topic 1- what is business Flashcards
what are the 5 objectives for a business ?
- profit
- growth
- cash flow
- survival
- social and ethical
what is profit objective ?
that business either want to make a profit or increase their profit
- can have a profit target
- primary function
how can business achieve a profit objective ?
by setting functional objectives
eg) decreasing costs, increasing sales
what is a growth objective ?
the business wants to grow within the market
why do business wants to grow in the market ?
as they will then earn a higher profit
what can help measure growth within a business ?
- revenue
- market share
- expansion
what is the cash flow objective ?
the amount of money which moves in and out the business over a period of time
- business wants to increase cash flow
what can grow within a business ?
- revenue
- amount of locations
- amount of employees
- product range
what does an increased cash flow do ?
increase the rate of survival
what do business use cash for ?
to pay for payments and if they can’t they are in serve danger
how can business improve cash flow ?
by negotiating longer term credit with suppliers and shorter term credit with customers
what is the survival objective ?
it is being able to continue the trade for the business
what happens when business run out of money ?
they are forced to exit the market
what business main objective is often survival ?
new business
when does survival become a key objective for business ?
during times of:
- strong competition
- economic decline
- in a recession
what is a social objective ?
setting objectives that benefit the society or people in need
what are ethical objectives ?
objectives that include moral principles and treat the environment kindly
where is social and ethical objectives mainly found in business ?
non- profit business
why is having social and ethical objectives beneficial for a business ?
it shows the business has a wider aim which is to help others and that they aren’t there just for a profit
what is an important part of having social and ethical objectives ?
having good relations with the local community and allowing resources to benefit them
what do business need to do once they have been established ?
make sure to
- cover costs
- make reasonable profit
- being able to survive
what does a mission statement tell us ?
the business intentions
what does a mission statement include ?
qualitative description about the organisations purpose and corporate aims
what does a mission statement do for shareholders ?
all them know the business intentions
what does a mission statement do for employees ?
- allow them to be encouraged to see what they are working towards
- feel a sense of shared purpose
what stakeholder does business not have to show their mission statement ?
consusmers
what are objectives ?
they are the aims from the mission statement that are turned into specific goals that must be met
what are the 3 types of objectives ?
- corporate
- functional
- individual/ personal
what are corporate objectives ?
overall objectives for the business which has been driven from the mission statements aims
what do corporate objectives give the business a sense of ?
a sense of direction to and guide the whole organisation
what are functional objectives ?
objectives that are for each department in the business that are driven from corporate objectives as need to be set to achieve those aims
- it is more detailed
what are the 4 departments of a business ?
- finance
- HR
- operations
- marketing
what are individual/ personal objectives ?
where team managers give a team or individual staff members an objective themselves which is based on the functional objectives
why is it good for business to have objectives ?
- measure the business success
- focus and direction for employees to broaden/ grow the business
what is the order of missions and objectives ?
- mission statement/ corporate aims
- corporate objectives
- functional objectives
- individual/ personal objectives
what are 5 reasons as to why profit is important ?
- good source of finance
- attracts new investors/ suppliers
- not-for-profit organisations
- motivate employees
- rewarded for taking a risk
what is 4 things as to why profit a good source of finance ?
- it is retained
- so can be used to invest and expand the business
- pay for debts
- helps the business grow
how can profit motivate employees ?
as they can have a scheme called profit sharing so will increase the productivity
what is profit sharing ?
where each employee gets a percentage of the businesses profit
why does profit reward the risk takers ?
- as the owner who is an entrepreneur gets to keep a profit
- shareholders get to earn their dividends to keep them interested in the business
why is profit going to attract suppliers/ investors ?
- suppliers will trust the business and could allow them to have LT credit terms as know they will get payed
- shareholders like it as like business with larger profits as get a greater dividend
why is profit good for not-for-profit organisations ?
they can use their profit to fund back into the business and continue to complete their mission
what are the 4 measurements for profit ?
- revenue
- fixed costs
- total costs
- variable costs
what is 6 ways to maximise profit ?
- advertising to attract new consumers
- cheaper suppliers
- increase sales
- lower unit costs
- redundancy
- new product range to attract a wider target audience
what is revenue ?
the amount of money generated from sales before deductions are made
what can revenue also be known as ?
- turnover
- sales
what can affect revenue ?
- selling price
- sales volume
what happens to revenue if selling price increases ?
then revenue will increase (normally)..Ped
what are fixed costs ?
costs that don’t change with output
what are variable costs ?
costs that fall or rise with output
what are total costs ?
