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Business Paper 2 > Theme 2 > Flashcards

Theme 2 Flashcards

1
Q

What is a LTD?

  • Pros and Cons
A

A business limited by shares owned by a small number of people.

+ Only liable for initial investment

  • Annual financial reports
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2
Q

What is a PLC?

  • Pros and Cons
A

A business limited by shares available to public.

+ Access to capital

  • Expensive to set up (min £50,000)
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3
Q

Limited vs Unlimited Liability

  • Which type of business is which
A

Limited (separate entity)
- Shareholders liable for initial investment
- LTD, PLC

Unlimited
- Owners liable for all financial obligations of business
- Sole Trader, Partnership

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4
Q

Name 3 things on a business plan

A

Executive summary
- Short overview of purpose and opportunity

Market Research
- Market and competitors

Sources Of Finance
- Loans & investment

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5
Q
  • 2 ways to speed up inflows
  • 2 ways to slow down outflows
A

Speed up
- Incentivise early payment (discount)
- Sell stock at reduced price

Slow Down
- Delay payments to suppliers
- Increase trade credit with suppliers

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6
Q

What is contribution and the formula?

A

Returns a business makes per unit

  • Difference between the variable costs of one unit and its selling price.

= revenue - Variable costs

= (revenue - Variable costs) / revenue

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7
Q

What is a margin of safety? And the formula

A

Difference between break even and current level of output

Current output level - break even level

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8
Q

Historical budgeting +/-

Zero based budgeting +/-

A

Historical
-> Using prev data
+ Reliable if operating for long time
- Cant adapt

Zero based
-> All spending must be justified
+ Eliminates unnecessary costs
- Time consuming

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9
Q

What is variance and the formula?

A

Difference between budgeted figures and actual figures
Budgeted figure - Actual figure

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10
Q

What is a statement of comprehensive income?

A

Shows income and expenditure over time whilst calculating profit.

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11
Q

Whats the difference between gross profit and operating profit?

A
  • Gross profit is after direct costs deducted
  • Operating profit is after indirect operating costs are deducted (Overheads)
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12
Q

What is profitability

A

A measure of profit against expenses

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13
Q

What is a Statement of financial position? (Balance Sheet)

A

A document recording assets and liabilities of a business

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14
Q

What is liquidity? What is the most ‘liquid’ asset?

A

Ability of a business to pay its debts when they fall due

  • Cash as fastest to turn into cash
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15
Q

What is current ratio and formula?

A

Determines If business has sufficient working capital to pay short term debt

Current assets / current liabilities

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16
Q

What is acid test ratio and formula?

A

More severe test of liquidity as inventory might not be very liquid

(Current Assets - Inventory) / Current Liabilities

17
Q

What is working capital? and formula

A

Money to pay for day to day running costs (bills, wages, stock etc)

Current assets - current liabilities

18
Q

4 methods of production?

A

Job Production
- Producing single unique units

Batch Production
- Group of similar products produced simultaneously

Flow Production
- Continuous, uninterrupted flow of production

Cell Production
- Teams responsible for different parts of production

19
Q

+/- of Job Production and Batch Production

A

Job Production
-> Producing single unique units
+ High margins, bespoke and unique
- High costs, labour intensive

Batch Production
-> Group of similar products produced simultaneously
+ Felxibility whilst achieving EOS
- High storage costs

20
Q

+/- of Flow Production and Cell Production

A

Flow Production
-> Continuous, uninterrupted flow of production
+ Very low costs & high productivity
- Low motivation & huge setup costs

Cell Production
-> Teams responsible for different parts of production
+ Motivated as in team
- Bottleneck for machine breakdown

21
Q

What are 3 factors effecting productivity?

A
  • Education and training of workforce
  • Motivated workers
  • Capital available (Automation)
22
Q

3 ways to add value

A
  • Features & UI (User Interface)
  • Improve packaging
  • Offer expert advice
23
Q

What is capacity utilisation and formula?

A

The use a business makes of its resources.

(Existing Output / Maximum Possible Output) x 100%

24
Q

How to increase capacity utilisation?

+/- of high capacity.

A

-> Sub contract
-> Overtime pay to workers

+ EOS
- Employees overworked and unhappy
- mistakes more likely

25
Q

How to decrease capacity utilisation?

+/- of low capacity.

A

-> Rationalisation (Redundancies and sale of assets)
-> Sub contract work from other businesses

+ Easy to grow
- Idle resources (machines not be used)

26
Q

What are 3 costs of poor stock management?

A
  • Opportunity Cost (Overstocking causes cash to be tied up)
  • Shrinkage (Stock damaged or stolen)
  • Too little stock (Customers unhappy - loss of sales)
27
Q

2 ways to minimise waste

A
  • Rotate stock - old stock sold first
  • Pricing strategies / promotions - Clear old stock
28
Q

What is Kaizen?

+ / -

A

constantly introducing small changes in a business to improve quality / efficiency.

+ Improved quaility

  • May not satisfy stakeholders as no immidiate results
29
Q

What is quality?

2 ways to improve quality

A

Extent to which a product matches the customers requirements

  • Invest in technology
  • High quality suppliers
30
Q

What is TQM (Total Quality Management)

3 principles of TQM

A

Management strategy based on quality being prioritised throughout the production process. Whilst limiting waste to increase profits

  • Quality Chains (supply chains)
  • Teamwork (teams identify opportunities and solve problems)
  • Customer Views (Improve on feedback)
31
Q

Define Boom and Recession and features of both.

A

Boom
-> High economic growth and production
- High Profits
- Low unemployment
- High inflation

Recession
-> Output starts to fall and growth declines
- Production declines as demand falls
- Governments use policies to stimulate growth

32
Q

Define Slump and Recovery and features of both.

A

Slump
-> Prolonger period of economic decline
- High levels of unemployment
- Low interest rates

Recovery
-> Economy starts to pick up after a period of decline
- Spare capacity is used
- Employment rates increase

33
Q

What is the business cycle?

A

Fluctuation of GDP over time

34
Q

What are the 5 areas of legislation that have significant impacts on a business?

A
  • Consumer Protection
    (Safe product)
  • Competition Policy
    (Abuse of market power - unfair conditions for suppliers)
  • Employee Legislation
    (Exploiting workers)
  • Environment Protection
    (Pollution & Wildlife)
  • Health & Safety Legislation
    (Hygiene, noise, temperature etc)

Business Paper 2 (2 decks)

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