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A LEVEL BUSINESS > Theme 2 > Flashcards

Theme 2 Flashcards

1
Q

What’s a business angel?

A

These investors offer their money, and services, to a businesses often in exchange for a stake in the company.

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2
Q

What are the methods of finance?

A 
Overdrafts 
Loans 
Share capital
Venture capital
Leasing 
Trade credit
Grants
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3
Q

What are the internal finance sources?

A

Personal savings
Retained profit
Sale of assets

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4
Q

What are external sources of finance?

A 
Family and friends
Banks
Peer-to-peer funding
Business angels
Crowd funding
Other businesses
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5
Q

What’s unlimited liability?

A

Smaller businesses, such as sole traders and partnerships are examples, where the owner is liable/responsible for every penny of the business. Liability is unlimited.
Bankrupt…

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6
Q

What’s limited liability?

A

Typically larger firms, such as private limited and public limits companies, where shareholders have limited liability for finances of the company - this means that shareholders are only responsible for the shares that they have not yet paid for.
Liquidation…

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7
Q

Why are cash flow forecasts useful?

A

A prediction based on plans that the business has planned.

- Show when there will be cash available to pay expenses or when cash is tight.

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8
Q

What are the limitations of cash flow forecasts?

A
  • Based on predictions
  • Less accurate over long periods of time.
  • Unforeseen expenses (external shocks)
  • Seasonal activity…
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9
Q

What is liquidation?

A

A company’s assets are no longer enough to pay the debts and so it is forced to close. The company will then sell of its assets in order to pay what debts it can.

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10
Q

Sales volume calculation?

A

Sales volume = total sales revenue / selling price per unit

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11
Q

Sales revenue calculation?

A

Price per unit x number of units sold

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12
Q

Annual interest paid calculation?

A

Total loan amount x interest rate

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13
Q

What are variable costs?

A

Costs that change with every good/service sold by a business.
The more goods a company produces, the higher the variable costs.

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14
Q

Fixed costs?

A

Costs of a business that never change, regardless of how many goods/devices are produced, advertised or sold.

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15
Q

Average variable costs equation?

A

Total variable costs / sales volume

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16
Q

Total variable costs equation

A

Average variable cost x sales volume

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17
Q

Contribution equation?

A

Selling price of one good - variable costs of one good

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18
Q

Total costs equation?

A

Total costs = fixed costs + total variable costs

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19
Q

Break even point equation?

A

Total fixed costs / contribution per unit

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20
Q

Gross profit equation?

A

Revenue - cost of sales

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21
Q

Operating profit equation?

A

Gross profit - other operating expenses

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22
Q

Net profit equation?

A

Operating profit - interest

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23
Q

Gross profit margin equation?

A

( Gross profit / revenue ) x 100

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24
Q

Operating profit margin equation?

A

( Operating profit / revenue ) x 100

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25
Q

Net profit margin equation?

A

( Net profit / revenue ) x 100

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26
Q

Current ratio equation?

A

Current assets / current liabilities

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27
Q

Acid test ratio equation?

A

( Current assets - inventory / current liabilities )

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28
Q

Internal causes of business failure?

Financial and Non financial?

A 
Financial: 
- Efficiency 
- Planning
Non-financial 
- Communication
- Efficiency 
- Marketing
- Innovation
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29
Q

External causes of business failure?

Financial and non financial?

A 
Financial:
- Economic recession
- Currency Strength 
Non Financial:
- National crises
- Less export demand
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30
Q

What are current assets?

A

Assets that a business owns up to a year, such as stock and debtors. These assets are easier and quicker to convert into cash than fixed assets.

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31
Q

Current liabilities?

A

Debts that a company has and that will be paid within the year.

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32
Q

What are fixed assets?

A

Things such as property and equipment that are owned by the business.

33
Q

What is job production?

A

The method of choice for small businesses and sole traders. It involves manufacturing one product at a time.

34
Q

What is batch production?

A

Every good is produced in the same way. Flexible production line.

35
Q

What is flow production?

A

Used by car manufacturers, and other businesses, as a way to produce goods on a typically large scale.

36
Q

What is cell production?

A

Large manufacturing firms, such as producers of electronic goods, use this method as a way to efficiently divide production. Employees are split into teams, with each team working in the same way but focusing on a different product.

37
Q

Productivity?

A

Gives the hourly rate of output per each input.

- can per person, per factory, or per machine.

38
Q

Factors that influence productivity?

A
  • Increasing the number of hours that employees work
  • Making changes to key business processes
  • Motivating the workforce
  • Purchasing new equipment, technology, premises
  • Increasing the amount of training that employees receive
39
Q

Limitations of increasing productivity?

A
  • may have a reluctant workforce, changes or new training may not increase productivity
  • want to be rewarded from their productivity increasing (employees)
  • if they need to increase productivity, some employees can see this as a threat to their jobs
40
Q

What is efficiency?

A

The maximum output a business can achieve through a minimum number of units or average costs.

41
Q

Ways firms can become more efficient?

A
  • Productivity of labour
  • Nature of processes (better)
  • Capital utilisation (use maximum capacity)
  • Scale (lead to growth and benefit from economies of scale)
  • Innovation (cost and time savers)
  • Lean production (reduce waste)
42
Q

Capital utilisation equation?

A

( Current output / maximum possible output ) x 100

43
Q

Problems with over-utilisation of capacity?

A
  • Workload can get too intense, employees become demotivated
  • Production could be rushed (quality issues)
  • If at full capacity can’t meet demand spikes
  • Maintenance becomes a problem as usually production is running full-time.
44
Q

Problems with under-utilisation?

