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Business > Precise Paper 2 > Flashcards

Precise Paper 2 Flashcards

1
Q

What is Sales Forecasting?

A

Using a range of techniques and information to predict future sales volumes and values.

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2
Q

What are the benefits of sales forecasting?

A
  • Gives the business a clear idea of what cash inflows can be, so that finances can be managed
  • Allows business to plan orders (some suppliers need notice)
  • Enables the business to know if it has the correct no. of staff for the predicted staff
  • Allows the business to have the correct capacity for the projected orders
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3
Q

What factors may affect sales forecasting?

A
  • Customer trends
  • Economic Variables
  • Actions of competitors
  • Seasonal variations (eg xmas)
  • Fashion
  • Long-term Trends
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4
Q

What are the difficulties of sales forecasting?

A
  • Volatile customer tastes and preferences
  • Can be subjective and can reply on the experience of the manager within the business
  • Volatile markets
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5
Q

What is sales volume?

A

The quantity of output sold in a set time period

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6
Q

What is the formula for Break-even?

A

Fixed Cost / (SP - VC)

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7
Q

What is the Break-even point?

A

Where total revenue = total cost

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8
Q

What is the Margin of Safety?

A

Its the difference between the break-even point and the current level of output.

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9
Q

What are the limitations of the Break-even point?

A
  • Assumes all stock is sold
  • Costs are rarely constant
  • Inefficient when multiple products are involved
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10
Q

What are the benefits of the Break-even point?

A
  • Simple and easy to use
  • Can help with decision making
  • Can be used to analyse the potential impact of changing prices and costs
  • Can be used to get bank loans
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11
Q

What is a budget?

A

A plan of income and expenditure over a period of time

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12
Q

What is Variance Analysis?

A

The difference between the planned and actual budget figures

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13
Q

What are the difficulties of budgeting?

A
  • Creating figures for the budget
  • Motivation ( unrealistic budgets)
  • New government decisions can impact the budget
  • Reliant of accurate data
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14
Q

What is the purpose of budgeting?

A

Motivation - Provides workers with targets
Planning - Forces management to plan for the future
Efficiency - helps control spending

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15
Q

What is zero based budgeting and the advantages and disadvantages?

A

There is no historical data therefore budgets needs to be justified

+Money is spent efficiently on sensible things and not wasted

-Lack of flexibility…Department may require finance immediately (eg a demand spike) which the justifying process may take too long for

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16
Q

What is historical budgeting and the advantages and disadvantages?

A

Using historical data to create a budget and adapting it for the future

+Realistic as they are based on the past performance

-Assumes all factors ar constant

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17
Q

What is the formula for contribution per unit?

A

Selling price - Variable price per unit

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18
Q

What is the formula for total contribution?

A

Total Revenue - Total Variable Cost

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19
Q

What are the uses of break even analysis?

A
  • Decide whether a business idea is profitable and viable
  • Identify the level of output and sales necessary to generate a profit…help scale the business
  • Assess changes in the level of production
  • Assess the effects of costing and pricing decisions
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20
Q

What is Expenditure (Cost) Budget?

A

The agreed amount spent of a business over a period of time

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21
Q

What is sales/ Income Budget?

A

The agreed income of a business over a period of time

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22
Q

What is Profit Budget?

A

Income budget - expenditure budget

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23
Q

What is adverse variance?

A

Where the actual budget is worse than the planned, leading to lower profits or higher costs

This causes diseconomies of scale and increase in competition

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24
Q

What is the formula for Gross Profit?

A

Revenue - Cost of sales

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25
Q

What is the formula for Operating Profit?

A

Gross profit - Operating expenses

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26
Q

What is the formula for Net Profit (profit for the year)?

A

Operating profit - interest (and exceptional costs)

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27
Q

What is the formula for Gross/ operating/ net profit margin?

A

(Gross Profit / Revenue) * 100

For the others just replace gross profit with the others

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28
Q

What’s the difference between cash and profit?

A

Cash - Money that you have currently available

Profit - Money leftover after all expenses are paid

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29
Q

How might a business lower it’s costs?

A
  • Buy cheaper resources

- Using existing resources more efficiently

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30
Q

How can you improve profitability?

A
  • Raise prices

- Lower costs

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31
Q

What is a statement of comprehensive income?

