Unit 1- What is business?

Question 1

What is the mission of a business?

Answer 1

An organisation’s aims or long term intentions, its ultimate purpose; sometimes the same as its corporate objectives

Question 2

What is the mission statement of a business?

Answer 2

A qualitative statement intended to motivate employees and convince other stakeholders of its sincerity and commitment

Question 3

What is business objectives?

Answer 3

Goals that must be achieved to realised the stated aims of an organisation, often medium to long term

Question 4

What are corporate objectives?

Answer 4

Goals which co-ordinate the activities of the whole organisation

Question 5

What are functional objectives?

Answer 5

Goals of each of the functional areas of a business, these are: marketing, HR, finance and operation

Question 6

What are the advantages of setting clear objectives?

Answer 6

Sense of direction
Guide to plans of actions
Co-ordinate business activity

Question 7

What is a plan of action/ business strategy?

Answer 7

The medium to long term plans through which an organisation intends to achieve its objectives

Question 8

What is the importance of profit?

Answer 8

A reward
A motivator
A measure of success
A guide for future investment 
A source of finance 
Attractive to stakeholders

Question 9

What influences the type of business that is chosen?

Answer 9

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

Question 10

What are the advantages and disadvantages of a sole trader?

Answer 10

Advantages- simple and quick to set up, cheap and freedom of hours
Disadvantages- unlimited liability, hard to raise money and long hours

Question 11

What are the advantages and disadvantages of a partnership?

Answer 11

Advantages- brings together expertise of a number of people, sharing of ideas and responsibility
Disadvantages- unlimited liability, reduced control and shared profits

Question 12

What are advantages and disadvantages of private limited companies(ltd)

Answer 12

Advantages- limited liability, more specialisation can occur

Disadvantages- expensive to set up and accounts have to be logged with registrar of companies

Question 13

What are the advantages and disadvantages of public limited companies(plc)?

Answer 13

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

Question 14

What are the main factors that influence share price?

Answer 14

State of economy
Company performance
Market competition
Proposed takeovers
Investors expectations and responses

Question 15

What is market capitalisation?

Answer 15

The value of outstanding shares in a public limited company

Question 16

What is the equation for market capitalisation?

Answer 16

Market cap. = Total issue of ordinary shares x current share price

Question 17

What is the divorce of ownership and control?

Answer 17

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

Question 18

What is the responsibility of the board of directors?

Answer 18

Set objectives and aims
Determining the strategy to achieve those aims and objectives
Providing the leadership to put them into effect
Supervising management

Question 19

What is the principal agent problem?

Answer 19

Shareholders (principal) want strong returns and managers (agents) want power and influence

Question 20

What is corporate governance?

Answer 20

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

Question 21

What is the external environment?

Answer 21

Political factors
Economic factors
Society factors
Technology factors 
Legal factors 
Environmental factors

Question 22

What are the influences of demand?

Answer 22

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