culture

A

he divides culture into power, role, task and person culture

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10
Q

give 4 factors how corporate culture is formed and how it is shown

A
  • influence of the founder
  • leadership and management style
  • size and development stage of the business (MNCs often take a longer-term view)
  • organisational structure, policies and practises
  • rituals
  • mottos
  • symbols
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11
Q

what is inorganic growth?

A

growth which occurs as a result of taking over or merging with another business- it does not occur from within

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12
Q

what are correlations?

A

they can be used by marketing departments to examine the relationship between two variables. scatter graphs can be used to show correlation and allow businesses to extrapolate data. often researchers will compare sales volume with advertising expenditure

  • positive correlation is when an increase in one variable results in an increase in the other variable
  • negative correlation is when an increase in one variable results in a decrease in the other variable
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13
Q

what are the 4 reasons for mergers and takeovers?

A

1) growth
- increase distribution
- gain each others markets

2) cost synergies
- cost savings
- as a result of output rising, EOS will occur

3) diversification
- reducing risk, sales of the other products in times of failure in one range
- simplest way of diversifying

4) market power
- increase level of power in the market
- can be used to reduce the degree of competition within the market, slowly increasing profits

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14
Q

what is the definition of a weak culture and what are 4 features of one?

A

values and beliefs that either don’t exist or are now widely shared so do not significantly influence people’s behaviour

  • often leads to business failure
  • exhibit a demotivated workforce
  • little alignment with values
  • very bureaucratic and lacks flexibility to respond to dynamic markets
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15
Q

why do firms forecast sales?

A

it forms the basis for other business planning:

1) human resource plan: how many people we need linked with expected output
2) production/capacity plans
- whether they will have to adapt production in order to accord to increasing or decreasing sales forecasts
3) cash flow forecasts
- how will they have to adapt their outflows (costs) to the number of inflows coming in
4) profit forecasts and budgets
- seeing the number of sales estimated will lead to them estimating the amount of profit if costs stay the same

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16
Q

how do you calculate variation in a moving average?

A

sales in a specific time period - the moving average sales

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17
Q

what are three negatives of quantitative techniques?

A
  • changes in the external environment (new competitors, bad PR, legal changes) can impact the business’ future performance
  • changes in the internal environment (culture, leadership and changes in spending on promotion) can impact the business’ performance
  • quantitative sales forecasting can be time-consuming and complex
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18
Q

limitations of a business plan

A
  • can become out of date very quickly (unexpected changes in the external environment)
  • time consuming (entrepreneur may not have skills to complete all sections)
  • the act of planning does not mean the plan will be success as the business actually has to implement the plan
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19
Q

how do you calculate the moving average of the data?

A
  • the first step is to calculate a moving total, the amount over the period you are assessing, for three month total it would be January-march, February-April, march-may
  • calculate the moving average by dividing it by the number of months you assessed (3 month moving average = divide by 3)
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20
Q

what are three reasons why cultural change is hard?

A
  • major culture overhauls are hard to do and often fail
  • its a long race, culture evolves slowly
  • momentum is hard to sustain
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21
Q

what are 3 pros and cons of the use of extrapolation

A

pros

  • a simple method of forecasting
  • not much data required
  • quick and cheap

cons

  • unreliable if there are significant fluctuations in historical data
  • assumes past trends will continue into the future- unlikely in many competitive business environments
  • ignores qualitative factors (e.g. changes in trends and fashions)
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22
Q

when are moving averages useful?

A

it is useful when there are strong seasonal influences on sales or when sales are erratic for no obvious reasons, wild ups and downs may make it hard to see the underlying situation.

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23
Q

which stakeholder groups would look at a cash flow statement?

A
  • Shareholders
  • Banks
  • Suppliers
  • Potential investors
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24
Q

what are 4 strategies to manage cultural change?

