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Business A-level (Edexcel) > Theme 2 - Managing Business Activities > Flashcards

Theme 2 - Managing Business Activities Flashcards

1
Q

What is finance

A

The management of the investment needed to open, run and grow a business

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2
Q

Give 3 reasons why businesses raise finance

A
  1. To pay debts
  2. To expand
  3. To start-up
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3
Q

Give the 3 sources of internal finance

A
  1. Owner’s capital (personal savings)
  2. Retained profit
  3. Sale of assets
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4
Q

Give an advantage & disadvantage of retained profit

A

+ no interest
- no replenishment guarantees

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5
Q

Give an advantage & disadvantage of sale of assets

A

+ Quick cash
- may not raise enough/ may not sell

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6
Q

What is external finance

A

Investment for the business that is obtained from banks, investors and lenders outside of the business

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7
Q

What is a source of finance

A

Where the finance comes from

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8
Q

What is a method of finance

A

The use of finance or what it would be suitable for

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9
Q

What are the 6 sources of external finance

A
  1. Friends & family
  2. Banks
  3. Peer to peer funding
  4. Business Angels
  5. Crowd funding
  6. Other businesses (parent companies/ conglomerates)
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10
Q

Give an advantage & disadvantage of using other businesses as a source of finance

A

+ allows conglomerates to support smaller subsidiaries
- may result in a loss of capital if investing in a business that might be unsuccessful

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11
Q

Give an advantage & disadvantage of using Crowd Funding as a source of finance

A

+ business can generate funds & promote business at same time
- may not raise enough

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12
Q

Give an advantage & disadvantage of using Business Angels as a source of finance

A

+ investors have experience & expertise
- have to give up a share of business

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13
Q

Give an advantage & disadvantage of using Peer to Peer funding as a source of finance

A

+ Businesses get lower interest rates than with banks
- not enough investors want to invest / not enough raised

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14
Q

Give an advantage & disadvantage of using Banks as a source of finance

A

+ don’t interfere with business operations
- Interest & business plan needed

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15
Q

Give an advantage & disadvantage of using Friends & Family as a source of finance

A

+ offered without the need for security, at lower interest rates & over longer periods
- may cause tension between F&F

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16
Q

What are the 7 methods of finance

A
  1. Loans
  2. Share capital
  3. Venture capital
  4. Overdrafts
  5. Leasing
  6. Trade credit
  7. Grants
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17
Q

What is a sales forecast

A

A forecast that estimates the volume or value of future sales using market research or past sales data

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18
Q

What are the 5 purposes of making a sales forecast

A
  1. Avoid cash flow problems
  2. Frees up management time
  3. Production capacity
  4. See if workers need to be employed
  5. Start promotional activity
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19
Q

Give 4 factors that affect sales forecasts

A
  1. Consumer trends
  2. Economic variables
  3. Actions of competitors
  4. Difficulties of sales forecasting
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20
Q

What is liquidity

A

The business’ ability to turn its assets into cash to pay its current liabilities

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21
Q

Where are the most liquid and least liquid assets listed on a balance sheet (statement if financial position)

A

Least liquid
Down to
Most liquid

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22
Q

Why is liquidity of a business measured

A

Used to measure how healthy/ successful the business is (e.g. for investors)

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23
Q

What are current assets and liabilities

A

Current assets = assets that can be converted into cash within the year
Current liabilities = liabilities that can be converted into cash within the year

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24
Q

What is the equation for non-current ratio

A

Non current assets / non current liabilities

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25
Q

What is the ideal current ratio and why

A

1.5 : 1
Any lower and it’s too risky as it’s assuming all stock can be sold
Any higher and it’s too much money tied in stock

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26
Q

What is the Acid ratio (quick ratio) + equation

A

(Current assets - inventory ) / current liabilities
Acid test is current ratio but without stock (more realistic measure of liquidity)

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27
Q

Name 2 ways liquidity can be improved

A

• Reduce amount of stock held (quicker dispatch)
• reduce credit periods offered to customers
• pay suppliers later on trade credit
• increase borrowing LT & clear ST debts

