REVISION Flashcards
What is PED?
Price Elasticity of Demand: How responsive demand is to price changes
PED Calculation?
PED = % change in quantity of demand divided by % change in the price
How do you interpret PED result?
1 = Unitary Elasticity - change price -> proportional change in demand
Less than 1 = Inelastic
More than 1 = Elastic
What are factors influencing PED?
More Inelastic if:
- heavily branded so less sensitive to price change
- only a few substitutes
- low proportion of customer income spent on item
- luxury goods
- necessities
When can you use PED in business?
To consider business impacts of a price change in terms of quantity demanded (output, inventory, staff), revenue and profit
What are the indicators of Economic Growth?
GDP - Gross Domestic Product (per capita) - measure of size of economy and sum of everything it produces
Literacy
Health
HDI - life expectancy, education, income
What is GDP?
Gross Domestic Product is measure of the size of an economy and total value of good produced and service provided in a country in a year
What is Protectionism?
Attempts by a country to impose restrictions on trade of goods / services - aim to help domestic market against Multi-National Companies (MNCs)
What are the reasons for Protectionism?
- Protect domestic markets from competition especially new industries and emerging economies
- Protect jobs
- Income for government help increase GDP
What are reasons against Protectionism?
- Tariffs on imported goods may decrease demand as will increase prices for consumers - impacting individual businesses
- Could be ineffective if aimed at niche markets
- Market distortion
- Extra costs for exporters
- Adverse impact on poverty
- Retaliation and Trade Wars (effect on growth)
- Reduction in Market Access for Producers
What is a Business Plan?
A document that sets out the strengths, aims and strategies of a business
What are the positives of Business and Financial Planning?
- test feasibility of a business idea
- help secure funding eg. loan
- Attracts investors by showing direction
- Provides structure
- Gives a Marketing Roadmap/ measure success
What are the contents of a Business Plan?
overview description of product/service strategy marketing management financial info evaluation
What are the downsides of a Business Plan?
- Can be inaccurate / only prediction
- time consuming Analysis
- can be interpreted wrong
- Might restrict freedom company used to have
- pay specialists/ costly
What is a Cash Flow forecast
Forecast of the inflows and outflows in a business over a period of time
What are the main components of Cash Flow Forecast?
- Cash Inflow- coming in
- Cash Outflow- coming out
- Opening Balance- start of month
- Closing Balance- end of month
How can you improve Cash Flow?
- Increase pricing
- Chase debtors
- Expand Product Portfolio
- Change suppliers
- Lease Equipment
- Trade Credit
What are limitations of Cash Flow Forecast?
- Can be impacted by external factors (uncertainty)
- sales revenue might be optimistic
- based on retrospective data
What is the purpose of sales forecasting?
- Set sales targets
- aids decision making eg.marketing/ops/HR/finance
- motivate staff
- Measure Success
- show when SOF is required
Factors affecting sales forecasts?
- Consumer Trends - Demand, fashion, tastes
- Economic Variables - Exchange rates, interest rates, taxation
- Competition changes
Sales Forecasting techniques?
- Moving Average - Calculates overall trend in a data set
- Extrapolation - Assumes that the patterns in the past with continue in the future ‘continuing the line’
- Correlation - relationships between variables
Difficulties of sales forecasting?
- may be optimistic
- damaging if inaccurate eg.stock levels
- Using the right method
- retrospective data based
What is Profit?
revenue - costs
How do you calculate Gross Profit?
Revenue- cost of Sales
How do you calculate Operating Profit?
Gross Profit - Fixed Overheads
How do you calculate Profit for the Year (Net Profit)?
Operating Profit- Finance and Tax
What is Statement of Comprehensive Income / Profit & Loss?
Sets out Revenue for the year with cost breakdown
Financial document that shows sales revenue and expenses of a business to see if made a profit or loss
What are the measures of Profitability?
- Gross Profit Margin (GPM) - (Gross Profit / Revenue) x 100
- Operating Profit Margin (OPM) - (Op Profit / Revenue) x 100
- Net Profit Margin (NPM) - (Net Profit/ Revenue) x 100
How to improve Profitability?
