share capital Flashcards

1
Q

what is it

A

money raised by selling shares in business

adv-money does not need to be repaid
adv-new shareholders can bring in additional expertise into a business
dis-orignial owner no longer owns all of the business
dis-shareholders expect to get share of profits through dividends

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2
Q

venture capital

A

can be provided by buisness angeks or profesiional employye working on behalf of a venture caital firm
dis-have to give up a share of business and sometimes they want big say in how business is run
adv-may benefit from exert advice
adv-do not need to be repaid

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3
Q

limited liability

A

owners are only responsible for losing amout they invest into business
e.g public and privat limited companies

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4
Q

unlimited liabitlity

A

resposinble for all debts of business
can risk losing personal assets e.g house
e.g sole traders and partnerships

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5
Q

business plan

A

plan of what business wants to achive and how they are going to achieve it
conist of aims and objectives,cash flow frecastes, stament of comprehensive income etc

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6
Q

adv of business plan

A

potential investors can see business has done its research, more liekly to invest into business

shows how profitbae busienss expects to be, investors can see whenthey should recive returns on ivetsment

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7
Q

cash flow forecasts

A

sho cash nflows (revived by business) cash outflow (money paid out by buisness)

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8
Q

adv of cash flow forecasts

A

ensures they have enouh working capital to run their business from day to day and pay their emplyees

aloows them to see when is most liekly they will lose cash meaning can provide a loan or overdraft in time

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9
Q

dis of cash flow forecasts

A

hard for nw business who just set up

dynamic market where cash is constantly chnaging due to changes in demand
research adn experinece

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10
Q

ner cash flow

A

cash inflows-cash utflows

closing balance=opening balance plus net cash flow

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11
Q

sales forcast

A

predict sales volume and sales revenue based on past sales data

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12
Q

what can sales foercast help tell you

A

makreting-if sales are found t dcline, may tehn launch new campigns to gain sales

finance

resources-asssaures firm has all resources its needs so can meet predicted demand

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13
Q

what are the 3 factors affecting sales forecasts

A

consumer trends-if decerease in demand, fall in sales

economic varibales-chnages in interest rates, inflation and employent levels causing sales to decline or increase depending on how money consumers have

actions of comeptitors-if they launch new product or reduce price down then sales may drop for the compaany