A

A financial document showing a company’s income and expenses over a set time period. Used to calculate gross, operating and net profit.

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32
Q

What is the formula for current ratio?

A

Current assets/ Current liabilities

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33
Q

What does the current ratio mean?

A

Tells us how effectively a business is using its working capital

A ratio between 1.5 and 2 is good

Ratio < 1 - cash problems
Ratio > 2 - too much working capital

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34
Q

What does the Acid test ratio mean?

A

How quickly a business can pay off its liabilities.

A high acid test indicates the company can meet immediate payments

Acid test < 1 - Not good

Acid test >= 1 is good

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35
Q

What is the acid test ratio formula?

A

(Current assets - Inventories) / Current liabilities

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36
Q

What is working capital?

A

The amount of money required to pay for the day to day trading of the business

E.g. a business needs working capital to pay expenses such as wages, utilities, raw materials

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37
Q

How can you improve liquidity?

A

Use of overdraft facilities - good to sort short term
Negotiate additional short term or long term loans
Reduce personal drawings from the business
Only make essential purchases - eg zero based budgeting
Trade credit -
Sell off stock -
Introduce fresh capital - eg shareholders
Encourage cash sales - encouraging customers to purchase goods in cash and not in credit
Sale and leaseback - selling a fixed asset and then leasing it back afterwards

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38
Q

Why is cash important?

A

Without cash the business wouldn’t exist. They would fail to pay off their loans and any bills they have.

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39
Q

What is the formula for working capital?

A

Current assets - Current liabilities

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40
Q

What does it mean if a business have too much working capital?

A

They don’t use the extra money to grow or improve the business

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41
Q

What are some internal causes of business failure?

A 
Lack of planning - 
Cash flow problems - running out of cash
Lack of funds
Relying on a narrow customer base 
Marketing problems
Failure to improve
Lack of business skills
Poor leadership
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42
Q

What are some external causes of business failure?

A 
Competition
Changes in legislation (changes in laws)
Changes in customer tastes 
Economic conditions
Changes in market prices
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43
Q

What are some examples of cash flow problems?

A 
Overtrading
Investing too much in fixed assets 
Allowing too much credit
Over-borrowing 
Seasonal factors
Unforeseen expenditure (I.e. equipment breakdowns)
External factors
Poor financial management
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44
Q

What is the statement of financial position (balance sheet)?

A

A summary of a businesses assets, liabilities and capital.

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45
Q

What are some financial and non financial factors of business failure?

A

Financial
-Bankrupt because of a shortage of cash

Non-Financial

  • Lack of planning
  • Lack of skills
  • Cant compete effectively
  • Cant meet customers needs
  • Reluctant to change
  • Adverse economic conditions
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46
Q

What is liquidity?

A

Liquidity refers to the day to day cash flow

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47
Q

What is overtrading?

A

When a business does not have enough cash to support its production and sales, usually because its growing too fast

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48
Q

What is administration?

A

When a failing business appoints a specialist to rescue the business or wind it up

49
Q

What can we find out from a statement of financial position?

A
  • The value of a business
  • The current assets a business holds
  • Short-term liabilities the business will need to pay within a year
  • The liquidity of a business
  • The long term debts of a business
  • How a business has been financed
50
Q

What is production?

A

When resources are changed into products

51
Q

What is job production with an example?

A

When a business produces a one off bespoke item for a customer

E.g. weddings

52
Q

What are the advantages and disadvantages of job production?

A

+High level of quality
+Meets customers requirements
+Can charge higher prices

  • Higher costs
  • Lower levels of output
  • Skilled labour is expensive
53
Q

What is flow production with examples?

A

Producing identical products on a mass scale

E.g. tooth brushes, toothpaste

54
Q

What are the advantages and disadvantages of flow production?

A

+Very low unit cost
+Out put can be produced quickly

  • Huge start up costs
  • low motivation for workers
55
Q

What is cell production with an example?

A

Multiple groups of people work on a single project

E.g.

56
Q

What are the advantages and disadvantages of cell production?

A

+Workers become multi-skilled

-Potential rivalry between different cells. Conflict may arise if one cell is left to wait

57
Q

What is batch production with examples?

A

Producing a group of identical products

E.g. bread, furniture

58
Q

What are the advantages and disadvantages of batch production?