A

1) start with the vision- ensure it is clear and consistent
2) must be communicated at every layer of hierarchy (especially middle managers)
3) get staff buy in by involving them in the change, they need to support it
4) requires a clear business strategy

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25
Q

what are the 4 factors that affect the external environment forming the opportunities and threats (explained)

A
  1. Demography
    - refers to population change
    - not only is our pop growing but the age distribution is changing, more elderly people, gives opportunities for businesses
  2. New laws and regulations
    - provides both opportunities and threats
    - the increased laws and regulations with COVID meant many stores fell into administration, no inflows
    - the law for 2006 for children car seats led to a huge boost in business
  3. Economic factors
    - changes in unemployment rates, inflation and exchange rates will affect firms for sure
    - they can drastically change their economic position
  4. technological factors
    - rise in technological competition has created many threats for firms in the sector, the rise in subscription providers (Netflix) creates many threats
    - the rise of the use of social media created many opportunities for entrepreneurs of facebook
    - threat to digital cameras due to improvements in mobile phone cameras
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26
Q

what should the business plan be based around and what are the main sections?

A

it should be based on competitive advantage which means identifying the features of your product that will make it succeed against competitors

It includes:

1) Executive summary: short and compelling to make the busy banker read on, needs to tell what you want and how you will ‘relieve’ it
2) The product/service: explain it from the customers’ point of view, what is different about your idea compared to competitors
3) The market: analysis of competitors, focus on market trends rather than market size
4) Marketing plan: who your market is, how you will advertise, the cost
5) Operational plan: how will the product be produced and delivered
6) Financial plan: CASH FLOW FORECAST, projections on revenue, costs and profits
7) Conclusion: ideas of the longer-term plans for the business

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27
Q

what is the definition of a strong culture and what are 4 features of one?

A

values and beliefs that are widely shared and significantly influences people’s behaviour

  • they have good internal communication with their employees, use of top-down memos
  • culture often based around the history, tradition and founders of the firm
  • engaged and loyal staff
  • clear core values, mission and goals
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28
Q

what is a sales forecast?

A

a projection of future sales revenue, often based on previous sales and marketing data

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29
Q

what are the 3 factors that affect sales forecasts?

A

consumer trends
economic variables
actions of competitors

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30
Q

which groups of people might be interested in seeing a business plan?

A
  • banks
  • venture capitalists
  • business angels
  • potential partners
  • suppliers
  • senior leaders
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31
Q

what are the positives and negatives of SWOT analysis

A

positives:

  • helps focus on strategic issues, better direction in decision making, sufficient insight into into the current and potential position
  • understand your business better, to have full credibility when discussing issues
  • help deciding on a new corporate strategy, make plans for the future

negatives:

  • they may be outdated, needs to be constantly reviewed
  • doesnt prioritise issues, only one stage of business planning
  • a lack of hierarchy leads to problems
32
Q

what are the 6 difficulties of sales forecasting?

A

1) no guarantees
- just because a sales forecast has been written by a business, there are no guarantees that sales will meet these levels
- this could be down to a number of uncertain factors: the economic climate, the impact of terroism on tourism in some countries
2) dynamic markets
- most markets are constantly changing (technology) and so it is difficult to produce an accurate sales forecast
- the arrival of a new competitor or a change in consumer trends would majorly impact sales, cannot predict
3) sales of products may change depending on weather and seasons and so due to the presence of external factors we cannot predict what the weather will be like and so it is hard to forecast sales, e.g. chessington
4) when a business is first starting out
5) in a market where demand is highly sensitive to price or income
6) when the people doing the forecasting are not very good

33
Q

what is benchmarking?

A

comparing your own performance with that of rivals, to try to identify and learn from best practise.
this is used when conducting a SWOT analysis

34
Q

what is time series analysis?

A
  • it is a series of figures covering an extended period of time
    refers to the use of past data and trends to forecast and predict future trends. it allows businesses to use moving average calculations to forecast future sales based on historical data.
35
Q

what is cash outflow?

A

the planned payments each month, this includes both fixed and variable costs

  • this is known as expenditure
  • this will be bills such as wages, insurance and advertising
36
Q

what are the benefits and drawbacks of horizontal integration

A

benefits

  • likely to provide clear economies of scale , purchasing, technical and financial economies
  • reduces competition, therefore increasing market share and market power
  • opportunities for synergies

costs

  • can lead to diseconomies, rapid growth could cause communication problems
  • could be confusion over which firm’s culture should be adopted in some areas
  • possibly reduced flexibility due to the company being a larger organisation: more accountability and red tape
37
Q

what is vertical forwards, vertical backwards, horizontal and conglomerate integration

A

vertical forwards- joining a business further up in the supply chain, e.g. manufacturer buys a distributor
primary to secondary, secondary to primary, secondary to tertiary or tertiary to secondary

vertical backwards- joining with a business operating earlier in the supply chain, e.g. a retailer buys a wholesaler

horizontal- joining with a business at the same stage of the supply chain, e.g. a manufacturer buys a competitor to expand capacity
primary to primary, secondary to secondary and tertiary to tertiary

conglomerate- when one business has no clear connection with the business buying it

38
Q

what are the problems of rapid growth and their solutions?

