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Business - Miss Parkin > Topic 1 - What Is Business > Flashcards

Topic 1 - What Is Business Flashcards

1
Q

What is a business?

A

An organisation that exists to provide goods and services on commercial basis to customers.

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2
Q

What are goods?

A

Physical or tangible products: e.g. consumer electronics, industrial components, cars.

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3
Q

What are services?

A

Intangible products: e.g. insurance, dental services, cleaning.

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4
Q

Why do businesses exist?

A

They’re formed by entrepreneurs and subsequently developed if manage to get beyond survival stage.

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5
Q

How can businesses play a key role in wider society?

A
  • Create & sustain employment & develop skills of others.
  • Contribute to infrastructure of country
  • Pay taxes on profit earned & collect taxes on behalf of government.
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6
Q

Name the transformation process

A

Inputs -> Transformation process -> Outputs

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7
Q

What does the transformation process describe?

A

What happens inside business. This is where value is added to inputs to create outputs.

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8
Q

What is the role of entrepreneurs?

A

Play key role in formation and development of business.
They:
- Spot business opportunities
- Act a catalyst for creation & growth of new business enterprises.
- Take (calculated) risks order to gain possible future returns.

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9
Q

What are the four main sectors businesses operate in?

A

Primary, secondary, tertiary, quaternary

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10
Q

Describe and give examples of the primary sector.

A

Extraction of natural resources.

Farming, mining, energy extraction

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11
Q

Describe and give examples of the secondary sector.

A

Production of finished goods and components.

Manufacturing, food processing, raw material processing

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12
Q

Describe and gives examples of the tertiary sector.

A 
Providing services to consumers and businesses.
Personal services (e.g. beauticians), retailing, household franchises
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13
Q

Describe and give examples of the quaternary sector.

A

Providing information & ICT.

Software development, financial services, data processing

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14
Q

Adding value

A

Process of creating value by transforming inputs into business activity so value of what’s created greater than costs involved.

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15
Q

Enterprise

A

Process whereby business opportunities identified and exploited for commercial gain.

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16
Q

What are the main points of an unincorporated business?

A
  • Owner is the business: no legal difference
  • Has unlimited liability for business actions (including debts)
  • Most of these operate as sole traders
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17
Q

What are the main points of an incorporated business?

A
  • Legal difference between business (company) and owners
  • Company has separate legal identity
  • Shareholders have limited liability
  • Most of these operate as private limited complained
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18
Q

What are the main points of unlimited liability?

A
  • Crucially important characteristic of unincorporated businesses.
  • Business owner/s personally responsible for debts and liability of business
  • if unincorporated business fails, owners liable for amounts owed
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19
Q

Soletraders

A
  • Most common type of business form that’s an individual owning business on own.
  • Can employ people - but those don’t share in ownership
  • Owns all of business assets personally and personally responsible for all business debts.
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20
Q

Advantages of sole traders

A
  • Quick & easy to set up - business can always be transferred to limited company once launched
  • Simple to run : owner has complete control over decision-making
  • Minimal paperwork
  • East to close/shut down
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21
Q

Disadvantages is sole traders

A
  • Unlimited liability
  • Harder to raise finance - often have limited funds of their own & security against which to raise loans
  • Long hours
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22
Q

Incorporation and the importance of limited liability

A
  • Concept of limited liability is important protection for shareholders in company.
  • Shareholders can only lose value of their investment in share capital of company.
  • However, doesn’t protect against wrongful or fraudulent trading.
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23
Q

What is the reason why limited liability arises for shareholders?

A

Because company has separate legal identity. Shareholders not same as business.

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24
Q

Main features of a limited company

A
  • Limited companies separate legal entitles to founders.
  • Companies owned by their shareholders and run by directors. Shareholders appoint directors who run company in interest of shareholders.
  • Shareholders own share of company, but don’t own assets of company and not liable for debts of company.
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25
Q

Advantages of operating as a limited company

A
  • Limited liability: protects shareholders
  • Easier to raise finance: both through sale of shares and also easier to raise debt
  • Stable form of structure: business continues to exist even when shareholders change
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26
Q

Disadvantages of operating as a limited company

A
  • Greater administration costs
  • Public disclosure of company information
  • Directors’ legal duties
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27
Q

Public Limited Companies (PLC)

A
  • Public company simply more specialist type of limited company.
  • Shares may be quoted and traded on a public stock market (but don’t have to be)
  • When traded on stock market, public companies have substantially more shareholders
  • Public companies subject to significantly greater regulation in terms of public disclosure of financial and other information
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28
Q

Not-for-profit organisations

A
  • Businesses that trade in order to benefit community. Have social aims well as trying to make money.
  • E.g. job creation, training, providing community services and fair trade with developing countries.
  • Many different types social enterprise, including community development trusts
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29
Q

Limited liability

A

Where shareholders in company only liable for amount have invested in share capital.