A

+can be changed to meet of the demand
+can be mechanised for certain objects
+Employees can become really good at their jobs

  • Higher unit costs
  • Mistakes can be catastrophic
  • Workers may be demotivated with repetitive tasks
59
Q

What is productivity?

A

The relationship between input and outputs in the economy.

60
Q

What factors affect productivity?

A 
Education and training 
Motivation of workers
Labour flexibility
Capital productivity
Investments in new technology
61
Q

What is the formula for labour productivity?

A

Output/ No. of employees

62
Q

What is the formula for capital productivity?

A

Output/ capital Employed

63
Q

What is efficiency?

A

Making the best use of all a business’s recourses

64
Q

What are some factors that may increase efficiency within a business?

A 
Outsourcing
Relocating
Downsizing 
Delayering 
Investing in new technology 
Lean production 
Kaizen 
JIT Production
65
Q

What is the difference between labour and capital intensive production?

A

Labour Intensive - Intensive production relies mainly on labour
Eg ready meals, hairdressing

Capital intensive - Intensive production relies mainly on capital
Eg airports, car manufacturing

66
Q

What is labour intensive?

A

A process that requires a large amount of labour to produce its goods or services.

67
Q

What is capital intensive production?

A

A process that require large amounts of investment to produce a good or service, therefore, having a high percentage of fixed assets, such as property, plant, and equipment (PP&E).

68
Q

What is capital utilisation?

A

The use that a business makes of its resources

69
Q

What is the formula for capacity utilisation?

A

(Current output / maximum Possible Output) * 100

70
Q

What are the advantages and disadvantages of under-utilisation?

A

+Allows the business to cope with sudden increase in demand
+Workers won’t be over worked

  • Fixed costs can be high
  • Business won’t be making the most of its resources
  • Workers may feel insecure in their jobs
71
Q

What are the advantages and disadvantages of over-utilisation?

A

+Lower average costs
+Staff may feel they have a secure job
+Potential opportunities for overtime

  • Over worked workforce
  • Unable to respond to increased demand
  • May not have free time (FST)
72
Q

What are the ways of improving capacity utilisation?

A

Increased sales - Promote to encourage sales
Increased usage - Eg train companies are busy during peak hours and less busy during off peak hours
Outsourcing -
Redeployment- employees getting new job roles in the same company

73
Q

What is the link between productivity and competitiveness?

A

If your firm is more productive it can help reduce unit costs. This could lead to competitive pricing

74
Q

What is mothballing?

A

Leaving machines, equipment or building space unused but maintained which can be brought back into use if necessary

75
Q

What is inflation?

A

When the general price of things increase overtime

76
Q

What is exchange rates?

A

The price of one currency for another

77
Q

What is interest rates?

A

The cost of borrowing or the reward for saving money

78
Q

How does changes of inflation effect businesses?

A

Increased costs - changing prices costs money
Uncertainty - fluctuations
Borrowing and lending - increased interest
Consumer reactions - save more
International competitiveness - overseas companies may not want to pay higher prices and home country people many shop overseas

79
Q

How does changes of exchange rates effect businesses?

A

Impacts businesses costs if the are buying from overseas

Could help selling goods in overseas

80
Q

How does changes in interest effect businesses?

A

Makes borrowing expensive if ingress increases, therefore, less likely to borrow and more likely to save

Consumers and more likely to save if ingress increases

81
Q

How does changes of taxation and government spending effect businesses?

A

Increased tax may make customers save their money

When the government spends money road works can improve and education when could help businesses transport

82
Q

How does the business cycle effect business?

A

Output - Increase output during a boom, decreased output during recession
Profit - Increased profits during a boom
Business confidence - high confidence during the boom and recovery stage
Employment - employees more during a boom
Business start ups/closures - more business start ups in a boom and closures during a recession

83
Q

What is deflation?

A

When the general price of things decrease over time

84
Q

What are the 4 stages of the business cycle in order and what do they mean?

A

Boom
Downturn
Recession
Recovery/ Upswing

85
Q

What is the effects of economic uncertainty on the business environment?

A

Decision making - unpredictable behaviour
Unexpected events -
Business confidence -

86
Q

How does customer protection affect businesses?