FC and VC added together
what is a shareholder ?
anyone who owns at least one share in a business
what 3 types of shareholders invest in a business ?
- individuals
- companies
- institutions
what is an example of an institution in business ?
pension funds
what are the shareholders for Ltd.’s ?
family or friends of the owner
what is the main role of a shareholder ?
to provide funds
what are other roles for a small Ltd shareholder ?
can often be the director
- so have the most shares and most power
what are the other roles for a PLC shareholder ?
most aren’t involved in running the business but do have rights within the business
what do many shareholders have to attend ?
annual general meetings
what are annual general meetings for shareholders ?
- they meet with the board of directors
- for PLC these meetings have to happen by law
- the shareholders have a right to vote on key decisions and performances
what is a majority shareholder ?
when a shareholder owns 50+% of a business
- they have the most power in decision making
what liability do shareholders have ?
limited liability
- only lose what they invested into the business if they fall through as the business doesn’t pay their debts
what are the 6 possible reasons as to why shareholders may invest within a business ?
- achieving capital gain
- want to see the business survive and grow
- potential a business succeeds
- believe in the aims/ objectives
- want to be involved in running the business
- payed dividends
why would shareholders invest to achieve capital gain ?
- they can buy shares when the share price is low
- then see it when the share prices rise
- so they make a profit
why would shareholders invest in a business for dividends ?
- as they get payed for investing
- the more shares they have then the greater the funds they are owed
why would shareholders invest in a business for wanting to be involved in a business ?
- they would invest in small Ltd.’s
- or be a majority shareholder in a PLC
- so they can influence the decisions being made
why would shareholders invest when they believe in the aims and objectives ?
- they want to see ethe business succeed
eg) companies with social and environmental objectives
why would a shareholder invest in a business because they want to see a business grow or survive ?
would be for a Ltd
- so they can support their friends or family
why would shareholders want invest in a business they see potential in ?
even though it is a potentially a big risk it can also potentially have a big reward
- venture capitalists are the ones interested
what are venture capitalists ?
a particular type of shareholders
- they invest in a business as they see it potentially having a chance of being successful
what is share price ?
the price of which a share is sold at
what are PLC shares determined by ?
the supply and demand
what happens to the share price if supply increases ?
it decreases
what happens to the share price if supply decreases ?
increases
what happens to the share price if demand increases ?
it decreases
what happens to the share price if demand decreases ?
it increases
what are 6 factors that influence demand and supply ?
- business performance
- interest rates
- economy
- rival performance
- share buybacks
- takeovers and mergers consensus
how does a business performance influence supply and demand ?
- if it has a high performance then demand increases so price will as well
- if it has low performance then they may sell their shares so increases supply but decreases share price
how does interest rates influence demand and supply when they low ?
- when low the reward for saving is low so they want to increase demand for shares
- if increase in demand of shares then financial reward is greater then interest
how does interest rates influence demand and supply when they high ?
it causes supply to increase so price decreases
how does a strong economy influence to demand and supply of shares ?
- influences the demand and supply
- people have more money to invest and confidence of a good return
- it increases demand and share price
how does a weak economy influence to demand and supply of shares ?
- less take a risk
- so decreases the demand and share price
what do business offer when the economy is weak for share prices ?
business offer more shares to try and raise share capital as will increase supply
how does a rivals performance influence supply and demand for share prices ?
- if rivals are good then your business shares will decrease in price as that other business sells more ( sell-off can happen)
- if rivals are bad then for your business demand and price increases
how does share buybacks influence supply and demand of shares ?
- tax cuts so will increase investors
- demand and price increase as shares are bought back
how does takeovers/ mergers consensus influence supply and demand ?
- if a good one then increases the demand so can increase the price
- but if they seem like they wont work then may lead to a sell off which increases supply and reduces price
what happens for shareholders if share prices fall ?
it will cost shareholders money
- for when selling shares but can hold onto them
what happens for shareholders if share price rise ?
it will make shareholders make a profit
- for when they sell shares but can hold onto them
what is less likely to affect shareholders who buy shares in a long term investments ?
when the short term prices change
what happens when share prices decrease ?
it reduces the overall value of the business
what is the short term affect when share prices fall ?
isn’t much problems as the business already has the share capital
what is the long term affect when share prices fall ?
can reduce the confidence of the company so makes it difficult to attract new investors
what is market capitalization ?
total value of business share’s
- the amount the business could be bought for
what is right issue ?
when existing shareholders are given the opportunity to buy new shares the business owns
what is share capital ?
money raised by a company through the sale of common or preferred stock