- Increase Revenue - Promotions / increase Price / increase distribution
- Decrease costs - staff efficiency / change suppliers / reduce waste
Distinction between Profit and Cash?
- Not all cash into a business is profit i.e. have to pay costs from the cash that comes in
- When all costs deducted from all revenue - amount left is PROFIT (overall indicator of success)
Cash is needed to operate the business on a daily basis(flows throughout business)
- Company can be profitable but lack adequate cash
Calculation for percentage change?
(New - Old / Old) x 100
What is Stock Control?
Raw Materials, Work in Progress and Finished Goods held by a firm in order to meet customer demand.
Interpret a Stock Control Diagram?
- Shows how much stock you have at point in time and how you keep track of it
- Maximum Stock that is held
- Point need to re-order
- Minimum Stock required
- Buffer Stock
What is Buffer Stock?
Contingency / Reserve stock in case of unexpected demand or issues with supply.
Impact of poor Stock Control?
Too much:
- Tied up capital impacting cash flow - Opportunity cost i.e. could have spent on something else.
- Storage Costs and Increased Waste
Too Little:
- Shortfall vs Demand impacting sales / turnover
- Decreased Productivity
- Reputation damage
What is Just In Time Stock Management?
attempt to operate with no buffer stock
Benefits of JIT stock managemnt?
- Minimises Waste/ lean production (competitive advantage)
- money isn’t stuck in stock/ helps with CF
How do you minimise Waste?
Lean Production:
- Producing more for less
- Assuring quality
- Making sure all staff are productive
Methods of Production?
- Job- one off products
- Batch - similar items produced together
- Flow / Mass - continuous movement of products
- Cell -each team(cell) is responsible for specific part
Job Production benefits?
Meet specific requirements from customer - increased:
- Quality
- Flexibility
- Satisfaction
can charge higher price
Job Production challenges?
- Unit cost is high
- Labour Intensive
- Specialised staff required/ specialised equipment
- Investment in Training
Batch Production benefits?
- Reduced unit costs
- Increased output / productivity
- Fulfil flexible orders
Batch Production challenges?
- Lose time when switch batches
- Low motivation for staff - low skilled / repetitive
Flow / Mass Production benefits?
- Continual movement of products through production process
- Economies of Scale - lower unit cost
- Less staff training
- Capital intensive (more machinery)
Flow / Mass Production challenges?
- Inflexible to make changes
- Little differentiation
- Usually cheap products
Cell Production benefits?
- Team working and ensures worker commitment as each cell(team) is responsible for specific part of production
- Increased quality as staff become specialised
- Better motivation for staff
- Better communication
- increased job enrichment
Cell Production challenges?
- Costly materials
- Labour intensive
- More training required
What is Productivity?
how many outputs can be produced from a given number of inputs over period of time
total output/ total input
Output / No of Workers - Labour Productivity
Output / Time
Output / Capital Invested
Factors affecting Productivity?
- Business Environment
- Labour - training, rewards, incentives -> motivation
- More/ better machinery
- Lean Production - less waste
- Good stock management
- number of employees
Relationship between Productivity and Competitiveness?
- Low production impacts sales and market share
- Increased cost lead to PRICE increase(impact demand)
- Customers might choose cheaper alternative
What is Efficiency?
Production at lowest unit cost
Average cost per unit = total product cost / total output in a period
Improve Efficiency
- More / Better machinery
- Motivating and Training workforce
Distinction between Labour and Capital Intensive production?
Capital Intensive:
- Requires more equipment and larger financial investment
- Mostly automated and mass production
Labour Intensive:
- Requires higher labour input to carry out production vs the financial investment required
- Lower output
- Lower costs - training staff mainly
- Can increase productivity without major investment
What is Business Ethics?
Implementing appropriate policies and principles in decision making about controversial subjects. Acting morally
Stakeholder Conflict?
Needs of a group conflict with the needs of another
Behaving Ethically - benefits?
