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A level edexcel Business > Theme 2 > Flashcards

Theme 2 Flashcards

1
Q

Working capital

A
  • businesses day to day finance (net current assets)
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2
Q

Key financial concerns for new business start ups

A
  • start up costs
  • running costs
  • how much customers spend
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3
Q

Raising finance short term

A
  • bank overdraft

- trade credit

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4
Q

Raising finance medium term

A
  • bank loan

- leasing

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5
Q

Raising finance long term

A
  • owners savings
  • sales of shares
  • reinvested profits
  • venture capital loans
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6
Q

Financial management for an established business

A
  • budgeting

- cash flow forecasting

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7
Q

Need for finance

A
  • starting up
  • growing
  • cashflow problems
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8
Q

Internal finance

A
  • retained profit
  • sales of assets
  • improved management of working capital
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9
Q

External sources of finance

A
  • family and friends
  • banks
  • peer to peer funding
  • business angels
  • crowd funding
  • other businesses
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10
Q

External methods of finance

A
  • Loans
  • share capital
  • venture capital
  • overdrafts
  • leasing
  • trade credit
  • grants
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11
Q

Finance appropriate for unlimited liability businesses

A
  • owners capital
  • bank finance
  • leasing
  • trade credits
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12
Q

Finance appropriate for limited liability businesses

A
  • share capital
  • bank finance
  • angel or venture capital
  • peer-to-peer or crowdfunding
  • leasing and trade credit
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13
Q

Relevance of business plan in obtaining finance

A
  • executive summary
  • product/service
  • market
  • marketing plan
  • operational plan
  • financial plan
  • conclusion
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14
Q

Analysis of cash flow forecast

A
  • difference between opening + closing balance
  • monthly closing balance to assess trends
  • analyse timings of inflows/outflows
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15
Q

Uses and limitations of cash flow forecast

A
  • keep stock of raw materials to minimum
  • helps budgeting
  • uncertain (external factors)
  • raw data inaccurate
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16
Q

Purpose of sales forecasts

A 
- determines:
Human resource plan (staff)
Cash flow forecast
Profit forecast
Production scheduling
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17
Q

Factors affecting sales forecasts

A
  • consumer trends
  • economic variables (income elasticity, exchange rates, tax)
  • competitors
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18
Q

Difficulties of sales forecasting

A
  • changing economy

- dynamic market

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19
Q

2 ways to measure sales

A
  • volume

- value

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20
Q

Ways to boost revenue

A
  • higher price

- lower price higher volume

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21
Q

Why managers need to be aware of costs of production

A
  • assess profitability

- compare with forecasted or budgeted figures

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22
Q

Fixed costs examples

A
  • rent

- salaries

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23
Q

Variable costs examples

A
  • raw materials

- commission

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24
Q

Break even calculation

A

FC/(sppu - vcpu)

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25
Q

Break even charts

A
  • total costs
  • fixed costs
  • total revenue
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26
Q

Margin of safety

A
  • the amount by which demand can fall before the firm starts to make a loss
  • current output - break even output
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27
Q

Factors influencing break even

A
  • fall in demand
  • competitors
  • changing production (labour/capital)
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28
Q

Interpretation of break even graphs

A
  • estimate break even point
  • assess impacts of planned price changes
  • take decision on whether to produce own products or purchase externally
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29
Q

The purpose of budgets

A
  • prevent overspending
  • measure success
  • enable spending power to be delegated
  • motivate staff in a department
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30
Q

How to construct a budget

A
  • make judgement of likely future sales revenues
  • set cost ceiling which allows for profit
  • break down budget into departments/managers
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31
Q

Types of budget

A
  • historical (based on previous)

- zero based budget (all spending must be justified)

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32
Q

Best criteria for setting budgets

A
  • relate to business objective

- involve managers in process

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33
Q

Variance analysis

A
  • favourable variance (higher profit than expected)

- adverse variance (lower profit than expected)

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34
Q

Difficulties of budgeting

A
  • seasonal businesses (doesn’t work)

- budgeting system could cost more in terms of time and money (opportunity costs)

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35
Q

Gross profit

A

Revenue - cost of sales

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36
Q

Operating profit

A

Gross profit - fixed overheads

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37
Q

Net profit

A

Operating profit - tax

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38
Q

Statement of comprehensive income (profit and loss account)

