Types of Businesses Flashcards
Describe the layout of a profit/loss statement.
List revenue, COGS, gross profit, expenses and net profit down the left side.
Gives monetary values of each on right.
What does a profit/loss statement measure?
Profitability
Describe the layout of a balance sheet.
Lists assets in one column, and liabilities and owner’s equity in the other.
State the relationship between assets, liabilities and owner’s equity.
A = L + OE
What do balance sheets measure?
Solvency or gearing.
Ability to pay off all debts.
Describe the layout of a cash flow statement.
Each column contains the total cash inflows, outflows, opening and closing balance for each month.
What does a cash flow statement measure?
Liquidity.
The ability to pay off current liabilities.
What is R+D?
Research and Development.
Used to ensure innovation and new technology.
What is an entrepreneur?
Someone in business who takes a large risk in hope of a large reward.
Identify five reasons for starting a business.
Profit, lifestyle, flexibility, power and providing family with jobs.
What is quality of life?
The physical and mental well being of individuals in a society.
How can a business affect quality of life?
Providing jobs, working conditions and their impact on the environment.
Identify the four types of classifications for a business by number of employees, and how many employees each has.
Micro 0-5
Small 0-20
Medium 21-200
Large 200+
What are the five classifications for the size of a business by geographical spread?
Local, regional, state, national, international.
What is market share?
The percentage of sales a business has in a certain market.
Identify five reasons a business would want to increase geographical spread.
Allow for economies of scale Increase market size Lower compliance costs Avoid saturating a market Avoid competition
Identify the five industries.
Primary Raw Materials Secondary Manufacturing Tertiary: Service -Quaternary Knowledge-Based -Quinary Traditionally Home-Based
What industry sector is mining in?
Primary
What industry sector is car making in?
Secondary
What industry sector is a lawyer in?
Quaternary
What industry sector is a maid in?
Quinary
What is the private sector?
All businesses not owned by the government.
What is the public sector?
All business owned by the government.
By buying a franchise, what do you buy the rights to?
Use the name, operating system and sell the products of an existing business.
What are five advantages of a franchise?
Consistency Customer loyalty Free advertising Low risk Support and advice
What are four disadvantages of a franchise?
Can’t sell without approval
Expensive ongoing costs
Franchiser only source of stock
Lack of freedom
Describe the relationship between franchisees and franchisers.
Franchisees buy franchises from franchisers.
Franchisers own the franchise and sell franchises.
Franchisees pay royalties to franchisers.
What does it mean if a business is incorporated?
It is either a private or public company.
It is its own legal entity, and has the rights of a person.
Its owners have limited liability.
Identify how many owners each type of legal structure has.
Sole Trader 1
Partnership 2-20
Private Company 2-50
Public Company 50+
Identify whether each legal structure has limited or unlimited liability.
Sole Trader/Partnership Unlimited Liability
Public/Private Company Limited Liability
Is a private company’s shares available on the ASX?
No
Is a public company’s shares available on the ASX?
Yes
What does the abbreviation ‘Pty Ltd’ stand for and what does it identify?
Proprietary Limited
Private Company
What does the abbreviation ‘Ltd’ stand for and what does it identify?
Limited
Public Company
What does the abbreviation ‘Inc.’ stand for and what does it identify?
Incorporated
Private or public company
What is a float?
The first time shares of a business are issued for sale.
What is a prospectus?
A publication giving details about an upcoming float to inform potential shareholders.
Required by law.
What is the difference between a current or non-current asset/liability.
Current assets/liabilities are sold/paid off within 12 months.
Non-Current assets/liabilities are sold/paid off after 12 months.
State the formula for calculating net profit.
Revenue
COGS -
Gross Profit =
Expenses -
Net Profit =What is the difference between liquidity and solvency/gearing?
Liquidity is ability to pay of current liabilities.
LCD - Liquidity Current Debt
Solvency or gearing is ability to pay off all liabilities.
GAS - Gearing All Solvency
Identify two advantages of opening a new business.
Freedom
Free goodwill
Identify two disadvantages of opening a new business.
High cost
No customer base or known brands
Identify three advantages of purchasing an existing business.
Instant cash flow (WIWO/turnkey)
Keep experienced staff
Inherit reputation
Identify two disadvantages of purchasing an existing business.
Lack of flexibility
Pay for goodwill
