Theme 3 Flashcards
PESTLE Analysis
Assessing the likely impact of the PESTLE factors in the external environment of a business
Monopoly
A single producer within a market in theory but in practice one with less than 25% market share
Business Cycle
Patterns of ups and downs in demand and output within the economy
Boom
Higher levels of customer demand, business confidence, profits, and investment
Recession
Falling levels of customer demand, business confidence, profits, and little investment
Slump
Very low levels of customer demand, business confidence, profits, and investment
Recovery
Slowly rising levels of customer demand, business confidence, profits, and investment
GDP
Total value of a country’s output over one year
GNP
Total value of a country’s output over one year plus net income from abroad. Used more
Interest rate
The cost of borrowing money and the return for lending money. Set by the Monetary Policy Committee
Exchange rate
The price of one country’s currency is expressed in another currency.
Inflation
An increase in the general level of prices of goods within an economy. Fall in the purchasing power of money
Deflation
A decrease in the general level of prices of goods within an economy. Rise in the purchasing power of money
Cost-Push inflation
Occurs when there is an increase in the costs of production forcing prices up
Demand-Pull inflation
Where prices rise because there is excess demand in the economy
Social Responsibility
The duties of a company towards employees, customers, society, and the environment
Ethical Behaviour
Actions and decision that are seen to be morally correct
Technological change
Adapting new applications of practical or mechanical sciences to industry and commerce
Franchise
When a business (franchisor) gives the right to supply its products to another business (franchisee). Involves licensing of trademarks and methods of doing business
Patent
An official document granting the holder to the right to be the only producer or user of the product or process
Incorporated business
Has a legal identity that is separate from the individual owners. The business can own assets, owe money, and enter into contracts
Unincorporated business
No distinction in law between the individual owner of the business or the company itself.
Unlimited liability
Owners of the business are liable for all the debts that the business may incur
Limited liability
Where the owners of the business are liable for the share capital they invested into the firm and nothing else
Sole Trader
A business owned by one person
Private Limited Company (Ltd)
A small to medium-sized company usually run by a small group of individuals who own it
Public Limited Company (PLC)
A business with limited liability, a share capital of over £50,000, and generally, a wide spread of shareholders
Business Plan
A report describing the marketing strategy, operational issues, and financial implications of a business start-up
Corporate Aims
The long-term intention of a business
Stakeholder
An individual or group with a direct interest in the activities and performance of an organisation
SWOT Analysis
A technique that allows the company to assess its overall position.
Internal audit (strengths and weaknesses): represents the PRESENT position of the product or company.
External audit (opportunities and threats): represents the FUTURE potential of the company.
Mission Statement
Catch summary of reasons why a business exists
Aim
Outlines what the business wants to achieve in long-term
Mission
Outlines the purpose of the business
Objectives
Specific outcomes of a business wants to achieve
Strategy
Medium to long-term plan to achieve corporate objectives
Porter’s strategic matrix
finds a way to achieve sustainable competitive advantage over other competitive products and firms in the market
Differentiation strategy
Superior product quality, finding the unique selling point
Low-cost strategy
low-cost operator
Ansoff’s matrix
helps identify new market of potential marketing strategies for a business
Porter’s Five Forces
Buyers
Suppliers
Substitutes
New Entrants
Existing rivals
Profitability
The quality or state to be profitable, the capacity to make a profit
Economies of Scale
This happens when unit costs fall as output rises
Mergers
Combination of two separate businesses that have agreed to form a new firm
Takeover
Acquiring control over another business
Organic growth
Expansion within the business
Inorganic growth
Expansion beyond the business
Quantitative Sales Forecast
based on historical sales data, that allows businesses to predict future revenue, make informed decisions, and plan future sales strategies
Extrapolation
Using trends established from historical data to forecast the future.
Correlation
Looks at the strength of the relationship between two variables
Investment appraisal
The process of analysing whether investment projects are worthwhile
Payment Method
The time it takes for a project to repay its initial investment
Annual Average Return (ARR)
Annual percentage return on an investment project based on average returns earned by the project.
Net Present Value (NPV)
Calculates the current monetary value of the project’s future cash flows
Decision Trees
Helps decide whether the net gain is worthwhile
Probabilities
The chances of an outcome happening
Expected Values
Financial value of an outcome
Net gain
Value to be gained from taking a decision and calculating expected values and deducting the costs associated with the decision
Critical Path Analysis
A project analysis and planning method that allows a project to be completed in the shortest possible time
Corporate influences
internal factors affecting business decisions.
Short-termism
A business prioritises short-term decisions
Long-termism
short-termism possibly occurs at the expense of long-term performance measures
Mittelstand
Germany’s small-medium sized companies, the strongest driver of innovation and tech in the country, renowned across the world
Corporate Culture
Sums up the spirit, attitudes, behaviors, and ethos of an organization
Power culture
control from the centre
Role Culture
clearly delegated authorities with highly defined structures
Task Culture
Teams are formed to solve particular problems
Person Culture
People believe in themselves to be superior to the business
Ethics
Moral guidelines which govern acceptable behaviour
Income Statement
Difference between the total income and costs of the firm showing the profit or loss made by the business
Balance Sheet
Snapshot of business assets (owed and owned) and liabilities (owes) on a particular day
Non-current assets
assets and property owned by a business that are not easily converted to cash within a year
Current Assets
cash and other assets that are expected to be converted to cash within a year.
Non-current liabilities
the debts a business owes, but isn’t due to pay for at least 12 months
Current liabilities
amounts due to be paid to creditors within twelve months.
Ratio Analysis
quantitative method of gaining insight into a company’s liquidity, operational efficiency, and profitability by studying its financial statements
Return on capital employed (ROCE)
a financial ratio that is used to measure the profitability of a company and the efficiency with which it uses its capita
Gearing Ratio
a group of financial metrics that compare shareholders’ equity to company debt in various ways to assess the company’s amount of leverage and financial stability
Human Resources
the department within a business or organization responsible for managing its employees
Labour Turnover
the net departure of employees over a defined period of time
Labour Productivity
the measure of how much output is produced per unit of labour input
Absenteeism
when an employee consistently doesn’t appear for work at their scheduled time.
Financial Rewards
Commission, bonuses, piece-rate payments
Employee Share Ownership
Employees are given a percentage of shares as part of their contract
Employee Empowerment
giving employees power to do their job and authority to make decisions
Consultation Strategies
A way for employees to provide opinion for business to feel more included
Change management
involves the process that ensures a business responds to the environment it operates in.
Step change
significant changes that occur rapidly
Incremental change
occurs over a period of time, small changes
Factors of Change
Time and speed, resistance to change, size of organisation , performance, external shocks
Mitigating risks
taking action that will reduce and minimise risk
Business Continuity
Planning on how to restore things to normal following a setback or disaster
Succession planning
Thinking and planning ahead for when a leader leaves and needs to be replaced
Contingency planning
a course of action designed to help an organization respond to an event that may or may not happen
Risk management
Identifying and dealing with the risks threatening the firm
Scenario Planning
Always expect the unexpected
Crisis management
dangerous events (earthquakes)