A
  • plc required to state annual profits

- shows gross, operating, net profits

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39
Q

Measuring profitability

A

(Type of profit/sales revenues)x100

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40
Q

Value of measuring profit margins

A
  • shows growth
  • profitability
  • areas needed to be improved
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41
Q

Ways to improve profits

A
  • increase revenue (promotion, price strategy)
  • decrease costs (switch suppliers, reduce staff, wastage)
  • combination of above
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42
Q

Ways to improve profitability

A
  • increase price

- cut costs

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43
Q

Liquidity

A
  • the ability of a firm to find the ash to pay its day to day bills
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44
Q

Measuring liquidity

A
  • current ratio

- acid test

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45
Q

Current ratio

A
  • current assets/current liabilities

- ideal 1.5:1

46
Q

Acid test

A
  • (current assets-inventories)/current liabilities

- ideal 1:1

47
Q

Ways to improve liquidity

A
  • selling under used assets
  • raising share capital
  • increasing long term borrowings
  • postponing investments
48
Q

Working capital

A
  • finance available for the day to day running of the business
49
Q

Working capital cycle

A
  • how long it takes for a complete cycle from to cash out (buying stock) to cash back (payment from customer)
50
Q

Factors influencing working capital

A
  • customer financial difficulties

- inflation of costs (raw materials)

51
Q

Contingency finance

A
  • planning for the unexpected by either keeping a cash cushion in the firms current account or keeping an overdraft facility little used
52
Q

How should a business manage its working capital

A
  • control cash used (minimising stock, low customer credit)
  • minimise spending on fixed assets
  • plan ahead by estimating cash needed
53
Q

The importance of cash

A
  • day to day bills
  • buy supplies in bulk
  • fund long term development
54
Q

Internal causes of business failure

A
  • marketing failure
  • financial failure
  • system failure
55
Q

External causes of business failure

A
  • rival usp
  • arrival of competitor
  • economic climate
  • behaviour of banks
56
Q

Financial causes of business failure

A
  • running below break even
  • cash flow crisis
  • overtrading
57
Q

Non financial causes of business failure

A
  • lurch in sales for competition

- declining sales for business

58
Q

What is resource management steps

A
  • design
  • establishing the supply chain
  • working with suppliers
  • managing quality
  • achieving high levels of efficiency
59
Q

What is resource management

A
  • the central business function of creating the product or service and delivering it to the customer
60
Q

Methods of production

A
  • job production (one-off)
  • batch production (number of identical items)
  • flow production (continuous production of single item)
  • cell production (small production group working, flexible)
61
Q

Productivity

A
  • amount a worker produces over given time
62
Q

Importance of productivity

A
  • measure performance
  • impacts costs per unit
  • competitiveness
63
Q

Factors influencing productivity

A
  • level of investment in modern equipment
  • skill level
  • improve employee motivation
64
Q

Difficulties of increasing productivity

A
  • directors focus on profits
  • not often a direct target
  • production focused (ensures customer orders are fulfilled)
65
Q

Link between productivity and competitiveness

A
  • lower productivity causes higher labour costs per unit

- less competitive wth rivals

66
Q

Labour intensive production

A
  • labour costs high % of total costs
67
Q

Capital intensive production

A
  • large % of total costs used purchasing and operating machinery
68
Q

Importance of capacity

A
  • vital to cope with changes in demand
69
Q

How to change capacity

A
  • increase production space

- increase storage space

70
Q

How capacity utilisation is measured

A
  • (current output/max possible output) x 100
71
Q

Implications of under utilisation of capacity

A
  • low efficiency

- fixed costs per unit increase

72
Q

Implications of over utilisation of capacity

A
  • if demand rises you have to turn it away (competitors benefit)
  • struggle to service machinery and train staff
  • demotivation (stress)
73
Q

Ways of improving capacity utilisation

A
  • increase demand

- cut capacity

74
Q

Types of stock

A
  • raw materials and components
  • work in progress
  • finished goods
75
Q

Stock control charts features

A
  • stock levels
  • max stock level
  • reorder level
  • min stock level (buffer stock)
76
Q

Implications of poor stock control

A
  • opportunity costs (stock prevents use of capital in other ways)
  • cash flow problems
  • increased storage costs
  • increased finance costs
  • increased stock wastage
77
Q