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30
Q

Unlimited liability

A

Where owners of business legally inseparable from business they run, making them liable for debts of business.

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31
Q

SMART criteria

A

Specific: state exactly what’s to be achieved
Measurable: obj. should be capable of measurement - so possible to determine whether (or how far) has been achieved.
Achievable: should be realistic given circumstance in which it’s set and resources available.
Relevant: should be relevant to people responsible for achieving them.
Time bound: should be set with time-frame. Also need to be realistic.

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32
Q

What are functional objectives?

A

Set for each major business function and designed to ensure corporate objectives achieved.

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33
Q

What are corporate objectives?

A

Those that relate to business as whole. Usually set by top management and provide focus for settling more detailed objs for main functional activities of business.

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34
Q

What do corporate objectives tend to focus on?

A

Desired performance and results of business.

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35
Q

What are the eight key areas corporate objectives should cover?

A

Market standing, innovation, productivity, physical & financial resources, profitability, management, employees, public responsibility.

36
Q

What is profit?

A
  • Return on investment
  • Reward for taking risks
  • Key source of finance
  • Measure of business success
  • Motivating factor & incentive
37
Q

Profit in absolute terms

A

measure £ value of profits earned in specific period.

38
Q

Profit in relative terms

A

Look at profit earned as proportion of revenues achieved or investment made.

39
Q

What would happen if a business fails to achieve profit?

A

Suffer sustained losses and struggle to survive.

40
Q

How does a business generate revenue?

A

By satisfying demand from customers.

41
Q

What is revenue?

A

Amount of a product that customers actually buy from a business.

42
Q

What is demand?

A

Amount of a product that customers prepared to buy.

43
Q

How can demand be measured?

A

Volume (quantity bought) or value (£ value of sales).

44
Q

What factors affect the level of demand?

A
  • Prices and incomes (elasticity)
  • Tastes & fashions
  • Competitor actions
  • Social & demographic change
  • Seasonal changes
  • Changing technology
  • Government decisions
45
Q

What are the 2 main ways to increase revenue?

A
  • Increase quantity sold

- Achieve higher selling price

46
Q

What are costs?

A

Amount that business incurs in order to make goods and/or provide services.

47
Q

Why are costs important?

A
  • Drains away profits made
  • Difference between making good and poor profit margin
  • Main cause of cash flow problems
    Change as output/activity of business changes
48
Q

What are variable costs?

A

Costs which change as output varies (e.g. raw materials).

49
Q

What are fixed costs?

A

Do not change with output (e.g. rent, advertising).

50
Q

What’s an incorporated business?

A

Has separate legal entity. Exists separate from owners.

51
Q

What’s an unincorporated business?

A

Inseparable from business owners.

52
Q

Key points of a Private Limited Company

A
  • Most popular form of incorporated business
  • Privately-owned
  • Shares cannot be traded publicly
  • Usually just 1 or few shareholders
  • Quick & cheap to set up and administer
53
Q

Key points of a Public Limited Company

A
  • Minimum share capital £50,000
  • Shares may be traded on public stock market
  • Usually many shareholders
  • More detailed disclosure of information required
  • More costly to administer
54
Q

What are Dividends?

A
  • Payments made to shareholders from earned profits
  • Amount paid is ‘per share’
  • Normally no requirement to pay dividends, but most quoted companies do
55
Q

What is Capital Growth (Capital Gain)?

A
  • Arises from increase in value of business
  • Reflected in increase in share price
  • Only realised when share is sold (price paid)
  • No guarantee that shareholding will increase in value - business value can change both ways
56
Q

What is a share?

A

Individual part of total issued share capital of company.

