Unit 1- what is a biz Flashcards
what are some primary sector business examples?
agriculture, forestry, fishing, mining and quarrying, oil and gas
what are some secondary sector business examples?
manufacturing, construction, the supply of electricity, gas and water
what are some tertiary sector business examples?
the supply of services, eg: hotels, catering, transport, education and health
what are some objectives a business might have?
-profit and profit maximisation: maximised when difference between sales and total costs is at its greatest
-growth: earn higher profits (higher dividends), expand
-survival: continue to trade, essential when periods of recession or intense comp, times of crisis: hostile takeover
-cash flow: movement of cash in and out of the business
-social and ethical objectives: employment, protecting the environment, make the business more attractive
profit formula
total revenue/ total costs
what is diversification?
increased range of unrelated goods and services
what are fixed costs?
costs that do not change, they don’t alter when the business alters its level of output. eg: rent, salaries.
what are variable costs
costs that change, they alter when the business alters its level of output. eg: raw materials, fuel costs
total costs formula
fixed costs + variable costs
avg. costs formula
total costs of production / the level of production or output to give the costs of producing a single unit of output
revenue formula
quantity sold x avg selling price
what is profit margin?
the amount or % of the final selling price that is profit
who owns private sector businesses?
-owned by shareholders or private individuals not owned by the government
what is a sole trader?
-a singular person who owns a business
adv of being a sole trader
-be your own boss
-all profits go to them
-easy to start up
-choose when they work
-no orders/ freedom
-declare profits HMRC
dis of being a sole trader
-unlimited liability
-hold all responsibilities
-demanding job
-1 set of skills and knowledge
-may not be able to go on holiday as they may risk loosing customers
what are companies?
-owned by shareholders, the more shares, the more the company belongs to them
-limited liability
-shareholders get paid in dividends
adv of private limited companies (ltd)
-cheap
-limited liability
-owned by shareholders
-many are owned by families: limits the sale of shares to family so no outsiders get involved
why be an ltd and not a plc?
-desire to retain control of the business
-taking decisions in the company’s long-term interest
-enjoying the profits generated by the business
what is a public limited company (plc)?
a business that anyone can buy shares into
-bigger than an ltd
-can measure the size using market capitalisation
-market capitalisation is the total value of the issued share of a plc
market capitalisation formula
current share price x no. of shares outstanding
adv of being a plc
- access to capital
-publicity
-takeovers
what are the reasons for changing business forms?
-growth
-privatisation: raising large sums of money for the gouvernment
what are public sector businesses?
owned (and sometimes funded by) the national or local gouvernemt
what re the 3 major elements of the public sector?
-public corporations: channel 4 TV, airport
-public services: NHS
-municipal services: libraries, leisure centres
what are not-for-profit businesses
-when profit is not the main objective
-eg: charities, the eden project, the big issue
who buys shares?
in the uk, financial institutions such as banks, pension funds and insurance companies own the most company shares
why buy shares?
-mainly financial reasons
-may benefit from an increase in share price and from receiving a share of the profits in the forms of dividends
what are the risks of buying shares?
-price of shares can easily fall
-can make lower profits than expected= lower dividends
-reduction of share prices in the short-term
what is the role of shareholders?
-can influence decision making
-voting rights: 1 share= 1 vote
-all shareholders receive a copy of ‘the annual report’
-shareholders are invited to AMGs (annual general meetings)
what are some influences on share price?
-company’s performance
-environment in which the business trades
-business doing well= share price should benefit
-economic conditions are good= investors feel confident
-demand for shares increases
-troubled economic conditions=worried investors= demand for shares decreases
what external factors might affect demand?
-market conditions and competition
-incomes
-interest rates
-demographic factors
-environmental issues and fair trade
-inc in interest rates= pay moron loans= less income available for spending
positive factors on demand
-rising demand-> product popularity
-major competitor leaves
-no. of customers increases
negative factors on demand
-customers demand environmentally friendly products -> increasing the business’s costs
-new entrant to the market: more competition
-market being over supplied with products- depressive prices
what are the benefits of rising share prices?
-reflects well on the management team
-may receive bonuses
-easier to raise capital
-more attractive shares
-banks may be more willing to offer loans
what are the effects of a falling share price?
-might be difficult to raise capital
-vulnerable to take over
-cost of buying a controlling interest in the business reduces
-might be a response to a short term factor such as profits being bellow expectations - not long-term
what are the effects of ownership on a business’s mission, objectives, decisions and performance?
-mission: impact on the business’s overall direction
-objectives: follows on from the mission
-decisions: impact on the complexity of decisions, affects the decisions of key stakeholders such as: employees, customers, shareholders, etc.
-performance: influenced by things such as the state of the economy, as well as the form of the business, may be able to produce lower costs-> tech, potential to increase profits
what suffers from a strong influence in demand based on incomes?
-jewellery
-luxury electrical items
-restaurant meals
-long haul holidays
-furniture
what suffers from a weak influence in demand based on incomes?
-bread and milk + other basic foods
-cigarettes and tobacco
-petrol
-water
-lottery tickets
what is the importance of interest rates?
-banks control this as well as the economy in the country
-higher interest rates=lower demand
-supermarkets such as lidl might benefit from this- cheaper
-businesses with a high gearing might be impacted by this
-rise in interest rates will increase the cost of production
what are demographic factors?
factors relating to the population
-age, gender, health, immigration, death/ birth rates
what is the importance of environmental factors and fair trade?
businesses should not ignore environmental issues and this often determines customer’s decisions
-global warming- carbon emissions
-fair trade for farmers and workers in less developed countries
-more costs but enhanced reputation and increase in demand
what is PESTLE?
-P olitical
-E conomic
-S ocial
-T echnological
-L egal
-E nvironmental
