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Business AS > Theme 2 > Flashcards

Theme 2 Flashcards

1
Q

What are the three reasons for why you need finance?

A

1- starting up the business
2- growing the business
3- other problems (e.g. cash flow or large orders)

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2
Q

Who / what are business Angels?

A

Wealthy individuals who invest their personal capital into start-up companies.

(THINK OF DRAGONS DEN)

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3
Q

Is a loan from a bank short term, medium term or long term?

A

All three

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4
Q

Is an overdraft short or long term?

A

Short term

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5
Q

What does unlimited liability mean?

A

The finances of the business are treated as inseparable from finances of the business owner

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6
Q

There are 2 types of businesses that have unlimited liability, what are they?

A

1- sole traders

2- partnerships

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7
Q

How are unlimited liability businesses financed?

Hint= 3

A

1- owners capital
2- bank finance (e.g. a loan or an overdraft)
3- leasing (renting equipment rather than buying it)

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8
Q

How are limited liability businesses financed?

Hint= 5

A 
1- share capital 
2- bank finance 
3- venture or Angel capital investment 
4- peer-to-peer or crowdfunding
5- leasing and trade credit
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9
Q

What should the heart of a business plan be about?

A

Competitive advantage

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10
Q

What does forecasting mean?

A

Estimating future sales or costs with accuracy

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11
Q

What is the equation for sales revenue?

A

Sales volume x Price

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12
Q

How do you work out sales volume?

A

Number of units sold in a time period

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13
Q

What are fixed costs?

A

Costs which DON’T vary directly with the level of output (e.g. Rent, Equipment..)

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14
Q

What are variable costs?

A

Costs which vary DIRECTLY with level of output (e.g. Wages, Raw Materials)

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15
Q

What is the equation for total costs?

A

Fixed costs + Variable costs

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16
Q

What does break-even compare?

A

A firms revenue with its fixed and variable costs to identify the minimum level of sales needed to cover costs

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17
Q

How do you work out contribution per unit?

A

Selling price - Variable costs per unit

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18
Q

How do you work out total contribution?

A

Contribution per unit x Quantity sold

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19
Q

What is the equation for break-even output?

A

Fixed costs ➗ (Selling price per unit - Variable cost per unit)

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20
Q

What are the limitations of break even graphs?

Hint= 4

A

1- model is a simplification (assumes v costs increase constantly)
2- assumes firm sells output at a single price
3- assumes all output is sold
4- it is a static model (sales trends not taken into account)

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21
Q

Can you name the definition for budgets?

A

A target for costs or revenue that a department or a firm must reach in a given time

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22
Q

What do income budgets and expenditure budgets do?

A

IB- sets a floor (minimum target)

EB- sets a ceiling (maximum target)

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23
Q

What is a zero-based budget and what is a drawback to them?

A
  • means budget is 0 and budget holders must justify each pound they need
  • time consuming as can take a while to justify why you need £150,000 rather than £110,000
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24
Q

Can you say the calculation for net profit?

A

Operating profit - Financing and Tax

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25
Q

What does net profit mean?

A

Profit for the year

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26
Q

What is the calculation for Gross Profit?

A

Revenue - Costa of sales

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27
Q

How do you work out Operating Profit?

A

Gross profit - Fixed overheads

28
Q

Do you know what liquidity measures?

A

It measures the ability of a firm to find cash to pay its bills

29
Q

What does current ratio do?

A

Examines liquidity position of the firm

30
Q

How do you work out current ratio?

A

Current assets ➗ Current liabilities

31
Q

How is current ratio and acid test ratio expressed?

A

As a ratio, e.g. 2:1

32
Q

What does acid ratio examine?

A

Businesses liquidity position but excludes stock from total of current assets

33
Q

How do you work out acid ratio test?

A

(Current assets - Inventories) ➗ Current liabilities

34
Q

How can you improve liquidity?

Hint= 4

A

1- sell under-used fixed assets
2- raise more capital share
3- increase long term borrowings
4- postpone planned investments

35
Q

What are the three factors influencing efficiency?

A

1- level of wastage in production process
2- if you have the right technology
3- if managers have achieved the right balance between the variable factors that affect efficiency

36
Q

What does the definition productivity mean?

A

Output per worker in a time period

37
Q

Can you explain what job production means?

A

Producing a one-off item for a customer

38
Q

Do you know what batch production means?

A

Producing a set number of identical items

39
Q

How would you explain the definition flow production?

A

Continuous production of a single item

40
Q

What does cell production mean?

A

Small production line (group working process)

41
Q

Does capital intensive production have high or low financial barriers to entry?

A

High

42
Q

Does labour intensive production have high or low financial barriers to entry?

A

Low

43
Q

What is the equation for capacity utilisation?

A

Current output ➗ maximum possible output x 100%

44
Q

What does capacity utilisation measure?

A

Firms output level as a % of the firms maximum output level

A football stadium is at its full capacity when all the seats are full

45
Q

What is buffer stock?

A

A minimum stock level held in case of emergency stock needed

46
Q

Can you name 2 implications of having too much stock?

A

1- prevents firms from re-investing
2- increased storage costs
3- increased stock wastage if product goes out of date / style
4- increased finance costs

47
Q

Can you name 2 implications of having too little stock?

A

1- can’t manage last minute orders

2- worker downtime if components have been delayed

48
Q

What does JIT management of stock mean?

A

The attempt to operate with a zero buffer stock

49
Q

What does lean production aim to do?

A

Produce more whilst using less

50
Q

What kind of firm benefits from inflation and why?

A
  • firms with large loans

- because inflation erodes the real value of money owed

51
Q

What are interest rates?

A

Prices charged by a bank per year for lending money or providing credit

52
Q

What do exchange rates measure?

A

Quantity of foreign currency that can be bought in one unit of domestic currency

53
Q

Can you explain the term appreciation?

A

A fall in the value of the pound

54
Q

What are the four effects on business of changes in the economy?

A

1- the business cycle
2- inflation
3- interest rates
4- exchange rates

55
Q

What does retained profit mean?

A

Profit kept in the company rather than payed to shareholders as a dividend

56
Q

Can you name the 3 sources of internal finance?

A

1- owners capital
2- retained profit
3- sale of assets

57
Q

What does the term legislation mean?

A

Laws passed by parliament that relate to business operations

58
Q

What does the sale of goods act say?

A
  • that good must be fit for purpose which they are sold

- they can get refunded if product is of bad quality

59
Q

What does the trade descriptions act say?

A
  • forces companies to ensure that every statement about the product is true
60
Q

Can you name the 5 key areas of the employment law?

A 
1- minimum wage 
2- right to a contract of employment 
3- increased right to sick, maternity and paternity leave 
4- redundancy 
5- trade union rights
61
Q

What is a disadvantage to having a minimum wage?

A

Business pays more as wages increase so they could fire some employees which leads to unemployment

62
Q

What is an advantage to trade union rights?

A

Can make working environment better so you have happy and motivated staff

63
Q

What are the two environmental laws?

A

1- landfill tax

2- environmental protection act

64
Q

What does the health and safety at work state and do?

A

1- states you have to provide a safe working environment

2- identifies and prosecutes any serious errors by companies

65
Q

What strategies could firms use to be more competitive in the market?

A
  • USP

- predatory pricing

66
Q

What firms might be forced to do in a competitive market?

A

1- price cut
2- increase product differentiation
3- collusion (managers from diff firms assemble to discuss ways to work together to restrict supply and or raise prices)

Business AS (1 decks)

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