Unit 1 Flashcards
Explain the term ‘mission statement’
A written declaration regarding a business’ purpose for existence and core focus
What is the purpose of a mission statement?
Clear focus and guidance throughout the development of a business
Explain the term ‘business objective’
Objective is a goal to help a business achieve its mission
List common business objectives
Survival
Growth
Profit
Customer service
Corporate Social Responsibility (CSR)
___ are the goals set out to achieve the ___ ___ of a business
Objectives are the goals set out to achieve the mission statement of a business
Objectives should be ____
SMART
Explain the term ‘Profit’
The amount of money remaining once all costs have been deducted
Explain the term ‘Revenue’
Money received from sales of products
Who is a business’s mission statement intended for?
Investors
Customers
Employees
Banks (to grant a loan)
What is the difference between a business aim and objective?
A business aim is a long-term goal the business wants to achieve.
A business objective is the short term steps required to meet its aim.
Explain the term ‘variable cost’ and give an example
Costs that change/vary as output changes
- Raw materials
- Wage
How is profit calculated
Total sales - total costs
Explain the term ‘fixed cost’ and give an example
Costs that remain the same even though output changes
- Rent
- Salary
The private sector falls into what categories?
Incorporated and Unincorporated
Describe a private sector business?
A business is controlled by individuals or groups of individuals
Describe a public sector business?
Owned and controlled by the government
Explain the difference between an Incorporated and Unincorporated businesses
Incorporated: owners have limited liability, legal difference between the business and and the owners.
Unincorporated: owners have unlimited liability, no legal difference between the business and the owners.
Explain the difference between unlimited and limited liability
Unlimited liability: owners of the business are liable for debts that the business owes, no separate legal identify, business and owners are viewed as one
Limited liability: owners have separate legal identity from the business, preventing the owners from being responsible for business debt.
State two types of incorporated businesses
Public limited (PLC)
Private limited (LTD)
Describe the characteristics of the two types of incorporated businesses
PLC: shares can be sold on the stock market, rich in capital, financial statements must be published, expensive as minimum capital of 50,000 is required at all times
LTD: shares cannot be sold on stock market and cannot be sold without agreement of other shareholders, relatively smaller and family run
State the two types of non-corporate businesses
Sole trader
Partnership
What does a PLC and LTD have in common?
Limited liability
Describe the characteristics of the two types of unincorporated businesses and give examples
Sole trader: owned by a single individual, could have a small number of employees - plumbing, hair dresser
Partnership: between 2-20 owners, dentists, accountants
What does a sole trader and partnership form of business have in common
Unlimited liability
Identify the benefits of a sole trader
+ simple
+ cheap
+ individual receives all profits
+ respond quickly to change
+ control over all decisions
+ financial statements are not required for publishing
Identify the benefits of a partnership
+ wide range of skill and knowledge
+ risk of unlimited liability is reduced as its shared amongst the partners
+ generate greater profit than sole trader
Identify the benefits of a PLC
+ shareholders benefit from limited liability
+ raise finance through share capital
+ growth and expansion possibilities
Identify the benefits of a LTD
+ shareholders benefit from limited liability
+ complete control over business
+ required to publish minimal financial statements
Identify the drawbacks of operating as a sole trader
- difficulty in raising investment for expansion
- unlimited liability
- long working hours
Identify the drawbacks of operating as a partnership
- profit shared between partners
- unlimited liability
- complicated to sell/leave
- difficulty in raising finance
Identify the drawbacks of operating as a PLC
- required to publish a great amount of financial statements
- dividends to be payed at the end of the year
- greater risk for hostile take over (business cannot control who and how many shares are bought)
- expensive to set up
Identify the drawbacks of operating as a LTD
- dividends
- time consuming to set up
- conflict between friends and family
Describe the characteristics of a ‘non for profit’ business
an organisation that has other business objectives than making profit
What factors need to be considered when choosing a business form?
Size, risk, expenses, objectives, owners
What reasons could be provided for changing business form?
Circumstances, capital, takeover
Explain the term shareholder
Shareholders are part owners of a limited company that own at least one share
Explain the term ‘ordinary share capital’
The money invested in a business by the shareholder
Explain the term ‘dividends’
A financial reward given to shareholders from the accumulated profits earned at the end of the year.
A shareholder has the right to play a role in major ___ within the business. These ___ need to be approved by the shareholders at a general meeting called by the directors.
A shareholder has the right to play a role in major decisions within the business. These decisions need to be approved by the shareholders at a general meeting called by the directors.
Why would an individual invest in shares?
Source of income as dividends is received.
Capital growth - hope that the value of share will increase
Describe what factors influence share price
- Business performance (low performance = low value)
- Changes within the market (trends)
- External world uncertainties
- Expectation of better or worse profit performance
Explain the term market capitalisation and provide its formula
The value of all a business’s shares, calculated by multiplying the share price by number of shares issued.
Share price x number of shares issued
What aspects in the external environment affects cost and demand?
P olitical
E conomical (interest rate, incomes)
S ocial (trends)
T echnological
L egal
E nvironmental (population, age)
Explain the term ‘interest rate’
A reward for saving and the cost for borrowing expressed as a percentage of money saved or borrowed.
Describe what GDP measures
Gross Domestic product: measures the economic growth of a country by identifying the value of output produced by a country
Explain the term ‘market demand’
Measures how much of a good a consumer wants
What factor depends on interest rates
Consumer spending depends of interest rates as a high interest rate encourages saving, low interest rate encourage spending
Explain how a high interest rate effects consumers spending
A high interest rate makes borrowing more expensive reducing consumers disposable income encouraging consumers to save.
