Unit 1 (not on paper 3) Flashcards
what benefits do businesses bring?
- create employment
- create income
- create new products
- enhance a country’s reputation
GDP
measures the value of a country’s total output of goods + services over a period of time
Mission statement
sets out a business’s overall purpose to direct + stimulate the entire organisation
Aims
long term plans of the business from which its corporate objectives are derived
Objectives
medium to long term targets established to co-ordinate the business
examples of business objectives
- profit maximisation
- growth
- survival
- cash flow
- ethical
- diversification
reasons for setting objectives
- managers ensure everyone is working towards the same target
- workers more motivated as they know what business wants them to achieve
- the success of business’s plans can be reviewed
profit =
total revenue - total costs
stakeholders
individuals or groups who an interest in a business
revenues
earnings generated by a business as a result of its trading activities
fixed costs
costs that do not change with output
variable costs
alter directly with output
total costs =
fixed costs + variable costs
average costs
total costs / level of production or output
what does the businesses profits depend on?
profit margin and quantity of sales
sole trader
a business that is owned + managed by one person but may employ other people
+ easy to start up
+ decisions can be made quickly
+ sole traders often have direct contact with market
- sources of finance are limited
- long hours with limited holidays = stress
- unlimited liability
shareholder
an investor in and one of the owners of a company
limited liability
in the event of financial difficulties, the personal belongings of shareholders are safe
owners aren’t personally responsible for debts
public + private limited companies can only lose money invested into the business
dividends
part of a company’s profits that are paid to shareholders in proportion to the no. of shares that they down
why may a business decide to remain private?
- retain control over company
- taking decisions in the company’s long term interests
- enjoy the profits generated by the company
benefits of trading as a public limited company?
- access to capital
- publicity
- ability to take over companies
takeover
when one company acquires control of another by buying 50% of its share capital
mutual businesses
run for the benefit of their members whether employees, customers, suppliers or local community
what different types of co-operatives exist?
- consumer co-operatives (customers are members)
- worker co-operatives (owned + operated by employees)
- producer co-operatives (group of businesses work together to benefit from factors eg increased bargaining power)
reason for buying shares
- may benefit from increase in share price = capital gain
- receiving dividends
- longer term returns eg investors
- want to be involved
- believe in objectives
risk of buying shares
- price can fall
- companies may make lower profits than expected
influence on share prices
- company’s performance eg strategic decisions, quality of team
- business environment
- current share price
- interest rates
- industry development - potential for takeover
benefits of rising share price
if demand for a share > supply = rise in share price
- reflects well on management team
- easier to raise capital when share prices rising -> more potential shareholders
negatives of falling share prices
- may reflect poor performance on management team
- may make company vulnerable
- may make difficult to raise capital
how does rising interest rates impact costs + demand
- costs of servicing existing loans may increase
- costs of imported products may fall
- demand for products may fall
how does falling interest rates impact costs + demand
- cost of servicing existing loas may decrease
- costs of imported products may rise
- demand for products may rise
private limited company
people in the business own all the shares, small family business
public limited company
can sell shares to the public, directors are elected to the board by shareholders
unlimited liability
sole traders, business debts become personal debts -> huge financial risks
public sector
owned + controlled by the govt
aim to provide services to the public rather than make a profit eg NHS, police force
funded through taxes
less accountable to shareholders -> likely to be less efficient, govt are there to bail them out -> Royal Mail so inefficient went private
some companies are needed to be owned by the govt eg hospitals
private sector
owned + run by private individuals, sole traders to huge organisations eg John Lewis and Asda, most aim to make a profit but non profit organisations are also private
likely to be more efficient as don’t have govt backing and have pressure from shareholders
what does the govt do if demand in economy is too low?
- cut taxes so people have more to spend
- central banks decrease interest rates
- there is increased disposable income
how are a businesses costs effected when unemployment is high?
means good supply of labour, businesses can hire staff easily, won’t have to pay high wages = costs low
what does govt legislation force. business to do?
deal with issues eg pollution -> may increase costs if use sustainable resources but can help in LT eg Carbon trust have increased competitiveness through changes they made
what does fair-trade do for a business?
increases cost but gives USP eg Co-op
market capitalisation
value of the business represented by the share price x no. of shares issues
profit warning
when a company expects to get lower profits than anticipated
