share capital Flashcards
what is it
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
venture capital
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
limited liability
owners are only responsible for losing amout they invest into business
e.g public and privat limited companies
unlimited liabitlity
resposinble for all debts of business
can risk losing personal assets e.g house
e.g sole traders and partnerships
business plan
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
adv of business plan
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
cash flow forecasts
sho cash nflows (revived by business) cash outflow (money paid out by buisness)
adv of cash flow forecasts
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
dis of cash flow forecasts
hard for nw business who just set up
dynamic market where cash is constantly chnaging due to changes in demand
research adn experinece
ner cash flow
cash inflows-cash utflows
closing balance=opening balance plus net cash flow
sales forcast
predict sales volume and sales revenue based on past sales data
what can sales foercast help tell you
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
what are the 3 factors affecting sales forecasts
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
sales volume
number of units sold
sales revenue
value of sales
sales revnue
selling price times sales volume
fixed costs
do not change with output
e.g rent, basic salaries
variable costs
do change with ouput e.g raw material costs, packagining costs
total vairable costs
AVCxqunaitity demanded
break even point
level of sales a business needs to make to cover its costs
profit
total revenue-total costs
break even analsyis
actuak kevel of sales needed to sell to break even
margin of safety
difference betweeen the actual output and break even
break even calucation
total fixed costs divided by contribtuion
contibtuion
selling price-variable cost per unit
margin of safety
differrence between actual output and break even
actual ouput-break eeven ouput
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
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
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
budget
financial plan for future
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
dis of budgets
time consuming,
inflation is hard to predict
historical budgets
updated each year
adv-easy and quick to do
dis-not as precise
zero based budget
made from scratch each year
adv-more precise/accurate
dis-takes longer to do
fixed bugets
where have to stick tp same budget throughout whole year
adv-certinity and despline
dis-may miss out on opportunties
flexible budgeting
alwows budgets to be alterned in reponse to signifianct chnages in makret or economy
adv-more flexibility
variances
F=favourable-performing better then expected
a=adverse-perfomring worse then expected
gross profit
total revenue-cost of sales
gross profit-other operating expenses
net profit=operating profit-interest
formula for percnatge change in profit
current years profit-prevuous years profit divided by prevousb years profit times 100
statment of comprensive income
shows how much money flowing into a business and how much cming out
pfot margis
gross profit divided by revenue ti es 100
operating profit divided by revenue times 100
net profit divided by revenue times 100
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
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)
current assest
business tends to exchnage for cash within the accounting year
non-current assets
business keeps asset for longer then acounting year
current liabilties
tend to pay back within year
non-current liabilties
dets which do not need to be paid off within accounting year
bad dets
where dont pay back debts they should have
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
current ratio
current asstes divided by curernt liabilties
acid test ratio
current asstes-inventory divided by current liabilties
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
what way can liquidty be imporved d
decreasing stock levels, speening up collection of debts owed to the business
business failure
cant cover its expenses
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
internal non-finaical reasons
communcation-not workign well together
inadepquate market resarch and analysis-failing to monitor changes in consumer trends
external fanical reseasons
interest rates,e xchange rates, inflatio
economic recession-peolle have less disposabke income
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
what are the 4 types of production emthodsz
job
batch
flow
cell
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
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
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
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
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
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
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
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
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
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
stock
raw materials needed for making product
businesses tend to try to minimise their buffere stock
due to high costs of storage
adv of holding buffer stock
-mass makret as need to be consitnelty reaching demand
-bulk products in bulk so can achieve EOS
dsi of holding buffer stock
storgae costs and waste cists
e.g something is out of date
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
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
total quality maangemnt
busnienss where quality is the centre of everything
adv of TQM
motivating for wokers as have to wokr more as team
improves brand image
allows to charge higher prices
fewer faulty products
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
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
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
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
quality assurance
checking goods throught production process
adv-less waste
adv-motivatiing for workers, feel more valued
dis-may need training
dis-not professionals
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
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
inflation
increase in prices and goods within an economy
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
deflation
value of goods and services reduceds within an economy
consumer price index
measures inflation within an economy
taxation rates
high tax rates from gverment meabs people have less disposbale income therefore are liekly to save rather tehn spend
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
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
employemnt legisaltion
contoolls what rigths emplyees have
e.g safe working space
national minimum wage
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
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
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
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
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)
mission statemt
small stementment iutlining overall purpose of the business
adv of mission stement
moitvating as workers workign towards common goal/shared purpose
dis of mission st
cooperate obejctve
overall aim of business as a whole
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
departmental objectives
obejctives for each department
decide what they need to do to achive overall aim of business
more specific
smart
SPECIFIC
MEASURABLE
AGREED
REALISTIC
TIME BOUND
stratgies
more ong term plan of action
tactics
short term plans
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
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
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
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
capcbuilties being sustainable and appropriable
sustainable-maintained for long time
appropriable-protected from copyrigth e.g pentns and trademarks
SWOT analysis
Strngths
weaknesses
opportunities
threats
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
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
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
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
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
qunaitive sales foercasting
three period movng averages
four period moving avergaes
investment appraisal
thinking about the risk and reward of decisions
low risk but high reward
payback period, ARR, net presnt value
adv of payback
adv-easy to calcualte and undertand
dis-ignores the time value of money
adv of ARR
adv-easy to calucate and undertand
dis-ignores the time value of money
decision trees
shows probailbiy
EMV(expected monetray vlaue)
net gain=orignal number =EMV
adv of decision trees
makes magers work out and think avout the probability ahd potential psy off of each choice of action
diadvnateges of deciiosn trees
qunaitive-cant ellaborate answers
problaitices are hard to predict
wider range of outcomes then decison trees suggest
ciritcal path anlaysis
identifies the most efficent and cost effective way of compelteing a task
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
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
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
corporate culture
way things aree done in the business
reflects firms values anad important to shape the expections of staff and manngers
strong corporate culture
when employees agree with the cooperate values of business
often do not need much supervision
weak cooperate culture
employees dont really agree with teh coperate values but have to be focred to comply with them
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
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
who are stakeholders
everyone who is affected by a nbusines s
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
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
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
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
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
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
dis of CSR
COSTS
customers are willing to pay higher price for socially accpetbale product hwoeber going thoug recession then sales could be lost
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
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
adv to investors
get paid back with interst added on
ROCE
return on capital employed
operating profit divided by capital employed
gearing ratio
capital employed=non current liabilties plus total equiry
gearing ratio=non current liabiity divided by caital empliyed times 100
ratio analysis advantges
labour producity
tells you the ouput per employee
ouput per period idvided by number of employyess
labour tunover
proprotion of staff that decise to leavle
number of staff leaving divided by avergae number of staff emplyed times 100
what are the 4 internal casues of changes
change in organsaional structure
new owenership
poor busienss perfmance
transormtional leadership
CNPT
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
change in owenrship
transition from being a soe trader to a partnership, limited compeny
could lead to additional owners of business
poor business performance can affect a business