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28
Q

What is working capital & current + equation

A

The day to day finance needed in a business
Current assets - current liabilities

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29
Q

What is production definition

A

The total amount of output that is produced in a certain time period

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30
Q

Name 4 types of methods of production & describe them

A

Job
Batch
Flow
Cell
(If stuck on description check notes)

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31
Q

What is productivity

A

The output per hour of input (labour or capital)

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32
Q

Name 2 ways to improve productivity

A

• productivity bonus
• productivity deal
• staff training
• investment in new machinery and equipment

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33
Q

What are 3 things that influence factors of productivity

A
  1. Quality of inputs in the production process
  2. Labour shifts
  3. Investment in new technology
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34
Q

Why is high productivity good

A

More productive = more likely to meet demand = in a position to charge more competitively = first mover advantage

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35
Q

What is the equation for Average Costs (AC)

A

Total costs (TC) / output

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36
Q

Name 2 ways to increase efficiency

A

• cutting costs
• increase productivity
• reconsider design mix so it’s easier & cheaper
• adopt a lean production approach

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37
Q

Give 2 advantages & disadvantages of Labour intensive production

A

+ humans can be retrained to perform new tasks
+ problem solve
- have to pay wages
- harder to manage
- unreliable

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38
Q

Give 2 advantages & disadvantages of Capital intensive production

A

+ investment cheaper overtime
+ works 24/7 without breaks
- high initial costs
- not flexible

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39
Q

What is the formula for current ratio

A

Current assets/current liabilities

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40
Q

What is the definition of capacity utilisation

A

The extent to which the max output capacity is being utilised

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41
Q

What is the calculation of capacity utilisation

A

= current output / maximum output X100

(Expressed as a %)

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42
Q

Name 2 ways to increase capacity

A

• reducing prices which increased demand
• reduce what is offered
• advertising which increases demand

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43
Q

Give 3 implications of capacity under-utilisation

A
  • higher fixed costs per unit
  • unmotivated staff (not busy)
  • impact on brand image
  • business may need to rationalise
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44
Q

Give 3 implications of capacity over-utilisation

A
  • can damage reputation
  • can put too much strain on resources (mainly in manufacturing)
  • staff may do too much overtime causing accidents
  • no time to maintain machinery or train staff
  • quality suffers due to mistakes
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45
Q

What is the calculation for contribution

A

= selling price - variable cost (per unit)

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46
Q

What is the calculation for break-even

A

= TFC / contribution

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47
Q

What is the calculation for Margin of Safety

A

= actual sales - break-even sales

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48
Q

Name 3 strengths of break-even analysis

A

+ shows how long it will take for a start-up to be profitable
+ help entrepreneur/investors understand viability of a business
+ illustrates importance of keeping FC low
+ calculations are quick and easy, great for quick estimates

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49
Q

Name 3 limitations of break-even analysis

A
  • unrealistic assumptions, not sold at same price for different output/ FC vary
  • sales are unlikely to be same as output (can’t sell all product)
  • VC don’t stay same (EofS/ bargaining power)
  • most businesses sell more than 1 product - harder to calculate BE
  • BE analysis should be seen as planing aid rather than a decision-making tool
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50
Q

What is a budget (definition)

A

A financial plan that a business (or department) sets about costs and revenue
They are used to monitor the financial performance of any aspect of the business

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51
Q

Name 2 purposes of budgeting

A

• Planning & monitoring
• Control
• Coordination & communication
• Motivation & Efficiency

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52
Q

What are the 2 types of budgeting

A

Historical figures (based on historical data)
Zero based

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53
Q

What is zero based budgeting

A

Involves not setting budgets but rather having all spending justified

Useful when business needs to control costs closely
- Time consuming

54
Q

What is a budget variance (definition)

A

= a difference between a figure budgeted and actual figure achieved at the end of the budgetary period
(Seeks the reasons for differences)

55
Q

What is the calculation for budgetary variance

A

= actual sales/profit/costs - budgeted sales/profit/costs

56
Q

What is a favourable variance

A

Where the actual figure achieved is better than the budgeted figure

57
Q

What is an adverse variance

A

Where the actual figure achieved is worse than the budgeted figure

58
Q

Name 3 difficulties of budgeting

A
  • budgeting can lead to competition & conflict between departments
  • unachievable or unambitious budgets can demoralise = low motivation
  • can encourage short-termism
  • budgets take time & skill to set, monitor & review
  • budget only as good as data used to construct it
59
Q