A
  • The fewer resources that are used by a firm, the higher the fixed costs are to produce each unit.
  • Firms that under-utilise their capacity run the risk of not meeting high levels of demand.
  • could suggest lack of motivation and drive to try and over-achieve
45
Q

5 ways to improve capacity utilisation?

A
  • Estimate the long-term levels of sales
  • Create more demand (promotion and brand strengthening)
  • Understanding the consumer (research so you can meet demand)
  • Sales of assets (assets not needed)
  • Employing more/fewer staff
46
Q

What’s a buffet stock?

A

.

47
Q

Advantages of holding buffer stocks?

A
  • Production flow ( e.g. maintenance needed, still can meet demand)
  • Ability to satisfy demand
  • Coping with peaks in demand
  • Economies of scale
48
Q

Disadvantages of holding buffer stocks?

A
  • Opportunity costs
  • Costs of storage
  • Depreciation/obsolescence (social trends and product sell-by dates)
  • Security
  • Insurance
  • Administration (needs to check standard and ship it… costs money and time)
49
Q

What’s Just-in-time management of stock?

A

JIT- keep a low inventory of stock and produce only to specific orders. - requires a lot of organisation as business must be able to inform their suppliers in time when consumer demand rises.

50
Q

Advantages of JIT?

A
  • Time saver
  • Money saver
  • Compact production (more efficient)
  • Add value
  • Less obsolescence
  • Less risk to goods
51
Q

Disadvantages of JIT?

A
  • Suppliers (rely on them)
  • Expensive ( as need systems and databases to efficiently full-fill demand)
  • Mass orders (can’t full-fill demand)
  • Unforeseen circumstances (natural events to suppliers)
52
Q

Waste minimisation?

A

Reduce defective products, curb over production of goods

53
Q

Benefits of lean production?

A
  • Productivity
  • Motivation
  • Shared decisions
  • Waste management
  • Quality
54
Q

What is quality control?

A

Analysis of quality in a finished good/ service

55
Q

What is quality assurance?

A

Analysis of quality in business processes that are used to produce goods/services

56
Q

What’s a quality circle?

A

Firms organise employees into groups, giving them direct responsibility for continuous analysing

57
Q

Total Quality Management?

A

Aims to empower employees and involves the entire business; it is the culture of the organisation. Analyse the work. For best quality.

58
Q

Benefits of inflated economy?

A
  • Raises the value of property and stock, while increases a business’s capital.
  • It can allow businesses to increase their prices without raising suspicion form the consumer
  • helps with borrowing if interest rates stay below than that of inflation
59
Q

Issues with an inflated economy?

A
  • decrease demand for products as prices rise
  • consumers become price-sensitive
  • suppliers increase prices which can put pressure on businesses to raise their own
  • employees may demand more pay
  • country becomes less price competitive as the currency means less
  • forecasting becomes difficult
60
Q

What happens if interest rates fall?

A
  • Less saving
  • Credit (consumers buy more as cheaper)
  • Loans and mortgages (more disposable income)
  • Fewer costs
61
Q

What is the SPICED acronym?

A 
Strong
Pound
Imports 
Cheaper
Exports 
Dearer
62
Q

What will an increase in government spending do to businesses?

A
  • Create jobs
  • More demand for materials and people
  • Can encourage competition
63
Q

What will a decrease in government spending to businesses?

A
  • Lead to decrease in investment as there is less incentives
  • Productivity decrease, less competition, higher rates of unemployment
  • Unemployment, less consumer spending, more susceptible to income elasticity of demand
64
Q

What is consumer protection?

A

This legislation prevents exploitation of customers and the production of unsafe goods/services.

65
Q

For effects for businesses from consumer protection?

A
  • Increase in costs of production
  • Reduction in waste
  • Improved quality of products/services
66
Q

What is employee protection?

A

Ensures that employees and employers deal fairly with one another.

67
Q

Effects of employee protection on businesses?

A
  • Decrease in industrial action(strikes)
  • Costs to businesses that comply with legislation
  • Motivation increases as working conditions increase
68
Q

What is environmental protection?

A

Prevention of pollution and environmental destruction caused by business practices.

69
Q

The potential effects for environmental protection on businesses include?

A
  • Costs of complying with the legislation
  • Reduction of any potential environmental damage
  • Less potential for wasteful practices, which can save the business money
  • positive branding
70
Q

What is a competition policy?

A

Ensures businesses are competing fairly in the marketplace.

71
Q

Effects of competition policy on businesses?

A
  • Lowering prices in order to compete, which brings down profits
  • Improved quality
  • Fairer competition
  • Easier market entry for small businesses
  • Punishment for anti-competitive behaviour
72
Q

The effects for complying with health and safety for businesses?

A
  • Costs from complying with the legislation
  • Enhanced company brand since it promotes a safe working environment
  • Increases employee motivation
73
Q

What is competition?

A

Whenever two or more businesses go after the same consumers, they are said to be in competition with one another.

74
Q

What competition brings?

A
  • Compete on low prices (which makes consumers happy)
  • Quality can be higher
  • Customer service improves
75
Q

Negative effects of competition?

A
  • quality could be sacrificed for price
  • businesses can eventually fail (unemployment - harm local economy)
  • consumer smaller firms as larger firms grow (leads to an anti-competitive market)
76
Q

What is market size?

A

Measurement of a particular market, such as the number of buyers and sellers or total sales volume or profits

77
Q

What is market price?

A

The average price of a product/service depending on what consumers are prepared to pay.

78
Q

Market expectations?

A

Consumers become accustomed to how products and services are delivered and how they are marketed.

79
Q

The four factors which go into how businesses analyse the rivalry of the market:

A
  • Threat of new entrants to the market
  • Bargaining power of market suppliers
  • Threat of substitute products/services
  • Bargaining power of market powers

A LEVEL BUSINESS (5 decks)

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