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14
Q

sales volume

A

number of units sold

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15
Q

sales revenue

A

value of sales

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16
Q

sales revnue

A

selling price times sales volume

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17
Q

fixed costs

A

do not change with output

e.g rent, basic salaries

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18
Q

variable costs

A

do change with ouput e.g raw material costs, packagining costs

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19
Q

total vairable costs

A

AVCxqunaitity demanded

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20
Q

break even point

A

level of sales a business needs to make to cover its costs

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20
Q

profit

A

total revenue-total costs

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21
Q

break even analsyis

A

actuak kevel of sales needed to sell to break even

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22
Q

margin of safety

A

difference betweeen the actual output and break even

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23
Q

break even calucation

A

total fixed costs divided by contribtuion

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24
contibtuion
selling price-variable cost per unit
25
margin of safety
differrence between actual output and break even actual ouput-break eeven ouput
26
adv of break even analysis
easy to do managger can see break eeven ouput and margin of safety imediately so can take quick action to reduce costs helps persaude sources of finance to give them money
27
dis of break even analysis
does not take into account wastage, assums business sells all products withput any wastate if data is inaccurate, results are all wrong sim-le for a ingle prduct but hard to do for all different products
28
what are the 3 types of budgets
profit budget=income budget-expensiture budget income budget-amount of moeny that comes into business as REVENUE expenditure-total costs will be for the year
28
budget
financial plan for future
29
adv of budgets
can be motivating for workers as have targets to work towards helps control income and expensiture helps managers to review activies and make deceions
30
dis of budgets
time consuming, inflation is hard to predict
31
historical budgets
updated each year adv-easy and quick to do dis-not as precise
32
zero based budget
made from scratch each year adv-more precise/accurate dis-takes longer to do
33
fixed bugets
where have to stick tp same budget throughout whole year adv-certinity and despline dis-may miss out on opportunties
33
flexible budgeting
alwows budgets to be alterned in reponse to signifianct chnages in makret or economy adv-more flexibility
34
variances
F=favourable-performing better then expected a=adverse-perfomring worse then expected
35
gross profit
total revenue-cost of sales gross profit-other operating expenses net profit=operating profit-interest
36
formula for percnatge change in profit
current years profit-prevuous years profit divided by prevousb years profit times 100
37
statment of comprensive income
shows how much money flowing into a business and how much cming out
38
pfot margis
gross profit divided by revenue ti es 100 operating profit divided by revenue times 100 net profit divided by revenue times 100
39
how are profit andd cash different
cash-how much have right now to oay bills profit-could be paid months later may have ltos of profit but sitll run out of cash
40
statment of finaical postion
lists of assets and liabilities -called balance sheets show snapshot of firms finanes at fixed point in time assets(things that belong to business) liabilties (things busienss owes)
41
current assest
business tends to exchnage for cash within the accounting year
42
non-current assets
business keeps asset for longer then acounting year
43
current liabilties
tend to pay back within year
44
non-current liabilties
dets which do not need to be paid off within accounting year
45
bad dets
where dont pay back debts they should have
46
liquidity
how easily asset can turn into cash used for buying things e.g cash is very liquid non-cureent assets are not very liquid liquidisation-selling all assets to pay off debts
47
current ratio
current asstes divided by curernt liabilties
48
acid test ratio
current asstes-inventory divided by current liabilties
49
working capital
amount of money for day to day running of business current assets-current laibilties working capital cycle-how long it taes from buying raw materials to getting cash of finished product that has been sold
50
what way can liquidty be imporved d
decreasing stock levels, speening up collection of debts owed to the business
51
business failure
cant cover its expenses
52
internal finical reasons for business failure
poor efficinecy-costs are not as low as can be management of working capital-not having enough cash for day to day running of business bad decsions about how a fimr is finaiced e.g too reliant on overdrafts PMB
53
internal non-finaical reasons
communcation-not workign well together inadepquate market resarch and analysis-failing to monitor changes in consumer trends
54
external fanical reseasons
interest rates,e xchange rates, inflatio economic recession-peolle have less disposabke income
55
external non-finaical resaons
chnages inc omsumer trendns-suddently stops wanting product actions of compeitors-able to offer simialr products at low prices poor communication outside of business e.g with suppliers
56
what are the 4 types of production emthodsz
job batch flow cell
57
job production
selling 1 off itmes made by skilled workers adv-more willing to chnagre higher prices for something unique/hand made adv-made by skilled worker so tends to be high quality dis-cannot achiev eEOS as matierals cannot be brought in bulk dis-pay higher wages to workers
58
batch production