What is profit (definition)

A

= the financial gain of a business through trading and can be found by deducting expenditure from revenue

60
Q

What is profit (calculation)

A

= Total revenue (TR) - Total costs (TC)

61
Q

What is the formula for gross profit

A

= sales revenue - cost of sales (VC)

62
Q

What is the formula of operating profit

A

= gross profit - other expenses (operating costs (FC & some VC))

63
Q

What is the formula for net profit

A

= operating profit - interest

64
Q

Name 2 ways of improving profitability through increasing revenue

A

• have a sale (reduce prices)
• advertise more
• promote the products
• increase price (if inelastic)

65
Q

Name 2 ways of improving profitability through reducing costs

A

• restructuring (cheaper suppliers/ moving premises)
• delayering & redundancies
• automating production

66
Q

Name 2 differences between profit & cash

A
  1. Profit is recorded straight away & cash isn’t recorded until paid out or received
  2. Business can trade without profit but will go bust without cash
67
Q

What are the 3 types of stock

A
  1. Raw materials
  2. Finished goods
  3. Work in progress
68
Q

What can businesses use to show their stock level

A

Bar Gate stock graph

69
Q

What is a lead time

A

The time between point of order & delivery

70
Q

Give 2 types of stock management

A

JIT
JIC

71
Q

What is Kanban

A

A highly effective Japanese term developed by Toyota that is a sign based scheduling system triggering the logistical chain of production

72
Q

Give 3 ways to reduce waste

A

• suitable stock rotation method
• use computers to monitor stock levels
• transport perishable goods quickly
• find create methods of disposing waste

73
Q

What is Lean production

A

Cutting waste in the production process

74
Q

Give 2 advantages of lean production

A

+ increases productivity
+ reduces costs & cuts lead time

75
Q

What is buffer stock

A

The minimum stock level that is kept

76
Q

What is a re-order level

A

When stock is re-ordered (can be automatic)

77
Q

Give an advantage and disadvantage of buffer stock

A

+ can meet spikes in consumer demand quickly (flexibility)
- money tied up in holding stock (worse liquidity) & risk of that being wasted

78
Q

What are 6 economic influences

A
  1. Inflation
  2. Interest rates
  3. Tax & gov spending
  4. Exchange rates
  5. Business cycles
  6. Economic uncertainty
79
Q

What is inflation

A

The sustained increase of prices overtime in an economy (aim is 2%)

80
Q

How is inflation measured

A

Consumer price index (CPI) & “ The basket of goods”

81
Q

Give 2 effects of inflation on businesses

A

• increased cost of supplies
• workers claim higher pay
• uncertainty & loss of confidence
• less exports & investments

82
Q

What is the calculation for total repayment

A

Borrowed amount x interest rate

83
Q

What is the calculation for interest rate

A

(Total repayment - borrowed amount) / borrowed amount
X100

84
Q

What are interest rates

A

The reward for saving or the cost of borrowing

85
Q

What is a tax

A

A financial charge made by the government on individuals, consumers & businesses

86
Q

Give 3 taxes

A

• corporation tax
• income tax
• VAT

87
Q

What are exchange rates

A

The price of one currency in exchange for another (values change due to supply and demand change for a currency)

88
Q

What is an appreciation of currency

A

Rise in the currency (e.g. pound) against other currencies

89
Q

What is a depreciation in the currency

A

Decrease in the currency (e.g. pound) against other currencies

90
Q

What is the acronym used to show exchange rate changes effects

A

S trong
P ound
I mports
C heap
E xports
D ear

91
Q

What diagram show cases booms, downturns, depression, recession, trough, recovery

A

The business cycle diagram

92
Q

What is economic uncertainty

A

Results from behaviour of different economic influences that are outside of the business’ control and can’t be predicted accurately