A

Increases costs - Changing products to ensure safety
Quality control - Customers must get what’s expected. Eg drink companies not consistently filling up the bottles to the amount stated on the bottle
Dealing with customers complaints - Businesses have customer service departments to counter customers complaints
Changes in business practice - Ensure businesses are treating their customers fairly

87
Q

How does employee legislations affect businesses?

A

Negative:
Compliance costs - Background checks and right to work checks, insurance policies, provide financial details to the HMRC
Higher labour costs - Businesses have to meet national minimum wages
Changing working practices - Having recruitment procedures that help prevent discrimination
Loss of flexibility - Employees may ask for flexible working which may disrupt the businesses work flow
Penalties - Businesses who fail to comply may face penalties which could damage their reputation

Positive:

  • Businesses are unable to exploit customers by lowering their wages
  • Improves employee motivation which could improve motivation
  • Improve businesses culture which could improve their image
88
Q

How does environmental legislations affect businesses?

A

Marketing - By businesses adapting environmental legislation it could help with marking to encourage more people to purchase environmentally friendly products. However this may not be the case for oil companies
Finance - The upfront costs may be expensive. It can help a business reduce their costs which could help gain a competitive advantage.
Operations Management - Could lead to businesses changing their materials to become more sustainable
Human Resources - Staff may need to be retrained or higher skilled workers may be required.

Effects businesses most who are high polluters.

89
Q

How does competition policy affect businesses?

A

Positive:
Designed to promote competition which firms can benefit from. Eg lower barriers of entries may make it easier for new businesses to get into the market
May help benefit the economy as it encourages innovation and efficiency. This could encourage businesses to develop new products, reduce costs and make progresses into overseas markets. This could help generate more revenue and profit from exports. This could also raise income and employment.

Negative:
Can slowdown the process of mergers and takeovers which can cost the businesses a lot of money.

90
Q

How does health and safety legislations affect businesses?

A

Costs:
Training costs, health and safety officer,

Penalties:
Failure to comply could lead to accidences and fines

Benefits:
Good health and safety record could lead to a positive reputation, which could make it easier to recruit.
Makes employees feel protected.
Increased productivity as employees aren’t worried to get any injuries which helps reduce absences.

91
Q

What are the 4 government objectives?

A

Low and stable inflation
Full employment (low unemployment)
Keep borrowing down (balance of payments equilibrium)
Help the economy grow (increase output, spending and investment)

92
Q

What is the economic growth (GDP)?**

A

The total market value of all final goods and services produced within a country in a given period

93
Q

What is the impact of legislations on businesses?

A

Can increase costs, limit competitiveness, damage business reputation

Can create opportunities for some businesses and encourage innovation.

94
Q

What is SWOT analysis and what does it stand for?

A

A tool used to identify a businesses current position and the external factors that may affect it

Strengths, weaknesses, opportunities and threats

95
Q

What is PESTLE Analysis and what does it stand for?

A

A tool used to look at external factors and their potential impact on the business

Political, economy, social, technology, legal, environment

96
Q

What are Porter’s Five Forces and what is it used for?

A

-It’s a tool used to analyse the competitiveness of a business environment.

Rivalry within the market, Bargaining power of suppliers, Bargaining power of buyers, Threats of substitutes, Barriers to entry

97
Q

What might determine rivalry within a market?

A

Low barrier to enter, easy substitutes for customers, little diversification of products

98
Q

What is SWOT Analysis used for?

A

Helps develop corporate strategy

decision making with new products

new marketing strategies

whether or not to outsource specific business tasks

99
Q

What is it meant by an oligopoly and monopoly?

A

Oligopoly -A market dominated by a few large markets

Monopoly (Uncompetitive) -A market dominated by a single business

100
Q

What three factors do businesses need to consider when operating in a dynamic/ competitive market?

A

New entrants - stronger competition
New products - businesses may be forced to innovate and make changes
Consolidation (businesses leaving the market) - some businesses get bigger

101
Q

What are the advantages and disadvantages of SWOT analysis?

A

+Helps strategic decision
+Low cost simple method
+Could be combined with other decision making models like PESTLE

  • Subjective
  • Doesn’t offer clear solutions
102
Q

Rivalry within the market (What makes competition fierce? Key problems? Business options?)

