Unit 1- What is business? Flashcards
What is the mission of a business?
An organisation’s aims or long term intentions, its ultimate purpose; sometimes the same as its corporate objectives
What is the mission statement of a business?
A qualitative statement intended to motivate employees and convince other stakeholders of its sincerity and commitment
What is business objectives?
Goals that must be achieved to realised the stated aims of an organisation, often medium to long term
What are corporate objectives?
Goals which co-ordinate the activities of the whole organisation
What are functional objectives?
Goals of each of the functional areas of a business, these are: marketing, HR, finance and operation
What are the advantages of setting clear objectives?
Sense of direction
Guide to plans of actions
Co-ordinate business activity
What is a plan of action/ business strategy?
The medium to long term plans through which an organisation intends to achieve its objectives
What is the importance of profit?
A reward A motivator A measure of success A guide for future investment A source of finance Attractive to stakeholders
What influences the type of business that is chosen?
The need for finance The size and nature of the business The need to limit liability for debt The degree of control required by owners The level of risk involved
What are the advantages and disadvantages of a sole trader?
Advantages- simple and quick to set up, cheap and freedom of hours
Disadvantages- unlimited liability, hard to raise money and long hours
What are the advantages and disadvantages of a partnership?
Advantages- brings together expertise of a number of people, sharing of ideas and responsibility
Disadvantages- unlimited liability, reduced control and shared profits
What are advantages and disadvantages of private limited companies(ltd)
Advantages- limited liability, more specialisation can occur
Disadvantages- expensive to set up and accounts have to be logged with registrar of companies
What are the advantages and disadvantages of public limited companies(plc)?
Advantages- limited liability, suppliers tend to be more willing to offer credit, easier to raise money through public sale of shares
Disadvantages- vulnerable to takeovers, complex and expensive to set up
What are the main factors that influence share price?
State of economy Company performance Market competition Proposed takeovers Investors expectations and responses
What is market capitalisation?
The value of outstanding shares in a public limited company
What is the equation for market capitalisation?
Market cap. = Total issue of ordinary shares x current share price
What is the divorce of ownership and control?
Separation of the two functions of ownership and control in PLC’s
Ownership entails providing finance and taking risks
Control involves managing the organisation
This separation can cause miscommunication and mistrust
What is the responsibility of the board of directors?
Set objectives and aims
Determining the strategy to achieve those aims and objectives
Providing the leadership to put them into effect
Supervising management
What is the principal agent problem?
Shareholders (principal) want strong returns and managers (agents) want power and influence
What is corporate governance?
A set of relationships between a company’s management, its board, its shareholders
A system for protecting its interest of shareholders of a company
Seeks to ensure the firm acts legally
What is the external environment?
Political factors Economic factors Society factors Technology factors Legal factors Environmental factors
What are the influences of demand?
Price, tastes and fashion, prices of substitutes, prices of complementary products, marketing and advertising, seasonal factors, government action, incomes, interest rates, demographic factors, environmental issues and fair trade
