Types of Businesses

Question 1

Describe the layout of a profit/loss statement.

Answer 1

List revenue, COGS, gross profit, expenses and net profit down the left side.

Gives monetary values of each on right.

Question 2

What does a profit/loss statement measure?

Answer 2

Profitability

Question 3

Describe the layout of a balance sheet.

Answer 3

Lists assets in one column, and liabilities and owner’s equity in the other.

Question 4

State the relationship between assets, liabilities and owner’s equity.

Answer 4

A = L + OE

Question 5

What do balance sheets measure?

Answer 5

Solvency or gearing.

Ability to pay off all debts.

Question 6

Describe the layout of a cash flow statement.

Answer 6

Each column contains the total cash inflows, outflows, opening and closing balance for each month.

Question 7

What does a cash flow statement measure?

Answer 7

Liquidity.

The ability to pay off current liabilities.

Question 8

What is R+D?

Answer 8

Research and Development.

Used to ensure innovation and new technology.

Question 9

What is an entrepreneur?

Answer 9

Someone in business who takes a large risk in hope of a large reward.

Question 10

Identify five reasons for starting a business.

Answer 10

Profit, lifestyle, flexibility, power and providing family with jobs.

Question 11

What is quality of life?

Answer 11

The physical and mental well being of individuals in a society.

Question 12

How can a business affect quality of life?

Answer 12

Providing jobs, working conditions and their impact on the environment.

Question 13

Identify the four types of classifications for a business by number of employees, and how many employees each has.

Answer 13

Micro 0-5
Small 0-20
Medium 21-200
Large 200+

Question 14

What are the five classifications for the size of a business by geographical spread?

Answer 14

Local, regional, state, national, international.

Question 15

What is market share?

Answer 15

The percentage of sales a business has in a certain market.

Question 16

Identify five reasons a business would want to increase geographical spread.

Answer 16

Allow for economies of scale
Increase market size
Lower compliance costs
Avoid saturating a market
Avoid competition

Question 17

Identify the five industries.

Answer 17

Primary            Raw Materials
Secondary       Manufacturing
Tertiary:            Service
-Quaternary     Knowledge-Based
-Quinary           Traditionally Home-Based

Question 18

What industry sector is mining in?

Answer 18

Primary

Question 19

What industry sector is car making in?

Answer 19

Secondary

Question 20

What industry sector is a lawyer in?

Answer 20

Quaternary

Question 21

What industry sector is a maid in?

Answer 21

Quinary

Question 22

What is the private sector?

Answer 22

All businesses not owned by the government.

Question 23

What is the public sector?

Answer 23

All business owned by the government.

Question 24

By buying a franchise, what do you buy the rights to?

Answer 24

Use the name, operating system and sell the products of an existing business.

Question 25

What are five advantages of a franchise?

Answer 25

``` Consistency Customer loyalty Free advertising Low risk Support and advice ```

Question 26

What are four disadvantages of a franchise?

Answer 26

Can't sell without approval Expensive ongoing costs Franchiser only source of stock Lack of freedom

Question 27

Describe the relationship between franchisees and franchisers.

Answer 27

Franchisees buy franchises from franchisers. Franchisers own the franchise and sell franchises. Franchisees pay royalties to franchisers.

Question 28

What does it mean if a business is incorporated?

Answer 28

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.

Question 29

Identify how many owners each type of legal structure has.

Answer 29

Sole Trader 1 Partnership 2-20 Private Company 2-50 Public Company 50+

Question 30

Identify whether each legal structure has limited or unlimited liability.

Answer 30

Sole Trader/Partnership Unlimited Liability | Public/Private Company Limited Liability

Question 31

Is a private company's shares available on the ASX?

Answer 31

No

Question 32

Is a public company's shares available on the ASX?

Answer 32

Yes

Question 33

What does the abbreviation 'Pty Ltd' stand for and what does it identify?

Answer 33

Proprietary Limited | Private Company

Question 34

What does the abbreviation 'Ltd' stand for and what does it identify?

Answer 34

Limited | Public Company

Question 35

What does the abbreviation 'Inc.' stand for and what does it identify?

Answer 35

Incorporated | Private or public company

Question 36

What is a float?

Answer 36

The first time shares of a business are issued for sale.

Question 37

What is a prospectus?

Answer 37

A publication giving details about an upcoming float to inform potential shareholders. Required by law.

Question 38

What is the difference between a current or non-current asset/liability.

Answer 38

Current assets/liabilities are sold/paid off within 12 months. Non-Current assets/liabilities are sold/paid off after 12 months.

Question 39

State the formula for calculating net profit.

Answer 39

``` Revenue COGS - Gross Profit = Expenses - Net Profit = ```

Question 40

What is the difference between liquidity and solvency/gearing?

Answer 40

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

Question 41

Identify two advantages of opening a new business.

Answer 41

Freedom | Free goodwill

Question 42

Identify two disadvantages of opening a new business.

Answer 42

High cost | No customer base or known brands

Question 43

Identify three advantages of purchasing an existing business.

Answer 43

Instant cash flow (WIWO/turnkey) Keep experienced staff Inherit reputation

Question 44

Identify two disadvantages of purchasing an existing business.

Answer 44

Lack of flexibility | Pay for goodwill