Theme 2 Flashcards
What is a LTD?
- Pros and Cons
A business limited by shares owned by a small number of people.
+ Only liable for initial investment
- Annual financial reports
What is a PLC?
- Pros and Cons
A business limited by shares available to public.
+ Access to capital
- Expensive to set up (min £50,000)
Limited vs Unlimited Liability
- Which type of business is which
Limited (separate entity)
- Shareholders liable for initial investment
- LTD, PLC
Unlimited
- Owners liable for all financial obligations of business
- Sole Trader, Partnership
Name 3 things on a business plan
Executive summary
- Short overview of purpose and opportunity
Market Research
- Market and competitors
Sources Of Finance
- Loans & investment
- 2 ways to speed up inflows
- 2 ways to slow down outflows
Speed up
- Incentivise early payment (discount)
- Sell stock at reduced price
Slow Down
- Delay payments to suppliers
- Increase trade credit with suppliers
What is contribution and the formula?
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
What is a margin of safety? And the formula
Difference between break even and current level of output
Current output level - break even level
Historical budgeting +/-
Zero based budgeting +/-
Historical
-> Using prev data
+ Reliable if operating for long time
- Cant adapt
Zero based
-> All spending must be justified
+ Eliminates unnecessary costs
- Time consuming
What is variance and the formula?
Difference between budgeted figures and actual figures
Budgeted figure - Actual figure
What is a statement of comprehensive income?
Shows income and expenditure over time whilst calculating profit.
Whats the difference between gross profit and operating profit?
- Gross profit is after direct costs deducted
- Operating profit is after indirect operating costs are deducted (Overheads)
What is profitability
A measure of profit against expenses
What is a Statement of financial position? (Balance Sheet)
A document recording assets and liabilities of a business
What is liquidity? What is the most ‘liquid’ asset?
Ability of a business to pay its debts when they fall due
- Cash as fastest to turn into cash
What is current ratio and formula?
Determines If business has sufficient working capital to pay short term debt
Current assets / current liabilities
What is acid test ratio and formula?
More severe test of liquidity as inventory might not be very liquid
(Current Assets - Inventory) / Current Liabilities
What is working capital? and formula
Money to pay for day to day running costs (bills, wages, stock etc)
Current assets - current liabilities
4 methods of production?
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
+/- of Job Production and Batch Production
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
+/- of Flow Production and Cell Production
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
What are 3 factors effecting productivity?
- Education and training of workforce
- Motivated workers
- Capital available (Automation)
3 ways to add value
- Features & UI (User Interface)
- Improve packaging
- Offer expert advice
What is capacity utilisation and formula?
The use a business makes of its resources.
(Existing Output / Maximum Possible Output) x 100%
How to increase capacity utilisation?
+/- of high capacity.
-> Sub contract
-> Overtime pay to workers
+ EOS
- Employees overworked and unhappy
- mistakes more likely
How to decrease capacity utilisation?
+/- of low capacity.
-> Rationalisation (Redundancies and sale of assets)
-> Sub contract work from other businesses
+ Easy to grow
- Idle resources (machines not be used)
What are 3 costs of poor stock management?
- Opportunity Cost (Overstocking causes cash to be tied up)
- Shrinkage (Stock damaged or stolen)
- Too little stock (Customers unhappy - loss of sales)
2 ways to minimise waste
- Rotate stock - old stock sold first
- Pricing strategies / promotions - Clear old stock
What is Kaizen?
+ / -
constantly introducing small changes in a business to improve quality / efficiency.
+ Improved quaility
- May not satisfy stakeholders as no immidiate results
What is quality?
2 ways to improve quality
Extent to which a product matches the customers requirements
- Invest in technology
- High quality suppliers
What is TQM (Total Quality Management)
3 principles of TQM
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)
Define Boom and Recession and features of both.
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
Define Slump and Recovery and features of both.
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
What is the business cycle?
Fluctuation of GDP over time
What are the 5 areas of legislation that have significant impacts on a business?
- 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)
