UNIT 1

Question 1

Mission statement

Answer 1

Overall purpose or main corporate aims, makes stakeholders aware of what the business does and why. Encourages employees to work towards their aims.

Question 2

Corporate objectives

Answer 2

Goals of the business as a whole - depends on the size of the business

Question 3

Functional objectives

Answer 3

Objectives of each department. More detailed than corporate objectives and are specific to each department

Question 4

Personal objectives

Answer 4

Set by employees for themselves

Question 5

SMART objectives

Answer 5

Specific 
Measurable 
Agreed
Realistic 
Target

Question 6

Types of objectives

Answer 6

Profit = all businesses need to be profitable e.g increase sales
Growth = all businesses aim to grow, to earn higher profits - can be based on increasing revenue, market share or expanding a business
Survival = so a business can continue to trade, rather than running out of money or being forced to exist the market - main objective for a new business
Cash flow = money that moves in and out of a business over a period of time. Objectives are set to improve cash flow - increasing this gives a better chance of survival
Social and ethical = social - relate to benefiting society or people in need. Ethical - based on moral principles about how businesses treat people and the environment

Question 7

Non-profit organisations

Answer 7

Not set up to make a profit - aim to help people in need or benefit the community. Money generated from the business does not go to owners or shareholders as profit.

• Charities = e.g British red cross - make money from donations and business activity (charity shop) - used to help people e.g set up new hospitals
• Mutual organisations = e.g building societies - aim to offer customers the best possible value on products and services. Profits are reinvested into the business to reduce prices

Question 8

For-profit organisations

Answer 8

Businesses focus on making a profit. But social and ethical objectives are becoming more important - so businesses may provide facilities for local communities or buy from suppliers who pay a fair wage. People are likely to buy from a business with ethical practises

Question 9

Revenue - measurements of profit

Answer 9

Money a business makes from sales - value of sales - sometimes called turnover
Revenue = selling price per unit X quantity of units sold

Question 10

Costs can be fixed or variable - measurement of profit

Answer 10

Fixed costs = do not change without output e.g rent, machinery
Variable costs = rise and fall as output changes e.g wages, raw materials
Total variable costs = variable cost per unit X number or units sold
Total costs = fixed costs + variable costs

Question 11

Profit - measurement of profit

Answer 11

Difference between revenue and costs
Profit = total revenue - total costs
If total revenue is greater than total costs, a business will make a profit. If total costs are greater than total revenue, the business will make a loss

Question 12

Public and private sector - different forms of a business

Answer 12

Public sector = owned and run by the government. Aim to provide services to the public, rather than make a profit e.g NHS hospitals - funded by UK tax systems
Private sector = owned and run by private individuals. Range from small soletraders to huge organisations e.g ASDA. Aim to make a profit but not always - non-profit organisations - non-profit organisations e.g charities are apart of this sector

Question 13

Sole trader - different forms of a business

Answer 13

Run by an individual trading in his/her own name or under a suitable trading name - self-employed. Full responsibility for the financial control of the business and for meeting running costs and capital requirements. Also, full responsibility for debts (unlimited liability)
+ Freedom = own boss and complete control over decisions
+ Profit = entitled to all the profit made by the business
- Risk = no one to share the responsibilities of running the business with
- Time = often work long hours

Question 14

Private limited company (Ltd) - different forms of the business

Answer 14

Owned and run by shareholders and run by directors

• limited liability
• cannot sell shares to the public - people in the company own all the shares
• don’t have share prices quoted on the stock exchanges
• often small family business

Question 15

Public limited company (PLC) - different forms of the business

Answer 15

Owned by shareholders and run by directors

• limited liability
• can sell shares to the public
• share prices are quoted on the stock exchange
• shares are freely transferable and can be bought and sold through banks and share shops
• Need over £50,000 of share capital and listed on the stock exchange, at least 25% must be publicly available

Question 16

Issues with different forms of a business - unlimited and limited liability

Answer 16

Unlimited liability = business and owner are seen as one under the law - this is the case for sole traders - means a business debts become personal debts of the owner - forced to sell personal assets e.g house, to pay off debts
Limited liability = owners are not personally responsible for the debts of the business. Shareholders (owners) of both private and public limited companies have limited liability - company as a separate legal identity from its owners - shareholders can lose the money they invested into the business

Question 17

Issues with different forms of a business - ordinary share capital

Answer 17

Money raised by selling shares - usually for long -term investment. In return for an investment, shareholders are paid a dividend

Question 18

Dividend

Answer 18

A proportion of the profits earned by the company which are split and paid out to shareholders. Given as a fixed amount per share - the more shares an individual holds, the larger the payout
However, dividends are not always paid out - loans must be repaid first and a company may choose to re-invest their profits into the business