Costs of holding too few stocks

A
  • lost orders (urgent orders cannot be met)
  • worker downtime (delayed orders)
  • loss of reputation
  • stockholding costs
78
Q

Just in time

A
  • attempt to operate with zero buffer stock
79
Q

Waste minimisation method

A
  • just in time
80
Q

Competitive advantage from lean production

A
  • lean production aims to produce more using less, eliminating waste
  • max input from staff
  • focuses upon quality of supplies and production
81
Q

Advantages of lean production

A
  • higher labour productivity
  • requires less stock
  • marketing advantages (less defects)
82
Q

Importance of quality

A
  • min level expected by customers
  • competitiveness
  • reputation
83
Q

Methods of improving quality

A
  • quality control (inspection that output meets min requirements)
  • quality assurance (govern quality at every stage in production)
  • total quality management (embedded philosophy across workforce to max quality)
84
Q

Other quality initiatives

A
  • quality circles (employees meet together to identify problems)
  • zero defects (aim to produce goods with no faults)
85
Q

Continuous improvement (kaizen)

A
  • improvements based on ideas rather than investment in tech

- small changes (cumulative effects are substantial)

86
Q

Goal of kaizen programme

A
  • convince employees they have 2 jobs
    Doing their job
    Looking for ways to improve it
87
Q

Competitive advantage from quality management

A
  • more repeat purchase
  • brand building
  • premium price
  • products easier to place
88
Q

Factors that create current economic climate

A
  • business cycle
  • changes in inflation
  • changes in interest rates
  • changes in exchange rates
  • changes in tax and govt spend
89
Q

Inflation

A
  • measures % annual rise in the average price level
90
Q

Effects of inflation on businesses

A
  • firms with large loans benefit (reduces value of money owed)
  • can damage profitability (higher costs if increase)
  • if costs rising faster than other countries, firms find it hard to be competitive with firms abroad
91
Q

Interest rates

A
  • price charged by a bank per year for lending money or providing credit
92
Q

Why are interest rates important for firms

A
  • affects consumer demand
  • affect total operating costs (higher costs of running overdraft)
  • less attractive for firm to invest into future
93
Q

Exchange rates

A
  • quantity of foreign currency that can be bought with one unit of domestic currency
94
Q

Impact of high exchange rate on firms with large export markets

A
  • low exchange rate (weak pound) benefits company exporting

- if pound appreciates company will have to charge higher price abroad (lower demand)

95
Q

Impact of exchange rates on firms that import most of raw materials or stock

A
  • strong pound benefits

- reduces cost of buying goods abroad

96
Q

How taxation and govt spending affect business

A
  • if inflation increases, govt could increase income tax

- cutting demand for products and services produced by businesses

97
Q

Effect of economic uncertainty on the business environment

A
  • unable to forecast demand

- due to factors (exchange rates, economic growth, value of product)

98
Q

GDP

A
  • value of all goods and services produced in a country in a year
99
Q

Discretionary income

A
  • income after deducting taxes and fixed payments
100
Q

Economic climate

A
  • atmosphere surrounding economy
101
Q

Legislation

A
  • laws initiated by govt but passed by parliament that relate to business operations and therefore employers, general public and environment
102
Q

5 ways law affects businesses

A
  • consumer protection
  • employee protection
  • environmental protection
  • competition policy
  • health and safety
103
Q

Consumer protection

A
  • sale of goods act (must be fit for purpose)

- trade descriptions act (every claim is true)

104
Q

Employee protetcion

A
  • min wage
  • right to contract of employment (job security)
  • right to sick, maternity, paternity leave
  • redundancy (payments)
  • trad union rights
105
Q

Environmental protection

A
  • landfill tax

- environmental protection act (waste management and emissions control)

106
Q

Competition policy

A
  • investigating takeovers and mergers
  • investigating possible anti-competitive practices
  • bring criminal proceedings against those committing cartel offences
107
Q

Health and safety

A
  • health & safety at work act (provide safe working environment)
108
Q

Degree of competition within a market

A
  • one dominant business (monopoly)
  • competition among few giants (oligopolies)
  • fiercely competitive market
109
Q

Competition and market size

A
  • big markets
  • small markets
  • changes in the competitive environment
110
Q

Responses of businesses to a changing competitive environment

A
  • price cutting
  • increase product differentiation (design, usp)
  • collusion (dealing with competitors)

A level edexcel Business (12 decks)

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