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A Level Business (Y12) > Topic 1: What is Business > Flashcards

Topic 1: What is Business Flashcards

1
Q

What is a business ?

A

An organisation that seeks to provide goods and services on a commercial basis to customers

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2
Q

Why do businesses exist ?

A

Because they are formed by entrepreneurs and are subsequently developed if they manage to get beyond the survival stage

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3
Q

What are the external factors of a business

A

Technology
Competition
Economy
Government
Society
Environment
Legislation

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4
Q

What are the functional areas of business ?

A

Operations management
Financial Management
Marketing
People (HR)

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5
Q

HR

A

Managing people that work in a business.
Activities include: recruiting employees, organising training, managing communication with staff

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6
Q

Marketing

A

Responsible for understanding the needs and wants of customers
Activities include: market research, setting prices, obtaining customer feedback

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7
Q

Finance

A

Manages financial resources of the business and reports on financial performance
Activities include: reporting on performance, ensuring there is enough cash to pay liabilities

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8
Q

Operations

A

organises transformation process that turns inputs into finished goods and services.
Activities include: managing quality of output, organising suitable method of production

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9
Q

What is a mission statement

A

A qualitative description of what the business intends todo so that stakeholders understand its intent

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10
Q

Mission statement are usually….

A

SMART

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11
Q

Why set objectives?

A

Allows everyone to work towards overall goal
Motivates managers and staff
Allows for review

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12
Q

Why is profit important ?

A

Reward for risk taken
Survival
Shows success

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13
Q

Characteristics of an unincorporated business ?

A

The owner is the business
Owner has unlimited liability

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14
Q

Characteristics of an incorporated business ?

A

Business has a separate legal identity to the owner
owners have a limited liability

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15
Q

Sole Traders

A

A business owned by one person.
Advantages: owner keeps profits, owner makes all the decisions, easy start up
Disadvantages: Unlimited liability, heavy workload, limited skillset

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16
Q

Partnerships

A

Owned by 2 or more people.
Advantages: shared workload, varied skillset
Disadvantages: unlimited liability, shared profits, conflict over decisions

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17
Q

Public Limited Companies

A

Owned by shareholders and shares can be sold on the stock exchange
Advantages: access to large amounts of capital, limited liability
Disadvantages: AGM, lots of paperwork, minimum £50,000 share capital

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18
Q

Private Limited Companies

A

Owned by shareholders (family and friends only)
Advantages: business has a separate legal identity,
Disadvantages: AGM every year, publish finances

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19
Q

What is a non-profit organisation

A

Organisations that trade in order to benefit the community

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20
Q

What is a mutual business

A
  • They have no shareholders and no owners
  • exist solely for the best interest of its customers
    EXAMPLE: national building society
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21
Q

What is a charity?

A

People who fund the business are not liable for any debts

22
Q

Advantages of being a sole trader

A
  • Owner keeps all the profits
  • easy to set up + run
  • easy to close/ shut down
23
Q

Disadvantages of being a sole trader

A
  • unlimited liability
  • difficult to raise finance (typically only have their own funds)
  • limited skillset
24
Q

Advantages of a partnership

A
  • shared workload
  • potential for more finance
  • specialisation/expertise in different business functions
  • additional partners may have industry contacts
25
Disadvantages of a partnership
- unlimited liability - shared profits - shared decision-making (may lead to conflict)
26
What is a deed of partnership
A document between partnership businesses that legally sets out how profits are distributed + how control is distributed
27
How to approach a question about moving from a sole trader to a partnership
PLUMS Profit distribution: 100% as ST but as P only 50% but more in long term as raising finance is easier Limited/ unlimited liability Management and control: as a stare you happy to share out control Sources of finance: is there a need for finance
28
What is unlimited liability?
- Applies to unincorporated business e.g sole traders+ partnerships - owner is responsible for all debts the business incurs - personal assets may be at risk
29
What is limited liability?
- applies to incorporated businesses - shareholders personal assets are not at risk in the event of the business incurring debts - shareholders losses are limited to how much they invested into the business
30
What is flotation?
The process of a Ltd selling shares on the stock market to therefore become a plc
31
Benefits of floatation
- raise external finance ( have potential investors - can use this obtained share capital rather than retained profits - high prestige (more media coverage higher sales and higher profit) - shareholders will retain limited liability - business will grow larger (lead to inc market shareand brand loyalty inc rev)
32
Drawbacks of floatation?
- expensive process (bank leading the process and underwrite flotation) ' - anyone can buy shares ( inc risk of takeovers + conflict between owners and managers - inc legal requirements such as releasing more financial information
33
What is the market capitalisation formula ?
No. Of ordinary issues shared x CURRENT share price
34
What is the ordinary share capital formula?
No. Of ordinary issued shares x share price at FIRST ISSUE (THE DAY IT WENT ONTO THE STOCK EXCHANGE)
35
What are dividends?
A distribution of a y of the profits by a company to the shareholders - management decides size of dividends
36
What are the dividend time frames
1) Decclaration date 2) In-Dividend date 3) Ex - Dividend date 4) Dividend pay date
37
What is the declaration date?
When managers announce the day they will pay out the dividends
38
What is the in-dividend date?
The date by which the shareholder must own the share so that they qualify for the dividend to be paid
39
What is the ex-dividend date ?
The date when you buy shares that you do not qualify to receive dividends
40
What is the dividend pay date
The date that the dividends are issued out to shareholders
41
Where to apply dividend time frames in answers
- when discussing influences on share prices - eg on ex-dividend date might see a sell off as you don’t see dividend the next day and share prices may fall
42
What are the issues with dividends?
1) opportunity cost - if you choose to pay out a high % of dividends where else in the business could that money have been spent eg invest in research development or new machinery 2) Short Termism/ Myopic - not focusing on other stakeholders and too much focus on shareholders - not considering the long-term sustainability of your company
43
What is a shareholder?
Anyone that has a share in a public or private limited company
44
What are the features of a shareholder?
- vote at AGM - have limited liability - have accesstodividends
45
Reasons to become a shareholder?
- capital gain (buy the share with hopes that value of share increases to make capital gain) - earn dividends - more control by being a majority shareholder above 50% threshold - wider beliefs investing for ethical environmental reasons
46
Influences on share price in a private limited company
Only defined by the agreement between the owner of the share and the buyer - what they agree is the price of the share
47
Influences on share price of a plc
Dependant on supply and demand - an increase in the supply of shares will result in share price falling . - a decrease in supply will increase share price - if demand for share falls so will share price - it demand for share rises so will the snare price
48
Other 5 influences on share prices
1) Business Performance 2) Interet rates - if they go down, looking to put money outside of a bank, demand increase and so do price 3) Economy - if performing well, demand increase for shares due to better income inc share price vice versa sell off in shares inc supply reducing price 4) Rivals performance - if doing well, may lead to a sell off in your shares, inc supply reducing price 5) share buybacks - 6) Takeovers/ Mergers - if the market doesn’t think it is a good idea may lead to sell of
49
Significance of changes in share prices
If share prices fall below level you paid you have lost money vice versa - will effect the market capitalisation will change
50
External environment influences
Competition Market conditions Incomes Interest rates Demographic factors Environmental issues
51
Pestle analysis
Political Economic Social Technological Legislation Environmental

A Level Business (Y12) (7 decks)

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