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Business A Level > Seneca Paper 2 > Flashcards

Seneca Paper 2 Flashcards

1
Q

Quantitative Sales Forecasting Definition

A

Quantitative sales forecasting helps businesses predict future sales based on historical data.

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2
Q

Time-series analysis

A

Time-series analysis refers to the use of past data and trends to forecast and predict future trends.
Time-series analysis allows businesses to use moving average calculations to forecast future sales based on historical data.

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3
Q

Three vs four period moving averages

A

Three period moving averages allow a business to use three sets of (usually annual) data to calculate an average for future predictions.
Three period moving averages reduce the impact of a single anomaly on future predictions as an average from three years is calculated.
Four quarter moving averages allow a business to use data from four quarters (three month periods) to calculate an average sales figure.
Four quarter moving averages increase calculation accuracy because they minimise the impact of unusual or seasonal sales figures.

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4
Q

Correlations

A

Correlations 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. Extrapolation involves using past data trends to predict future performance.

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5
Q

Positive correlation

A

Positive correlation occurs when an increase in one variable results in an increase in the other variable.
For example, if increasing advertising spending results in an increase in sales, there is a positive correlation and a business is likely to raise its advertising budget.

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6
Q

Disadvantages of quantitative techniques

A

Changes in the external environment (political, environmental, social, technological, legal and economic) can impact the business’ future performance.
This is not reflected in the past performance data which is used to extrapolate.
Changes in the internal environment (culture, leadership, financial performance) can impact the business’ future performance.
Quantitative sales forecasting can be time-consuming and complex.

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7
Q

Contribution per unit

A

Contribution per unit is the amount of revenue which contributes to covering a business’ fixed costs after the variable cost per unit has been taken away from revenue per unit. Contribution per unit is calculated as the selling price per item – variable cost per unit.

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8
Q

Total contribution

A

Total contribution is the amount of revenue from the sale of all products which contributes to fixed costs once total variable costs have been taken away. Total contribution is calculated as total revenue – total variable costs.
Total contribution per unit is calculated as total revenue per unit - total variable cost per unit

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9
Q

Budgets

A

Businesses can use budgets to forecast revenue, expenditure, and profit during a period.

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10
Q

Revenue budgets

A

A revenue budget forecasts expected revenues for a business during a period. If actual revenue is higher than the forecast, we call this ‘favourable variance’. If revenue is less than expected, we call this ‘adverse variance’.

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11
Q

Expenditure budgets

A

An expenditure budget forecasts expected costs for a business during a period. A higher actual cost than forecast is an adverse variance, and a lower actual cost than forecast is a favourable variance.

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12
Q

Profit budgets

A

Revenue and expenditure budgets can be used to create profit budgets. If overall profit is higher than forecast, there is a favourable variance. If overall profit is lower than forecast, there is an adverse variance.

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13
Q

Advantages of budgeting

A

Budgets help businesses achieve targets and objectives.
Budgets help managers and leaders focus on cost control which can increase profit.
Budgets can be used to motivate staff by providing spending authority to individual departments and teams.
For example, many hospitals assign budgets to individual departments and this motivates department managers and staff within departments as they are given authority to place orders.

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14
Q

Profitability Analysis

A

Businesses can analyse their profitability using gross profit, operating profit, and profit for the year objectives.

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15
Q

What does gross profit indicate

A

a supermarket may use gross profit margin targets to compare performance across years. A decrease in gross profit margins may lead the supermarket to focus on reducing the supermarket’s cost of sales.

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16
Q

Operating profit

A

Operating profit targets involve the amount of profit remaining once direct costs (cost of sales) and indirect costs (expenses) have been paid by the business.

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17
Q

Improving Profit

A

Profit and profitability can be increased by reducing expenditure on fixed and variable costs.
Profit and profitability can be increased by increasing the selling price per item.

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18
Q

Challenges of improving profitability

A

Trying to reduce expenditure on fixed and variable costs can reduce quality which may reduce sales and therefore also reduce revenue.
Increasing the selling price can deter customers from purchasing products which can decrease sales volume and market share.

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19
Q

Importance of capacity

A

A business must understand its capacity to make sure that it does not commit to more orders than it can fulfil within a certain time period.

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20
Q

Importance of productivity to capacity utilisation

A

Increasing the output per employee, or productivity levels of staff (perhaps by investing in technology) can help a business to increase its total capacity.