selling small batches of difefrent prodycts e.g one bacth is made then cleaned then another batch is made dis-delays in between to clean equipment adv-reach eos dis-cost and inconvience of storing lots of raw materials
59
flow prodution
selling identical products across an assembly line adv-can operate 24/7 adv-EOS dis-changes in consumer trends dis-if machine breaksa down stops whol production system dis-boring for workers as very repetitive
60
cell production
flow is divided into set tasks adv-valued and pride in work as repsonsble for large chunk of assembly process adv-producvity is higher dis-delays can cause producivity to be lower
61
capital intensive firms adv
machines acna operate 24/7 easier to manage then poeple/no emotions no chance of human eror/product evrything at good statndard dis-have to be reporgrammed if production is altered dis-exxpensive intital cost dis-if break down, stop whole production process
62
labour intensive firms adv and ids
adv-multiskilled wheras machines would have to compeletly eb reprogrammed adv-react to issues dis-harder t manage then machines need rest breaks and more unreliable e.g may call of sick
63
capicaty utlisation
di sof under utlsatioworkign below 100 percnt capaicty hhaving resources which are not being used e.g factory space, labour doesnt have much work to do etc dis bad brand image e.g empy shelves demotivatinf or staff as have littel to do unit costs incerease, have to charge higher prices
64
what should business do that under utlisaitng
marketing stratgeies e.g promoting to therefore increase demand for product downsizing (ationslisation) to samller work spece sellign any unused assets making staff redundanct
65
dis of over utlaition
no time for equuipment e maintence so more liekly to break down no downtime so workers may feel stressed and more liekly to make mistakes highly likely to have to turn down any new potential customers
66
what should business do to fix issues of over uslaiton
increase prices to reduce demand buy more machines outsource-give some work to other businesses to compleye increase satff leels e.g having osome temporary staff use waitlsiting, that way slows production down adn makes product feel more luxirious
67
stock
raw materials needed for making product businesses tend to try to minimise their buffere stock due to high costs of storage
68
adv of holding buffer stock
-mass makret as need to be consitnelty reaching demand -bulk products in bulk so can achieve EOS
69
dsi of holding buffer stock
storgae costs and waste cists e.g something is out of date
70
lean production
business focuses on waste minimisation using as few reosurces as possible to make products adv-good reputatio m ,reeduces costs so more cots dis-expsive to do
71
JIT pridcution
type of lean production method where business focuses on holding as little stock as possible where they get products just in tiem for when customers want them for adv-storeage costs are reduced, cash flow imporved as money not tied up in stock dis-cannot reach EOS, buying littel stock dis-relies on freqnet deliveries dis-need reliable supplier as if dont get there in tim, creat a bad reputaiton and brand image on business
72
total quality maangemnt
busnienss where quality is the centre of everything
73
adv of TQM
motivating for wokers as have to wokr more as team improves brand image allows to charge higher prices fewer faulty products
74
dis of TQM
staff need to be trained may seem like a lot of effort for workers to have to focus on quality expensive to introduce
75
quality circles
workers come togther to discuss quality issues adv-motivating for staff/feel more valued adv-may know lot about their own department so can have good input into discussions dis-ideas may be unrealsitic may not listen to floow workers
76
kaizen approach
imroving their work slightly each time adv-cheap for businesses to introduce and makes workers feel more involved dis-time consuming and may not be good for business who needs to urgently imporve their quality
77
quality control
means checking goods after they have been made adv-doesnt stay and delay the prodcution process adv-done by inspectors who have lot of experinece dis-price to pay inspectors dis-waste
78
quality assurance
checking goods throught production process adv-less waste adv-motivatiing for workers, feel more valued dis-may need training dis-not professionals
79
interest rates
cost of borrowing or retun of savings high interest rates is bad as means more expensive to borrow and have to pay higher interest on tax so consumers have less disposbale income andmore liekly to save rathe then spend low interest rates means borrwoing is cheaper and dont have to pay as much interest so more leikly to spend more
80
businesses mostly affected by changes in interest rates
companyes whcih sell borrowed goods e.g cars luxury products as higher interest then wont want to spend as k,uch
81
inflation
increase in prices and goods within an economy
82
what are the two tyoes of infaltion
cost push inflation-as costs push up prices e.g wages increase demand pull inflaition-too uch demand, business cannot supply in time so have to increase their pries to redice their demand
83
deflation
value of goods and services reduceds within an economy
84
consumer price index
measures inflation within an economy
85
taxation rates
high tax rates from gverment meabs people have less disposbale income therefore are liekly to save rather tehn spend
86
business cycle
boom-where GDP is high recession-incoems start to go down, confiedec goes down wtihin economy slump-GDP is at a low. businesses close, unempyment is high recovery-emplyment increaess, prodcuitvity increases price eastic products re more affected as demand affects them e.g luxury products prince ineasltic products are less affected by changes as changes in demand dont really chnage
87
business legisaltion
governemtn puts on laws into economy certian laws protect customers and consumers e.g consumer protection act e.g says new consumer goods must be safe