93
Q

Give 2 disadvantages of economic uncertainty

A
  • makes decision making difficult
  • reduces business confidence
94
Q

What tool is used to analyse the internal AND external environment

A

SWOT

95
Q

What tool is used to analyse the external environment

A

PESTLE

96
Q

What does SWOT stand for

A

(Internal)
Strengths
Weaknesses
(External)
Opportunities
Threats

97
Q

What does PESTLE stand for

A

Political
Economic
Social
Technological
Legislative
Environmental

98
Q

What is legislation

A

Laws set by the gov that businesses must abide by

99
Q

Give 2 examples of legislation in relation to businesses

A

Health and Safety at Work Act (HASAWA)
The consumer rights act 2015

100
Q

Give 2 advantages of businesses following laws

A

+ good brand publicity
+ better relationship & trust with stakeholders

101
Q

Give 2 disadvantages of following laws for businesses

A
  • costly as can be sued, fined or face legal sanctions
  • bad PR
102
Q

What is a competitive environment

A

The immediate environment surrounding a firm; includes suppliers, customers, rivals

103
Q

Give one determinant of a competitive environment

A

Market structure
(Not all market structures are the same. Different features & characteristics)

104
Q

Give 3 features & characteristics of markets

A

• no. Of businesses in the market
• size of market
• barriers to entry & exit
• the knowledge that buyers & sellers possess
• degree of interrelationship ( how related products are in market & businesses working together to do research)

105
Q

Give 2 ways a competitive environment can impact a business

A

• price
• profit
• marketing
• innovation

106
Q

What are the 4 ways the market can be measured

A

International
National
Regional
Local

107
Q

How is the size of a market measured

A

The no. Of customers + businesses that buy & sell a particular good

108
Q

What issues may businesses face when operating a large market

A

Lots of competitors

109
Q

What issues may businesses face when operating in a small market

A

Less competitive
Big start up costs

110
Q

What is unlimited liability

A

When business owners are liable for the business debts

111
Q

What does unincorporated mean

A

Where owner and business are legally seen as the same

112
Q

What is limited liability

A

Where owners / shareholders only lose the investment in business when it goes into debt

113
Q

What does incorporated mean

A

Where business and owners are seen as two separate legal entities

114
Q

What is a business plan

A

A plan for the development of the business that gives details on products, resources and forecasts

115
Q

Give 3 things that might be found in a business plan

A

Buying & production plans
Business objectives
Financial forecasts
Personnel record
Finance records (sources etc)

116
Q

What is a cash flow forecast

A

The prediction of all expected receipt & expenses of a business
(20 % of businesses will fail because of poor cash flow)

117
Q

How do you calculate net cash flow

A

Cash Inflow - cash outflow

118
Q

What is the opening balance

A

How much a business has at the start of a month

119
Q

How do you calculate the closing balance

A

Opening balance + net cash flow

120
Q

Give 2 uses of cash flow forecasting

A

• identifying timings of cash shortages & surpluses
•Supporting application for finance (solvency)
•Enhancing the planning process
•Monitoring cash flow

121
Q

Give 2 drawbacks of cash flow forecasting

A
  • based on estimates & difficult to predict sales revenue
  • subject to uncontrollable external shocks
  • managers can spend too much time & resources creating them
122
Q

When in the UK did business failures peak

A

2009 at around 26,000

123
Q

Give 3 internal causes of business failure

A

Lack of planning
Cash flow issues
Lack of funds
Failure to innovate
Poor leadership

124
Q

Give 3 external causes of business failure

A

Competition
Changes in legislation
Change in consumer taste
Economic conditions
Changes in market prices

125
Q

Give 2 financial causes for business failure

A

Inability to pay debts
Cant fulfil orders
Cant pay suppliers

126
Q

Give 2 non financial causes for business failure

A

Lack of skills
Poor leadership or management
Failure to innovate and adapt

127
Q

What is quality

A

Features of a product that allow it to satisfy customers’ needs

128
Q

What is Quality assurance

A

A method of working for businesses that Involves checking quality throughout the production process.

129
Q

What is quality control

A

A production process that involves a final check to make sure the quality of the g/s meets specified quality performance criteria

130
Q

What is total quality management (TQM)

A

A managerial approach that focuses on quality & aims to improve the effectiveness, flexibility & competitiveness of the business

Business A-level (Edexcel) (5 decks)

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