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21
Q

Capacity utilisation

A

The proportion of total capacity being used by a business is known as its capacity utilisation.
Many businesses aim to increase their capacity utilisation as this will mean that fixed costs can be spread out over a greater number of units.

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22
Q

Outsourcing

A

If a business needs to increase its capacity at short notice to take advantage of an increase in demand, outsourcing can be used, although this has both advantages and disadvantages:
Outsourcing allows a business to increase its total capacity which may allow the business to meet increasing demand.
Outsourcing can lead to quality issues if outsourcers do not take quality as seriously as the business.

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23
Q

Three methods to increase capacity utilisation

A

Increasing staff productivity levels

Investing in technology

Increasing the number of staff

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24
Q

SWOT analysis for Uber- strengths

A

A famous brand name. Uber is perceived by most consumers as innovative.
110 million users in the world
69% market share in 2019 in the USA

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25
Q

Uber- weaknesses

A

There are lots of other taxi-ordering services like Lyft, MyTaxi, Kapten, Hailo etc.
There are lots of other food delivery services like Just Eat and Deliveroo.
Uber is not very profitable. As of 2020, Uber’s net profit margins were below 0%

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26
Q

Opportunities for Uber

A

Uber has already tried to expand internationally with its taxi service, so there is not a growth opportunity there. However:
It already offers taxis and food delivery in the USA, where it has a big market share. It could offer more services, like grocery delivery, or it could create an Uber banking app and give you food & taxi credits on there for using it. Kind of like Venmo or PayPal.
Uber also has a great app with lots of data on traffic and people’s movement. It could offer this to delivery or postal businesses like Royal Mail, Deutsche Post or UPS (in the USA).

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27
Q

Threats to Uber

A

Businesses that make cars, like Daimler (which owns Mercedes) have invested in taxi-rental apps.
Self-driving (autonomous) cars could mean that Uber’s network of drivers is no longer a big advantage in being able to offer consumers rides or food delivery quickly.

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28
Q

Internal strength example

A

An internal strength may include a trusted and reputable brand which is recognised by many.

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29
Q

Internal weakness example

A

An internal weakness may include cash flow concerns or lower profit margins than others within the industry.

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30
Q

External opportunity example

A

An external opportunity may include an expanding market nationally or internationally.

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31
Q

External threat example

A

An external threat may include a declining market or increased competition.

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32
Q

PESTLE- P

A

Political factors can affect how a business operates.
This includes:
Government regulation of industries.
The government’s competition policies (price controls or anti-trust allowing mergers and acquisitions).
The government’s fiscal policy (the relationship between government spending and tax policies).

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33
Q

PESTLE- E

A

Economic factors can affect how a business operates.
This includes:
Interest rates - a rise in interest rates increases the cost of borrowing (cost of debt). This disincentivises investment and consumption.
Consumer spending - in a time of recession, consumer confidence may be low, so there will be little consumer spending.
Economic growth - in a time of growth, consumer confidence will be high.
Exchange rates - if exchange rates are lower, a business’ exports can be internationally competitive.

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34
Q

PESTLE- S

A

Social factors can affect how a business operates.
This includes:
Urbanisation - people usually move to urban areas because there are more job opportunities.
Migration.
Social changes - e.g. the growth of e-commerce.
Demographic changes - e.g. the UK has an aging population.

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35
Q

PESTLE- T

A

Technological factors can affect how a business operates.
This includes:
Mobiles.
Big data - this helps businesses gain insights into consumer behaviour.
Disruptive technologies - some businesses will have to adapt to new technologies. E.g. how are businesses responding to Netflix.

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36
Q

PESTLE- L

A

Legal factors can affect how a business operates.
This includes:
The minimum wage - this may increase business costs.
Laws on working conditions.
Laws protecting the environment.

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37
Q

PESTLE- E

A

Environmental or ethical factors can affect how a business operates.
This includes:
The supply chain - ensuring the business does not exploit its workers.
Emissions - the business may need to focus on reducing its pollution.
Taxes - the business may be unethical by trying to lower how much tax it pays.

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38
Q

Impact of British ageing population example

A

Saga holidays, which targets over 50s with holiday packages, may need to increase its capacity as demand from over 50s increases for its holiday products.