88
employemnt legisaltion
contoolls what rigths emplyees have e.g safe working space national minimum wage
89
discriminatin laws
Recruitment-are not allowed to satte in job adverts that candiates must be of a certain race etc Pay-must be paid same amout for equal wvalue Promotions and reducncdanie-everyone should have same opportunity to get promtoed
90
what are the 3 types of compeittion
perfect-lots of businesses who work on an equal basis e.g sell simailr products for simailr prices monoploy-where one large firm has control iver its market, has no competition can chage prices at what ever prices they want opilogiy-where small number of large firms dominate the makret
91
share capital
raising money by seling shares adv-dont ahve to be repaid dis-oringial ownerr now does not own whole busines dis-shareholders may want some of the shares in dividends
92
venture capital
e.g ventrue capitalist e.g business angle who invests adv-does not need to be paid back can get expert advice dis-take one of the shares, may want to take jhigh control of business
93
limited liability
only reposnibke for amount invest in advpeasierr to encourage people to join frim where only at risk of losing amount they invest in rather then all personal assets (unlimited laibiltiy)
94
mission statemt
small stementment iutlining overall purpose of the business
95
adv of mission stement
moitvating as workers workign towards common goal/shared purpose dis of mission st
96
cooperate obejctve
overall aim of business as a whole
96
ement mission statment
dont need proof that what your piutitng is true so a bisiness could just put what customers want to hear when notice there actions do nt reflect, reputation may be damaged
97
departmental objectives
obejctives for each department decide what they need to do to achive overall aim of business more specific
98
smart
SPECIFIC MEASURABLE AGREED REALISTIC TIME BOUND
99
stratgies
more ong term plan of action
100
tactics
short term plans
101
ansoff maxtrix
makret penetration-where business tries to icnrease its maket share within exiting makret e.g promotions, changing pricing strategy new product development-sellign new product into existing makret due to have high grwoth, wanting Competieva advnatge market devlopement-selling existing products to new makret lookign at a new segment in market seeing how can adpat product to meet requirements of new segment deiversification-most risky, selling new prodicts to new makrey
102
adv and dis of ansoff matric
adv-allows mangers to think about potential risks of deciding to go in a certain direction dis-fials to show that makret devleopment and new product development will day to day working oversimplify- does not take into account what competiors are doing
103
ansoff three genric strageies
Differntiation-having unique attributes . that way can charge higher prices and have USP Cost leasderhsip-being the lowest cost of porduction can achiev EOS Focus-where or not niche makret decised to minimise cots or being unique
104
kays model
Archeticuture-whether have good realitonship ith main stakeholders Repuation-wherther customers are staisfied e.g high quality, good customer service etc word of mouth, creates strong brand image, more likely people will make reperated purchases Innovation-products emerging to increase sales and create USP
105
capcbuilties being sustainable and appropriable
sustainable-maintained for long time appropriable-protected from copyrigth e.g pentns and trademarks
106
SWOT analysis
Strngths weaknesses opportunities threats
107
adv of SWOT analysis
helps managers make strategic adn tactical decisons easily be redoe to take into account any chnaging conditons e.g change in the econom y
108
PESTLE analysis
plotical-taxation e.g governmen tthat wants to encoruage new busiensses may introduce lower tax rates subsidy payments-helping with start up costs enviromental-consumers becoming more concerned with protecting the enviorment make people change what packaging they want etc social-changing in soical trends e.g peope more concerned about health could reduce demand for sugary dirnks technological-new technology ermeging making buisnesses more efficent, legal-changes in laws e.g change in law for helping enviroemnt more, reducing poluution economic-changes in interest rates, excahenge rates, inflation etc poeple having more discopable incoe etc
109
porters five forecs model
barriers to entry-how easy is it for a new firm to enter the makret larger firms may create a price war use predatory pricing-where tehy reduce their prices to push another firm out tan then increawse them again-against EU laws patents or trademarks so not able to copy prodycts taking control of distibution channel e.g vertical integration
110
buyer power (customers)
buyers have more power when few buyers and many sellers powerful when they can easily switch to another market if they plcae great large orders, makes htem more attractive to us and gives them power may look out for new customers, les reliant on oringal customer base could try to differentiate product make customers more loyal to what we sell and less liekly to change
111
supplier power
if not many of them, the more powerful each become want to get as high price possible if they sell something unique, then greater power firms could-sign joint ventures with suppliers/merge with them, they dont need to try make progit from us anymore may try increase prices maximise EOS, making them more attractive to us seek out new suppliers
112
qunaitive sales foercasting
three period movng averages four period moving avergaes
113
investment appraisal
thinking about the risk and reward of decisions low risk but high reward payback period, ARR, net presnt value
114
adv of payback
adv-easy to calcualte and undertand dis-ignores the time value of money
115
adv of ARR
adv-easy to calucate and undertand dis-ignores the time value of money
116
decision trees
shows probailbiy EMV(expected monetray vlaue) net gain=orignal number =EMV
