TOPIC 2.1 Growing a business

Question 1

Environment

Answer 1

The natural world around us, which may be affected business.

Question 2

Flotation

Answer 2

When a business offers its shares for sale to the public on the stock exchange for the first time.

Question 3

Import tariff

Answer 3

A way of protecting UK products by adding a tax to imports into the UK.

Question 4

Inorganic (External) growth

Answer 4

Two or more businesses joining together to make one much larger one in a merger or takeover.

Question 5

Merger

Answer 5

Occurs when two or more businesses join together and operate as one.

Question 6

Multinational

Answer 6

A business which operates in more than one country.

Question 7

Organic (Internal) growth

Answer 7

A business growth strategy that involves a business growing gradually using its own resources.

Question 8

Public limited company (Plc)

Answer 8

An incorporated business, with Plc after its name that can openly sell shares on the stock market.

Question 9

Stock market

Answer 9

Where buyers and sellers can trade shares.

Question 10

Takeover

Answer 10

The process of one business buying more than 50% of the shares of another.

Question 11

Trade bloc

Answer 11

A group of countries that has signed an agreement to reduce or eliminate all barriers to trade (eg tariffs).

Question 12

Method of internal growth

Answer 12

Greater range of products, new markets (countries), new target customers, more shops

Question 13

External sources of finance for growth

Answer 13

Loan capital, share capital,venture capital

Question 14

Internal sources of finance for growth

Answer 14

Selling assets, retained profit

Question 15

Advantages of plc

Answer 15

Can raise huge amounts of money for growth, raises profile of company

Question 16

Disadvantages of plc (share capital)

Answer 16

Vulnerable to takeover as anyone can buy shares, loss of control by original owners, accounts are available to the public

Question 17

Risks of rapid growth

Answer 17

Large amounts of finance needed, loss of control, difficult to manage more staff, expanding production to meet demand

Question 18

Advantages of loan capital

Answer 18

Owner retains control of the business, ownership and profits are not shared

Question 19

Disadvantages of loan capital

Answer 19

Must be repaid, interest must be paid, lender can require security over business assets, needs good business track record

Question 20

Reasons for change in aims and objectives

Answer 20

Change in market conditions, legislation, technology, business performance, internal reasons

Question 21

Fair trade

Answer 21

A social movement whose goal is to help producers in developing countries to achieve better trading conditions and to promote sustainability

Question 22

Disadvantages of retained profit as source of finance

Answer 22

May not be sufficient for growth, shareholders may want dividends rather than investment in growth

Question 23

Advantages of retained profit as source of finance

Answer 23

No costs such as interest, no loss of control of the business

Question 24

Advantages of selling assets as source of finance

Answer 24

Reduces running costs of obsolete assets (eg buildings, machinery) no interest to pay, no loss of control

Question 25

Disadvantages of selling assets as source of finance

Answer 25

Can only do this once, asset may be needed again in the future, may not raise enough finance