A

1) diseconomies of scale
(control, communication, co-ordination)
- lack of communication demotivates staff as they feel alienated, lack of support, mayo’s relational factors lack, productivity will fall
- with more levels of hierarchy, vertical communication becomes slower and less effective, increasing unit costs
solution: invest in tools to improve communication (intranets) and invest in motivational incentives

2) overtrading
- cash flow issues from over-commitment of cash to fund investment and growth, drain on resources means they may see a large amount of outflows in comparison to their inflows
solution: forecast cash flow implications of growth and raise the additional working capital required before expansion

3) may lead to employee resistance
- employees may not agree with their expansion plans, lack of consultation may lead to high staff turnover, hard to maintain strong culture, fall in customer service, fall in brand reputation
solution: kotter- get staff to buy into change, giving control of change

4) poor investment decisions
- through rapid growth, it may mean that not as much thought goes into the decisions they make, these may have long-term costs
solution: use of investment appraisal techniques- quantitative and qualitative

39
Q

how do we distinguish costs from cash outflow?

A

costs are the sums of money that are paid out in the whole product life cycle.
there are lots of reasons for cash outflow. Paying for the business costs is only one of them. It also includes dividends or paying out a bank loan

40
Q

what are the benefits of a cash flow statement?

A
  • Understand the firm’s liquidity in order to prevent cashflow shortages, managers can identify times the business may be short of cash and arrange suitable finance, e.g. an overdraft
  • Helps with budgeting (cost budgets and revenue budgets)
  • Can be used to secure finance, it is part of the business plan and secure a better deal on their finance, e.g. lower rate loan
  • A way of measuring performance at the end of the year, comparisons between predicted inflows and outflows with what actually happened
41
Q

what is role culture?

A

role culture

  • employees have clearly defined roles within a formal structure and high control
  • power depends on the position an individual holds in a business
  • culture is bureaucratic, cautious and focused on the avoidance of mistakes, all expected to conform to rules and procedures
  • autocratic/paternalistic, traditional organisation
  • often tall structures with slow decision making
42
Q

what is a SWOT analysis?

A

a SWOT analysis identifies a business’ internal strengths and weaknesses along with the opportunities and threats it faces by its external environment

strengths and weaknesses = internal

opportunities and threats = external

43
Q

what are the 4 reasons/advantages of growth?

A
  1. to achieve economies of scale
    - both internal (marketing and purchasing) and external (as a result of the industry itself growing) EOS
    - leads to higher profitability
  2. achieve a global brand reputation through increasing market share
    - development of a strong brand leads to reduced PED and increased customer loyalty, distinctive capability of reputation
  3. increased price setting power over customers
    - through a position of market dominance/monopoly it gives a firm substantial negotiating power with distributors, charge higher prices
    - a monopsony can be formed where there is one buyer and many sellers, e.g. amazon being the largest distributor of books
  4. increased purchasing power over suppliers
    - suppliers will rely on the high demand of large firms, not just lower costs but faster delivery, better payment terms etc.
44
Q

explain the factor that affects sales forecasting: economic variables

A
  • Some products are highly sensitive because their income elasticity is high, their sales are heavily dependent on changes in consumers’ real incomes
  • Variable that can affect a sales forecast include: interest rates, inflation, unemployment and GDP
  • some sales contracts may not be renewed due to inflation and the rising costs of the products for the business
  • if the UK economy is in the recovery phase then low cost retailers like poundland may need to forecast lower sales
45
Q

what is extrapolation in sales forecasting?

A

assuming that the pattern of future sales will continue to follow recent trends

46
Q

what is corporate culture?

A

it sums up the attitudes, behaviours and the ethos of an organisation. it is embodied in the people who work there via traditions that have built up over time.

47
Q

explain the use of extrapolation in forecasting sales

A
  • the simplest way of predicting the future is often to assume that it will just be like the past, this can realistic in the short term, if the sales have been increasing over the past few months it is fair to assume it’ll continue
  • despite the use of extrapolation is the most used for predicting sales, there is a need for judgement, you must base it around the longer-term trends
48
Q

how can the disadvantages of fast growth be prevented?