117
adv of decision trees
makes magers work out and think avout the probability ahd potential psy off of each choice of action
118
diadvnateges of deciiosn trees
qunaitive-cant ellaborate answers problaitices are hard to predict wider range of outcomes then decison trees suggest
119
ciritcal path anlaysis
identifies the most efficent and cost effective way of compelteing a task
120
adv of critical path anlaysus
showest the shrtest possible time for comelteing a tast t relies on estimates of how long each task will take
121
corporate influences
when a business expects to get returns on investments short terminsm-when they focus on icreaseing fincalical perfomance over a short period of time used to keep sahreholders happy attactibe to mangers as their bonus based on short terrm performance very new businesses as may need to be financialy stable, unkliky to focus on long term goals long terminsim-focusing on long term goal, may not get investment unti couple yeasrs
122
what are the two different appraoches to making decisons
evidence based decison mkaing-where manager uses data that has been gathered and anlaysed to make a decsion adv-based on facts well structures and record of how decison was reached dis-time conuming ti rach a decision focusing too heavily on evdence might lead to fimr to overlook other aspects of the decion such as how ethical it is subejctive decision making-less structured decsions are based on opinons, exoerience adn gut instincy of the main individuals within a firm adv-deciosn can be made quickly -used when there is lack of data(neww business) dis-going for gut feelings, make snap deciions without fully considering the long term consequences
123
corporate culture
way things aree done in the business reflects firms values anad important to shape the expections of staff and manngers
124
strong corporate culture
when employees agree with the cooperate values of business often do not need much supervision
125
weak cooperate culture
employees dont really agree with teh coperate values but have to be focred to comply with them
126
what are the 4 cooperate cultures
Power culture-deciiosn makingn aurhoity is limited to a few people or just one person staff arent inolved in the decison making Role culture-authioty is defined by job title e.g senir managers and employees dont get inovlved in decision making Person culture-indiviauld must have common goals decisons are made jointly, employees are accpeting of any changes Task culture-emphasises on gettimg sepcifc tasks done
127
why may a business change its cooperate culture
due to new manager wanting to change it to a business they ahev worked in bfeore in order to be more comeptiive
128
who are stakeholders
everyone who is affected by a nbusines s
129
internal stakeholders
people inside business onwers are most important internal stakeholders, make decisions on what happens to business employees who want good wage andd good working conditions
130
external stakeholders
people outside of business customers-mian obecjtive is to get high quality product, have good customer service etc suppliers -to be paid on time and good amount memebrs of local community-maintain or imporve standard of living in communicty businesses help gain local employment
131
ehtics in a business
priniples which govern which behaviiours are morally accpetbale to socity, indiviaudls or groups location-cheaper oversases suppliers-decising whether to go fora supplier thats cheaper but exploits its worker or going for a supplier thats more expsive but trates its workers well b
132
trade off beyween ethics and profit
being ethical comes with a price sacrifice not having the lowest costs, but being tethical/havign god bradn image customers are willing to pay a higher price for an ethically produced producct employees will want to work for an ethical hsienss so reduce recuritmet costs and staff turover
133
CSR
business shoudl go above and beyond what is reuired by law to help society as a whole cooperate social responsbility e.g reducing their impact on enviroemnt many people more aware, so businesses tend to publice meething their social repsonsbilities
134
adv of CSR
psotive publicaity, attract more customers, loyalty and greater brand image will attract more talented applicates staff morale will imporve somore willing to work hard
135
dis of CSR
COSTS customers are willing to pay higher price for socially accpetbale product hwoeber going thoug recession then sales could be lost
136
gearing
shows where a business gets its capital from highly gearged over 50% of finance is from long term debt e.g overdrafts loans below 50%=lowly geard, less finance from long term debt
137
adv of highly geard
money for expansion reach EOS dis-risk of not being able to repay dis-may be risky due to changes in interst rates making paying back higher
138
adv to investors
get paid back with interst added on
139
ROCE
return on capital employed operating profit divided by capital employed
140
gearing ratio
capital employed=non current liabilties plus total equiry gearing ratio=non current liabiity divided by caital empliyed times 100
141
ratio analysis advantges
142
labour producity
tells you the ouput per employee ouput per period idvided by number of employyess
143
labour tunover
proprotion of staff that decise to leavle number of staff leaving divided by avergae number of staff emplyed times 100
144
what are the 4 internal casues of changes
change in organsaional structure new owenership poor busienss perfmance transormtional leadership CNPT
145
chnage in organsiational size
e.g expands abroad, increase in number of workers reduced production time and EOS reduce unit costs ' unable to manage an increase in workers effectievly, prodcuivity is reduced e.g not enough machinery, resources makes it harder to communciate quickly
146
change in owenrship
transition from being a soe trader to a partnership, limited compeny could lead to additional owners of business
147
poor business performance can affect a business