57
Q

What are ‘ordinary shares’?

A
  • Equal voting rights based on number of shares held
  • Shareholding % = number of shares held compared with total number of shares issues
  • Shares qualify for dividend: but, on;y if one paid.
58
Q

What’s a share price?

A

Price paid to acquire ownership of that share.

59
Q

How can shares be traded (bought and sold)?

A

Privately or using public stock exchange.

60
Q

What is a share price determined by?

A

Interaction of supply and demand.

61
Q

How would the share price rise?

A

If demand for share>supply (more buyers than sellers)

62
Q

What does a falling share price indicate?

A

Excess supply (more sellers than buyers)

63
Q

Share price of Private Limited Company

A
  • Initially set when shareholders ‘subscribe’ for their shares
  • Thereafter only determined when shares bought/sold
  • No active market in shares of private company - so hard to judge current value.
64
Q

Share price of Public Limited Company

A
  • Highly transparent - displayed publicly, in real-time
  • All trades disclosed (how many bought/sold and for what price)
  • Share prices widely published and tracked.
65
Q

What is market capitalisation?

A

Total market value of issued share capital of company.

66
Q

Key factors that influence whether a share price rises or falls WITHIN the Company’s Control

A
  • Financial performance (e.g. profit growth)
  • Dividend policy (how profits distributed to shareholders)
  • Relationship with key investors (inc. communication)
  • Management reputation
67
Q

Key factors that influence whether a share price rises or falls OUTSIDE the Company’s Control

A
  • State of economy
  • General market sentiment
  • Whether company is takeover target
  • Alternative investment’s in company’s sector
68
Q

What is ‘profits warning’?

A

Unexpected warnings indicating market expectations will not be met almost always result in significant fall in share price.

69
Q

Each year, what do shareholders of a company need to decide on?

A

1) Keep profits earned in company (retained profits)

2) Pay some or all of those profits out to shareholders via dividends

70
Q

Common examples of ‘not-for-profit’ organisations

A

Mutual businesses, social enterprises, charities.

71
Q

What does market conditions relate to?

A

Attractiveness (or otherwise) of overall market in which business operates.

72
Q

What are 2 key indicators of markets conditions?

A

1) Economic Growth (GDP)

2) Market Demand

73
Q

What does market demand measure?

A

How much of a good or service a consumer wants - and able to pay for.

74
Q

What will a fast growing market do?

A

Encourage new entrants as well as benefit existing competitors.

75
Q

What will a slow-growing/declining market do?

A

Makes market conditions much tougher, with competitors fighting for their share of weak demand.

76
Q

What do real incomes measure?

A

Amount of disposable income available to consumers.

77
Q

What range of factors impact on real incomes?

A
  • Price Inflation
  • Wage Growth
  • Employment Levels
  • Interest Rates
  • Govt. Tax Policy
78
Q

Real incomes

What is Real Disposable Income?

A

How much households have available to spend.

79
Q

Real incomes

What is Employment and Job Security?

A

When the jobs market is improving, consumer confidence and incomes will improve.

80
Q

Real incomes

What is Household Wealth?

A

E.g. house prices & share prices) - rise in wealth can increase consumer demand).

81
Q

Real incomes

What is Expectations and Sentiment?

A

Economic uncertainty causes spending to fall, weakening demand.

82
Q

Real incomes

What is Market Interest Rates?

A

Interest rates affect both incentive to save and cost of borrowing.

83
Q

What’s an interest rate?

A

Reward for saving and cost of borrowing expressed as percentage of money saved or borrowed.

84
Q

What is demography concerned with?

A

Size and composition of population.

85
Q

2 key demographic changes in the UK that impact on many businesses.

A

1) Ageing population

2) High levels of net immigration

86
Q

What are some possible business implications for ageing populations?

A
  • Greater demand for services to support older people (e.g. healthcare)
  • Increasing disposable incomes of older people reflected in higher demand for goods and services (e,g, holidays).
87
Q

What are some possible business implications for high levels of net immigration?

A
  • Higher costs of (but greater demand for) public services (e.g. education, health, housing)
  • Increase in size of labour force - potentially keeping wage rates low
  • Businesses able to grow faster with larger supply of labour (particularly in agricultural and service sectors).

Business - Miss Parkin (4 decks)

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