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business > share capital > Flashcards

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
Q

contibtuion

A

selling price-variable cost per unit

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25
Q

margin of safety

A

differrence between actual output and break even

actual ouput-break eeven ouput

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26
Q

adv of break even analysis

A

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

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27
Q

dis of break even analysis

A

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

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28
Q

what are the 3 types of budgets

A

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

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28
Q

budget

A

financial plan for future

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29
Q

adv of budgets

A

can be motivating for workers as have targets to work towards

helps control income and expensiture

helps managers to review activies and make deceions

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30
Q

dis of budgets

A

time consuming,

inflation is hard to predict

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31
Q

historical budgets

A

updated each year

adv-easy and quick to do
dis-not as precise

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32
Q

zero based budget

A

made from scratch each year

adv-more precise/accurate
dis-takes longer to do

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33
Q

fixed bugets

A

where have to stick tp same budget throughout whole year

adv-certinity and despline
dis-may miss out on opportunties

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33
Q

flexible budgeting

A

alwows budgets to be alterned in reponse to signifianct chnages in makret or economy

adv-more flexibility

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34
Q

variances

A

F=favourable-performing better then expected
a=adverse-perfomring worse then expected

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35
Q

gross profit

A

total revenue-cost of sales

gross profit-other operating expenses

net profit=operating profit-interest

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36
Q

formula for percnatge change in profit

A

current years profit-prevuous years profit divided by prevousb years profit times 100

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37
Q

statment of comprensive income

A

shows how much money flowing into a business and how much cming out

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38
Q

pfot margis

A

gross profit divided by revenue ti es 100

operating profit divided by revenue times 100

net profit divided by revenue times 100

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39
Q

how are profit andd cash different

A

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

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40
Q

statment of finaical postion

A

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)

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41
Q

current assest

A

business tends to exchnage for cash within the accounting year

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42
Q

non-current assets

A

business keeps asset for longer then acounting year

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43
Q

current liabilties

A

tend to pay back within year

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44
Q

non-current liabilties

A

dets which do not need to be paid off within accounting year

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45
Q

bad dets

A

where dont pay back debts they should have

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46
Q

liquidity

A

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

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47
Q

current ratio

A

current asstes divided by curernt liabilties

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48
Q

acid test ratio

A

current asstes-inventory divided by current liabilties

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49
Q

working capital

A

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

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50
Q

what way can liquidty be imporved d

A

decreasing stock levels, speening up collection of debts owed to the business

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51
Q

business failure

A

cant cover its expenses

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52
Q

internal finical reasons for business failure

A

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

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53
Q

internal non-finaical reasons

A

communcation-not workign well together

inadepquate market resarch and analysis-failing to monitor changes in consumer trends

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54
Q

external fanical reseasons

A

interest rates,e xchange rates, inflatio

economic recession-peolle have less disposabke income

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55
Q

external non-finaical resaons

A

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

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56
Q

what are the 4 types of production emthodsz

A

job
batch
flow
cell

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57
Q

job production

A

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

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58
Q

batch production

A

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
Q

flow prodution

A

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
Q

cell production

A

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
Q

capital intensive firms adv

A

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
Q

labour intensive firms adv and ids

A

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
Q

capicaty utlisation

A

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
Q

what should business do that under utlisaitng

A

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
Q

dis of over utlaition

A

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
Q

what should business do to fix issues of over uslaiton

A

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
Q

stock

A

raw materials needed for making product

businesses tend to try to minimise their buffere stock
due to high costs of storage

68
Q

adv of holding buffer stock

A

-mass makret as need to be consitnelty reaching demand

-bulk products in bulk so can achieve EOS

69
Q

dsi of holding buffer stock

A

storgae costs and waste cists
e.g something is out of date

70
Q

lean production

A

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
Q

JIT pridcution

A

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
Q

total quality maangemnt

A

busnienss where quality is the centre of everything

73
Q

adv of TQM

A

motivating for wokers as have to wokr more as team

improves brand image

allows to charge higher prices

fewer faulty products

74
Q

dis of TQM

A

staff need to be trained

may seem like a lot of effort for workers to have to focus on quality

expensive to introduce

75
Q

quality circles

A

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
Q

kaizen approach

A

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
Q

quality control

A

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
Q

quality assurance

A

checking goods throught production process
adv-less waste
adv-motivatiing for workers, feel more valued
dis-may need training
dis-not professionals

79
Q

interest rates

A

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
Q

businesses mostly affected by changes in interest rates

A

companyes whcih sell borrowed goods e.g cars

luxury products as higher interest then wont want to spend as k,uch

81
Q

inflation

A

increase in prices and goods within an economy

82
Q

what are the two tyoes of infaltion

A

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
Q

deflation

A

value of goods and services reduceds within an economy

84
Q

consumer price index

A

measures inflation within an economy

85
Q

taxation rates

A

high tax rates from gverment meabs people have less disposbale income therefore are liekly to save rather tehn spend