- Use in Marketing
- Positive brand image / PR
- Employee motivation
- can charge higher price
Behaving Ethically - negatives?
- Expensive
- Make some products not viable
- Customers see through fake ethics - brand damage
- Financial gain not guarenteed- Some customers don’t care
Ethics - Pay and Working Conditions?
- Safe environment
- Ensure not under age
- Worker exploitation
Ethics - Environmental?
- Manage Waste properly
- Ethical sourcing
- Minimise pollution / emissions
Ethics - Supply Chain Management?
- Check full supply chain
- Suppliers labour practices - no exploitation of child labour
- Sustainable raw materials
Ethics - Marketing?
- No false advertising
- Avoid promoting unhealthy products to children
Business Ethics - Profit vs Ethics?
Trade off between making a profit an trading in an ethical way
Business Ethics - Pay and Rewards?
- Gender pay gap
- CEO vs lower level employees
- Sick and Maternity Pay
- Tax brackets
Should CEO be paid more?
- In demand - high paid
- High Business experience
- Motivator
- Strategic Direction setter
- Paid for responsibility / risk if goes wrong
- Unethical?
- Impact on Profit?
What is Corporate and Social Responsibility?
Business pays attention to needs of all stakeholders not just shareholders
Corporate social responsibility Positives?
- Staff recruitment / retention
- Attracts customers - PR
- Reduce costs / waste
- Improve access to capital
Corporate social responsibility Negatives?
- Can increase costs
- high expectations of business
- Can increase price and reduce competitiveness
- have to consider ethics of the supply chain also
what is Corporate Culture?
Norms and Values of a business - Identity of business
how do you create corporate culture?
- Business Environment
- Type of employees and working environment
- Management Style
- Training
- PR
- Hero / Founders
- uniform
Strong Culture?
Values an beliefs widely shared and significantly influences peoples behaviour
- Good internal communication
- Clear mission and goals
- Traditional
- Loyal staff
- Not easily copied
Weak Culture?
Values and beliefs either don’t exist or not widely shared so don’t significantly influence people’s behaviours
- Demotivated workforce
- Business failures
- Inconsistent behaviours
- Poor management and bureaucratic
Power Culture?
One person has control over everything that goes on within the organisation
Task Culture?
Focus on specific tasks and projects
Role Culture?
Every employee is delegated roles and responsibilities according to specialisation, experience etc to get the best out of them
Person Culture?
Focus for each member is on the individual where there is no collective identity or goal
Difficulties in Changing Culture?
- Convincing Staff
- Staff training
- Fear of reaction from customers
- Expensive
what is sales forecasting
technique used to predict future sales for a business
what is a moving average
used to identify trends by flattering fluctuations in data
how do you calculate a 4 period moving average
1/2 month 1 + month 2 + month 3 + month 4+ 1/2 month 5 /4
how do you calculate a 3 period moving average
add first 3 months /3
what is extrapolation
‘continuing the line’- continuing the trend from historical data
what is correlation
looks at relation ship between 2 variables
what are advantages of moving averages?
- easy to interpret
- good tool for static markets (not dynamic)
what are advantages of extrapolation?
- simplistic to do
- doesn’t require much skill
- easy to interpret as visual
what are advantages of correlation?
can identify trends
what are the disadvantages of moving average?
- not suitable for dynamic markets
- retrospective
- doesn’t account for external factors
- discards anomalies
what are the disadvantages of extrapolation?
- very retrospective
- no qualitative data
- can be drawn differently by each person
what are the disadvantages of correlation?
- only considering one factor against sales
- hard to choose IV
what is a tariff?
a tariff is a tax placed on imports into a country
what is a quota?
a quota is a physical limit on amount of goods allowed to be imported into a country
what is a subsidy?
a subsidy is financial support given by government to domestic producers
what is dumping?
when foreign producers sell goods below cost price in domestic market
what is import licensing?
government grants importers the right to import goods
what is the design mix?
function - does it do what it says?
economic manufacture- costs involved
aesthetics -how it looks and feels