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39
Q

Two ways in which the changing competitive environment can affect businesses:

A

Economic downturns might lead to lower demand resulting in a more competitive marketplace as businesses fight for every pound spent. Social factors such as trends and patterns in buying are forcing businesses to review distribution channels to accommodate how consumers want to purchase goods and services

40
Q

Identify the five elements of Porter’s Five Forces

A 
Threat of new entrants
    2
    Intensity of rivalry
      3
    Threat of substitutes
      4
  Bargaining power of buyers, bargaining power of suppliers
41
Q

Problems arising from growth:

A

Lack of control, Diseconomies of scale

Overtrading

42
Q

What’s the difference between economies of scale and diseconomies of scale?

A

Economies of scale lead to a reduction in the average unit cost as production output increases; however, diseconomies of scale result in higher average unit cost once a business goes beyond the optimal production level

43
Q

Good key word

A

core competency- Loss of strategic direction and loss of focus on core competency

44
Q

SCATTER GRAPH

A

A graph showing the performance of one variable against another independent variable on a variety of occasions; used to show whether a correlation exists between the variables

45
Q

Extrapolation

A

The use of trends established by historical data to make predictions about future values.

46
Q

3 Limitations of quantitative sales forecasting techniques:

A

1- Changes in consumer trends – e.g. dynamic markets, change is constant. 2- Changes in economic variables – e.g. exchange rates, interest rates, taxation
3- Actions of competitors

47
Q

SHORT-TERMISM AND LONG-TERMISM

A

Short-termism is where businesses and their managers are focused on quick financial reward, such as quarterly sales or profit figures, often at the expense of investment in key areas such as research and development; whereas long-termism is a more holistic approach to business strategy, incorporating key elements such as sustainability and CSR

48
Q

EVIDENCE-BASED DECISION MAKING AND SUBJECTIVE DECISION MAKING

A

Evidence-based decision making is an approach that involves gathering information and using a systematic and rational approach to reach a conclusion; whereas subjective decision making is an approach where personal opinions strongly influence the course of action chosen, e.g. using experience and instinct rather than numerical data collected from past events

49
Q

CORPORATE SOCIAL RESPONSIBILITY

A

A business assessing and taking responsibility for its effects on the environment and its impact on social welfare; a responsibility that stretches beyond the needs of its shareholders

50
Q

Elements of a statement of comprehensive income (profit and loss):

A

Revenue, cost of sales, gross profit

51
Q

Elements of a statement of financial position (balance sheet):

A

Non-current liabilities, current assets, net assets

52
Q

Why stakeholders are interested in statement of comprehensive income

A

Shareholders – how much profit is the business making? Employees – am I likely to receive a financial reward in form of a bonus/profit sharing?

53
Q

Why stakeholders are interested in STATEMENT OF FINANCIAL POSITION

A

Creditors – what is the liquidity position of the business? Can it pay its short- term debts? . Banks – what is the business’s cash position?

54
Q

Two benefits of using ratio analysis to make business decisions:

A

Identifies areas that need to be addressed to satisfy key stakeholders, Make more informed decisions based on actual data

55
Q

Two limitations of using ratio analysis to make business decisions:

A

Depends on data set – need to see trend over a period of time, not one year. Only using past data is not always a good indicator for future decisions

56
Q

LABOUR PRODUCTIVITY formula

A

Total output (per period of time) /Average number of employees (per period of time)

57
Q

Labour turnover

A

Number of staff leaving over time period / Average number of staff in post over time period x 100

58
Q

Labour retention

A

Number of staff staying over time period / Average number of staff in post over time period x 100

59
Q

Absenteeism

A

Number of staff absent during time period / Average number of staff during time period x 100

60
Q

purpose of sales forecasts:

A

Mainly to be able to set budgets that can be allocated in order to finance the business areas in order to achieve the forecast sales;
Helps to manage key aspects such as inventory levels and cash-flow;
Helps to prepare for growth

61
Q

The difficulties of sales forecasting

A

Based on estimates, even when based on historical data;
difficult to predicts as external factors are influential – e.g. consumer trends, changes in economic climate, competitor actions

62
Q

Factors affecting sales forecasts

A 
1
Consumer trends
          2
Economic variables
          3
Competitor actions
63
Q

FIXED COSTS examples

A

Rent, salaries, insurance and banking fees

64
Q

Variable costs examples

A

Raw materials, hourly wages, bought-in stocks

65
Q

SALES VOLUME

A

Number of units sold over a given time period

66
Q

SALES REVENUE

A

Volume sold x average selling price

67
Q

CONTRIBUTION PER UNIT

A

Selling price per unit – variable cost per unit

68
Q

BREAK-EVEN POINT

A

Fixed costs/ contribution per unit

69
Q

MARGIN OF SAFETY

A

Actual output – break-even point

70
Q

Two limitations of break-even analysis:

A

Assumes selling price remains constant
2
Variable costs such as raw materials are likely to change as output increases, such as benefits of bulk buying as volume increases

71
Q

2 types of budget

A

Historical, zero-based

72
Q

The purpose of budgeting

A

Allows performance to be measured by monitoring spending against a specific target
Provides guidance for managers/supervisors on how much to spend and determines how they should spend it
Should improve efficiency and avoid waste

73
Q

2 difficulties of budgeting

A

Accuracy – they are only as good as the data used to create them. Can be time-consuming to prepare

74
Q

POSITIVE / FAVOURABLE VARIANCES

A

When spending or costs has been better than expected -.e.g. when a business spends less or makes more revenue than was budgeted for

75
Q

NEGATIVE / ADVERSE VARIANCES

A

When spending or costs has been worse than expected -.e.g. when a business spends more or makes less revenue than was budgeted for

76
Q

Net profit

A

Operating profit – interest and tax

77
Q

Two ways to improve profitability:

A

Increase selling price whilst maintaining cost levels. Reduce average cost per unit

78
Q

The distinction between profit and cash

A

Profit looks at the difference between revenues and costs over a period of time, whilst cash is the money in the business available as and when it is required to finance operations

79
Q

Two ways a business can improve liquidity:

A

Hold less stock, improve debtor payment

80
Q

Why cash is important

A

By having enough cash, a business can meet its everyday needs and avoid taking on debt. That way, the business has more control over its activities and can reduce the costs and influence of outside groups.
Without enough cash, businesses might not be able to pay suppliers, purchase additional raw materials for new orders or even its employees, all of which could have a significant negative impact on performance.

81
Q

Inflation

A

An increase in the general levels of prices within an economy.

82
Q

Exchange rates

A

The price of one currency in terms of another – in other words, the purchasing power of one currency against another.

83
Q

Interest rates

A

The reward for saving and the cost of borrowing
expressed as a percentage of the money saved or
borrowed.

84
Q

THE BUSINESS CYCLE

A

The observed pattern of increases and decreases
in economic growth (measured by % Change in
GDP) over the long term.

85
Q

How a business in the UK exporting products to America might be affected by these changes in the pound against the dollar- appreciation

A

Exports will become more expensive and therefore the business might need to lower prices.

86
Q

How a business in the UK exporting products to America might be affected by these changes in the pound against the dollar- depreciation

A

Exports will become cheaper and therefore the business might need to gear up to produce more as demand should increase.

87
Q

How a business in the UK importing raw materials from America might be affected by these changes in the pound against the dollar- appreciation of pound against dollar

A

Imports will become cheaper and therefore the business can either buy more for the same, the same for less, either way reducing costs

88
Q

How a business in the UK importing raw materials from America might be affected by these changes in the pound against the dollar- depreciation

A

Imports then become more expensive and therefore the business will have to buy less, spend more or seek goods elsewhere.

89
Q

Political examples

A

Monopoly industries like power are regulated, personal tax affects household incomes

90
Q

An example of pestle- apple

A

P controversy re phone security and terrorism, E economic slowdown in China, S demographic change, T investment in innovation by competitors, L global crackdown on tax avoidance, E ethical sourcing and treatment of suppliers

91
Q

P

A

One- fiscal policy: government spending and tax-  amount of debts government have for example government spending on furlough schemes. For example if corporation tax falls, more profit for business. 2- govt intervention e.g. price caps. If a business is only allowed to raise its prices by a certain amount. Windfall taxes- a one-off tax placed on a certain industries such as banking

92
Q

Economic

A

Economic cycle for example recession or boom. Interest rates. Unemployment, high means lots of skilled workers. exchange rates. Consumer income levels, high then think about income elasticities of demand. Consumer or business confidence.

93
Q

.S

A

Demographics for example UK Asian population, lots of immigration. To lifestyle changes for example busy lifestyles, e-commerce. Three- new fads / fashions or taste or expectations like delivery services

94
Q

T

A

E-commerce, M commerce, ability to reduce costs flexible working movement, work from home. Automation robotics disruptive businesses like Airbnb

95
Q

L

A

Minimum wage, health and safety, laws change 

96
Q

E

A

One- green technology due to carbon emission tax, fair trade high cost but High demand

Business A Level (39 decks)

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