A
  1. Can use computer systems to co-ordinate stock re-order and delivery
  2. Can use effective management strategies and leadership such as strong team-building, effective mission and strong culture etc
  3. Tools to improve communications and control e., g. regular line management meetings on zoom, or intranets, MS teams
  4. Long term sources of finance can be used to avoid over-trading
  5. Consult with the staff in order for them to buy into the growth, Kotter, get staff to buy into change
  6. Contingency plans if projects deliver late
49
Q

benefits of a business plan

A
  • access to sources of finance
  • measure performance (adverse/favourable variance)
  • motivational/directional
  • SWOT and PESTLE
  • creating it forces business to consider direction of the business
50
Q

how does creating a business plan reduce risk?

A
  • forces a business to conduct market research
  • create plans and contingency plans
  • consider funding and cash flow planning
  • makes them consider the external environment and SWOT/PESTLE
51
Q

explain the factor affecting sales forecasts: actions of competitors

A
  • It is very difficult to predict the actions of competitors and so this is a barrier to making successful sales forecasting
  • The arrival of competitors can majorly alter the sales of a business
  • hard to predict but often significant reason why sales forecasts prove over-optimistic
  • if a business has products with declining sales perhaps due to a competitor’s superior product then they might decide to produce less of those products
52
Q

what is power culture?

A

power culture

  • where power is concentrated at the centre, one or a small group of power holders, authoritarian
  • likely to be few rules and little bureaucracy, most communication by personal contact
  • autocratic leadership
  • decision making is not limited by any code of conduct, quick
53
Q

what is a business plan?

A

a written document which sets out the businesses objectives, strategies for achieving them and its financial forecasts

54
Q

what are decision trees?

A

they are mathematical models that set out all the options available for managers when making a decision, plus the possible outcomes of those decisions

55
Q

what is extrapolation?

A

a method used by businesses to predict future levels such as sales, through analysing trends in past data

56
Q

what are the two ways of conducting a SWOT analysis?

A

1) top down process controlled by boss and often carried out by management consultants, this means it is free from emotion but it can lack real insight
2) consultative manner through involvement with all departments, giving democratic delegation to middle managers to conduct their own SWOT analysis

57
Q

what is task culture?

A

task culture

  • paternalistic/democratic
  • they have no single power source, senior managers allocate projects to teams of employees made up of representatives from different functional departments
  • matrix organisation where teams are formed to solve problems/work on projects
  • dynamic culture, organisation structure changes depending on the project, good for dealing with rapidly changing competitive environments because it is flexible (in markets with short PLCs)
  • power comes from expertise within a project team
58
Q

give 5 examples of internal strengths and weaknesses

A
  • market share
  • brand recognition and loyalty
  • human resources (staff turnover)
  • capacity utilisation
  • productivity
59
Q

what are the benefits and drawbacks of forward vertical integration

A

benefits

  • guaranteed outlet for the business’s products
  • designers can now influence not only how the products look but also how they are displayed, maintain desirable brand image
  • control of competition in own retail outlets, prominent display of own brands
  • gain more control over the supply chain and increase efficiency in decision making

drawbacks

  • consumers may resent the loss of choice with one firm’s products dominating these outlets
  • staff in retail outlets may find themselves deskilled, owners may dictate exactly what products to stock and how to display them which may be demotivating
60
Q

what are the 2 financial risks and rewards of mergers and takeovers?

A

risks:

  • original purchase cost- the cost to the business of taking over the other business
  • costs of adjusting the new business, e.g. redundancies, this is caused by an increase in the size of the business due to to the merging

rewards:

  • immediate increased revenues, sales of both firms now being combined
  • economies of scale leading to lower costs, this is caused by an increase in the size of the business caused by the merger or takeover
61
Q

what are 4 barriers to cultural change

A
  • preference for the existing arrangements
  • employee resistance
  • cost to make changes
  • the unknown
62
Q

explain the relevance of a business plan in obtaining finance

A
  • The business plan helps the entrepreneur to focus on what she or he is trying to achieve.
  • The plan will help the outsider understand the risks and rewards involved in the proposal
  • The financier will want to see a carefully prepared plan with a well-considered proposal for the sums of money needed. Without a business plan the financier won’t trust the business’ objectives as they cannot see evidence that shows that it is likely to succeed, after all you are borrowing money from them to then eventually be able to repay
63
Q

what are moving averages?