86
Q

business cycle

A

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
Q

business legisaltion

A

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
Q

employemnt legisaltion

A

contoolls what rigths emplyees have
e.g safe working space
national minimum wage

89
Q

discriminatin laws

A

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
Q

what are the 3 types of compeittion

A

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
Q

share capital

A

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
Q

venture capital

A

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
Q

limited liability

A

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
Q

mission statemt

A

small stementment iutlining overall purpose of the business

95
Q

adv of mission stement

A

moitvating as workers workign towards common goal/shared purpose
dis of mission st

96
Q

cooperate obejctve

A

overall aim of business as a whole

96
Q

ement mission statment

A

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
Q

departmental objectives

A

obejctives for each department
decide what they need to do to achive overall aim of business
more specific

98
Q

smart

A

SPECIFIC
MEASURABLE
AGREED
REALISTIC
TIME BOUND

99
Q

stratgies

A

more ong term plan of action

100
Q

tactics

A

short term plans

101
Q

ansoff maxtrix

A

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
Q

adv and dis of ansoff matric

A

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
Q

ansoff three genric strageies

A

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
Q

kays model

A

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
Q

capcbuilties being sustainable and appropriable

A

sustainable-maintained for long time

appropriable-protected from copyrigth e.g pentns and trademarks

106
Q

SWOT analysis

A

Strngths
weaknesses
opportunities
threats

107
Q

adv of SWOT analysis

A

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
Q

PESTLE analysis

A

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
Q

porters five forecs model

A

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
Q

buyer power (customers)

A

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
Q

supplier power

A

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
Q

qunaitive sales foercasting

A

three period movng averages
four period moving avergaes

113
Q

investment appraisal

A

thinking about the risk and reward of decisions
low risk but high reward
payback period, ARR, net presnt value

114
Q

adv of payback

A

adv-easy to calcualte and undertand

dis-ignores the time value of money

115
Q

adv of ARR

A

adv-easy to calucate and undertand

dis-ignores the time value of money

116
Q

decision trees

A

shows probailbiy

EMV(expected monetray vlaue)
net gain=orignal number =EMV

117
Q

adv of decision trees

A

makes magers work out and think avout the probability ahd potential psy off of each choice of action

118
Q

diadvnateges of deciiosn trees

A

qunaitive-cant ellaborate answers

problaitices are hard to predict

wider range of outcomes then decison trees suggest

119
Q

ciritcal path anlaysis

A

identifies the most efficent and cost effective way of compelteing a task

120
Q

adv of critical path anlaysus

A

showest the shrtest possible time for comelteing a tast t

relies on estimates of how long each task will take

121
Q

corporate influences

A

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
Q

what are the two different appraoches to making decisons

A

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
Q

corporate culture

A

way things aree done in the business

reflects firms values anad important to shape the expections of staff and manngers

124
Q

strong corporate culture

A

when employees agree with the cooperate values of business
often do not need much supervision

125
Q

weak cooperate culture

A

employees dont really agree with teh coperate values but have to be focred to comply with them

126
Q

what are the 4 cooperate cultures

A

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
Q

why may a business change its cooperate culture

A

due to new manager wanting to change it to a business they ahev worked in bfeore

in order to be more comeptiive

128
Q

who are stakeholders

A

everyone who is affected by a nbusines s

129
Q

internal stakeholders

A

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
Q

external stakeholders

A

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
Q

ehtics in a business

A

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
Q

trade off beyween ethics and profit

A

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
Q

CSR

A

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
Q

adv of CSR

A

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
Q

dis of CSR

A

COSTS

customers are willing to pay higher price for socially accpetbale product hwoeber going thoug recession then sales could be lost

136
Q

gearing

A

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
Q

adv of highly geard

A

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
Q

adv to investors

A

get paid back with interst added on

139
Q

ROCE

A

return on capital employed

operating profit divided by capital employed

140
Q

gearing ratio

A

capital employed=non current liabilties plus total equiry

gearing ratio=non current liabiity divided by caital empliyed times 100

141
Q

ratio analysis advantges

A
142
Q

labour producity

A

tells you the ouput per employee

ouput per period idvided by number of employyess

143
Q

labour tunover

A

proprotion of staff that decise to leavle

number of staff leaving divided by avergae number of staff emplyed times 100

144
Q

what are the 4 internal casues of changes

A

change in organsaional structure
new owenership
poor busienss perfmance
transormtional leadership

CNPT

145
Q

chnage in organsiational size

A

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
Q

change in owenrship

A

transition from being a soe trader to a partnership, limited compeny

could lead to additional owners of business

147
Q

poor business performance can affect a business

A

business (4 decks)

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