Question 19

Market capitalisation

Answer 19

Total value of all the ordinary shares issued by a company

market capitalisation = number of issued shares X current share price

Question 20

Shareholder

Answer 20

Anyone who owns one share in a company. Main role is to provide funds
- shares in a public limited company can be brought by individuals, companies or institutions
- shares in a private limited company (Ltd) are usually brought by family members and friends of original owners
In small ltds - shareholders are often the directors of the company - shareholders with the most shares have the most power
In plcs - most shareholders are not involved in the running of the business
Shareholders have a right to receive a dividend

Question 21

Share prices

Answer 21

These change constantly

• Ltds = have control over their share prices - shares are privately traded between family and friends. A price per share will be agreed between the current owner and the potential investor, based on the current performance of the business
• Plc = shares are sold on the stock market. Price of shares will be determined by supply and demand. If more people want to buy a share than sell it (demand is higher than supply) increases share price. If more people want to sell a share than buy one (supply is more than demand) so share price goes down.

Question 22

Factors influencing demand and supply

Answer 22

• Performance of the company = better performance means high dividends - leads to an increase in demand for shares, increasing share price.
• Current share price = if the share price is low, investors may think they get a bargain if they buy it now, as the price may increase in the future
• Interest rates = when these are low, reward for saving the money in the bank is reduced - can increase the demand for shares because financial rewards are likely to be greater than the interest that would be earned on a bank account
• Economy = strong influence on demand and supply - when the economy is strong, people have more money to invest, increases demand and share price. In a weak economy, people are less likely to invest - decreasing demand and share price

Question 23

Business and the external environment - market conditions

Answer 23

Market conditions = affect costs and demand. Factors influence the costs forced by a business and the demand for their products. They include;

• Political factors - if demand in the economy is too low, governments try to increase it - cut taxes so people have more to spend - banks reduce interest rates which increases disposable income. But governments try to reduce demand is it too high - raise taxes so people have less money to spend - banks increase interest rates to raise the cost of borrowing - reduces disposable income
• Labour supply - affects business costs - when unemployment rates are high, there is a good supply of labour - hire staff easily and not have to pay high wages, which means costs can be kept low. A low rate of unemployment mean there is a shortage of labour - people available may not have the skills needed for the role, so will need training - increases costs
• Income and economic factors - state of economy affects demands and costs - in recession, businesses need to reduce costs - lower incomes mean people have less money to spend so demand decreases. In an economic boom, wages rise and more people are employed - higher incomes, more money to spend - increasing demand for products - leads to increased production costs

Question 24

Business and the external environment - Competition

Answer 24

Competition = can reduce demand and increase costs. When a competitor enters the market or launches a new product, the demand for the rivals business products is likely to decrease as people will buy the competitors products

• Perfect competition = when all firms compete on an equal basis - products are identical, charge similar prices
• Monopoly = where one business has complete control over its market - no competition - can increase their prices without concern of demand decreasing

Question 25

Business and the external environment - Interest rates

Answer 25

Interest rates = affect the cost of borrowing and the return on saving. Interest rate - a fee paid for borrowing. Fall in interest rates means a decrease in the cost of borrowing. A rise in interest rates leads to an increase in the cost of borrowing. Interest rates affect consumer spending. High interest rates - consumers have less money to spend - market demand goes down. Low interest rates - consumers have more disposable income and there is less reward for saving, so demand goes up.

Question 26

Business and the external environment - Demographic factors

Answer 26

Demographic factors = Businesses have to respond to these. Structure of the population changes over time in terms of age, sex and race - this is demographic change. Different demographics of consumers tend to buy different things, so businesses need to adapt the amount and type of product they are producing - consumer taste also changes over time

Question 27

Business and the external environment - Environmental factors

Answer 27

Environment factors = increase business costs. Consumers are more concerned with the effect that their purchasing has on the environment. Forced businesses to consider their impact on the environment
- Businesses pollute the environment through production processes - through traffic pollution caused by transporting raw materials and finished goods, through dumping waste in waterways and seas. Packaging creates a large amount of landfill waste and many businesses set up resources in an unsustainable way
- Some businesses try to minimised the impact they have on the environment e.g try and be more sustainable by replacing resources or using sustainable or recycled materials. Also, adapt production processes to make it more cleaner or use renewable energy sources - increases costs
Being more environmentally friendly can give a company an advantage over its competitors and increase demand

Question 28

Business and the external environment - Fair trade

Answer 28

Fair trade = Policies when purchasing from suppliers - means that the business pays higher and fair prices for the products (especially those from less-developed countries) with the aim of improving the living standards of their suppliers employees. Increases costs of a business but gives them a unique selling point which can increase demand, allowing them to be profitable.