A

it is a quantitative method used to find underlying trends in a set of raw data, a succession of averages derived from successive segments

this looks at several periods at a time and averages out the data
- it is helpful when there are strong seasonal influences on sales or when sales are erratic for no obvious reason

64
Q

what is the definition of mergers and takeovers?

A

mergers- when two firms of similar size agree to join together to create a new single entity

takeovers- when one firm buys a majority of the shares in another and therefore achieves full management control

65
Q

what would make quantitative techniques more effective in forecasting sales?

A

business is mature- lots of past data to identify trends

industry is mature- rapid change is less likely, external forces likely to have less of an impact

stable external environment- the economy, technology, competition and legislation less likely to change

66
Q

how can a business improve its cash flow position?

A
  • Keeping stocks of raw materials to a minimum, use just-in-time stock management
  • Find new sources of cash inflows to generate money (sale of assets for example)
  • reschedule short term debts
  • change payment terms from customers that you sell to on trade credit, offering incentives for early repayment
67
Q

what are the advantages and disadvantages of decision trees?

A

Advantages:

  • Helps assess the risks and rewards of the investment forcing the business to conduct research
  • Options are laid out in a clear and logical way allowing decisions to be made
  • Multiple options can be considered at the same time

Disadvantages:

  • Probabilities are estimates and may be prone to error or bias
  • Analysis is quantitative only and doesn’t take into account qualitative factors
  • Identifies risk but does not help the business to avoid the risk
68
Q

explain the role of KPIs in SWOT analysis

A

key performance indicators are numbers that a business acknowledges to be proper measures of strength or weakness, this can include sales per employee or absenteeism
the main KPIs that are used for assessing the strengths and weaknesses are:
- market share
- capacity utilisation
- sales revenues

69
Q

what are the sections in a business plan and where does the info come from?

A
  • market information (size, growth, competitors, market share)
  • marketing mix
  • operational plan (location, methods of production, staffing, logistics)
  • financial forecasts (cash flow forecast, break-even)
  • aims and strategies
70
Q

what is the opening and closing balance is a cash flow forecast?

A

the closing balance is the opening balance plus the net cash flow, the closing balance shows the overall state of the bank account at the end of the month

The opening balance is how much money a business has in the bank at the start of the time period

71
Q

what is the purpose of sales forecasts?

A

1) avoid cash flow problems- accurately forecasting the sales can help a business to manage their production, staff and financing, avoid unforeseen cash flow problems
2) start promotional activity- if they are forecasted to have low sales then they may decide to try and increase sales through promotional activity if they are not in the decline phase of the product lifecycle
3) production capacity- use their sales forecast to decide whether to increase or decrease production, plan for changes in the industry, see if they have enough production capacity to meet demand (may need to buy or rent new premises), run more efficiently by selling excess inventory
4) frees up management time- by having a well-constructed sales forecast they can spend more time developing their business rather than responding to developments in sales, focus on other sectors of the business, increase customer service and therefore profits

72
Q

what are the limitations of a cash flow forecast?

A
  • it is only a forecast, they are only as good as the raw data put in, start ups may not have sufficient data to make accurate predictions
  • entrepreneurs need to be optimistic by nature and so they may overestimate sales and underestimate operational difficulties (and therefore cash outflows)
  • doesnt take into consideration the unexpected external factors, likely to be wrong
  • may be outdated
73
Q

what is the difference between three period moving averages and four quarter moving averages?

A

three period moving averages allows a business to use three sets of data to calculate an average and reduces the impact of a singly anomaly on future predictions

four quarter moving averages (three month periods) are used if the key factor affecting sales is seasonal, this eliminates seasonal variations

74
Q

what is a trend?

A

the general path a series of values follows over time, disregarding variations or random fluctuations

75
Q

what is integration?

A

when two businesses join together (describes the direction through which this happens)

76
Q

what is a cash flow forecast and how is it structured?

A
  • A financial document that shows the projected inflow and outflow of cash into/out of a business

1) Opening balance
2) Cash inflow
3) Cash outflow
4) Net cash flow (inflows - outflows)
5) Closing balance

Edexcel A Level- Business (12 decks)

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