A

Competition is Fierce if:

  • Easy entry to market
  • Easy for customers to switch
  • Little differential of products

Key problems:
-Profit margins are squeezed

Options for businesses to consider;

  • Reduce costs to help reduce price
  • Differentiate
  • Takeover/ merge
103
Q

Bargaining power of suppliers (What makes suppliers powerful? Key problems? Business options?)

A

Supplier Power is High if:

  • Few suppliers
  • Supplier product is essential for production

Key problems
-High production costs and unfavourable terms for the business

Options for Businesses to Consider

  • Build strong relationships with suppliers
  • Agree long term contracts
  • Backwards vertical integration
104
Q

Bargaining power of buyers (What makes competition fierce? Key problems? Business options?)

A

Buyer Power is High if:

  • There is little difference between products offered by competitors
  • Product are price sensitive
  • Customers buy in large quantities
  • Easy for customers to switch between competitors

Key problems
-Prices are forced to be low…pressure on cash flow

Options for Businesses to Consider:

  • Develop a USP
  • Lower prices to attracts customers
  • Forward integration if buyer is a business
105
Q

Threats of substitutes (What makes competition fierce? Key problems? Business options?)

A

Threats of substitues is high if:

  • Alternative products exists
  • Alternative prices fall
  • Customers can easily switch to substitues

Key Problems:

  • Buyers have high bargaining power
  • Competiton exists outside of the market

Options for Businesses to consider:

  • Develop a USP
  • Lower prices to attracts customers
  • Forward integration if buyer is a business
106
Q

Barriers to entry (What makes competition fierce? Key problems? Business options?)

A

Barriers Exist when:

  • Capital investment to enter the market is high
  • Customers are brand loyalty

Key Problems:
-If few barriers exist it is easy for new competitors to enter the market and increase competitive rivalry

Options for a businesses to Consider:

  • Innovation
  • Build strong relationship with customers
  • Growth to gain EOS
107
Q

What is extrapolation?

A

Uses historical data to predict ahead

108
Q

How to calculate a moving average?

A

Add the last ‘n’ number of months then divide it by ‘n’. To calculate the next period move across one and repeat.

109
Q

Why might a business want to calculate a seasonal variation when predicting future sales figures?

A

-To provide more accurate predictions

110
Q

What is time series data?

A

A tool used to help a business work out trends to predict the future

111
Q

What are the 4 main variables in time series data?

A
  • Trends
  • Seasonal fluctuations (Eg Xmas)
  • Cyclical fluctuations (Eg repeating patterns)
  • Random fluctuation
112
Q

What are the limitations of quantitative sales forecasting?

A
  • Relatively short term
  • Dependant on the quality of the market research
  • Lacks external factors
  • Less valuable in volatile markets
  • Advanced computer software can be costly
  • Must be revised frequently to take account of new data and external factors
113
Q

What is the gearing ratio?

A

It tell you what proportion the business value is financed by long term debt

114
Q

What is the gearing ratio formula and what does the output tell us?

A

(non-current liabilities/ Capital Employed) x 100

Gearing > 50%
-vulnerable to increases to interest rates

Gearing < 50%

  • May be able to borrow more
  • Business isn’t taking enough risk
115
Q

What is the Return on Capital Employed (ROCE)?

A

It tells us the Return on capital employed. Relates profit to the size of the business

116
Q

What is the Return on Capital Employed (ROCE) formula and what does the result mean?

A

(Operating Profit/ Capital employed) x 100

  • The higher the percentage the better
  • Identify trends
  • Low quality profit (eg selling random assets or benefiting from a trend) might boost ROCE and be miss leading
  • Needs to compared to interest rates (would saving in the back be more profitable than investing in a business)
117
Q

What are the limitations of ratio analysis?

A

The basis for comparison - less reliable over times when comparing

The quality of financial accounts - eg when inflation is high are asset values inflated accordingly

Limitations of the balance sheet

Qualitative information is ignored - eg change in leader ship

Other differences - eg different accounting methods or accounting methods can be misleading for investors

Window dressing - Making the ratio analysis look better than it is

118
Q

What is the formula for capital employed?

A

TA - TL

Net Assets

119
Q

Why are shareholders interested in the statement of financial position?

A
  • Shareholders may see how their investment has been spent
  • Suppliers and creditors will be interested to see whether the business will be able to pay its debts
  • Managers may use it to analyse liquidity and asses the level of risk associated with debt

Business (30 decks)

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