Unit 1- What Is Business? Flashcards
What is a service?
An intangible item
What do businesses do?
Transform inputs or resources into goods or services
Gross Domestic Product (GDP)
Measures the total value of the production of an economy over a period of time, usually a year
Primary business
Extraction of natural resources
Secondary business
Production of finished goods or components
Tertiary business
Providing services to consumers and businesses
Inputs
Capital
Enterprise
Land
Labour
Added value
The process of increasing the worth of products by modifying them
Added value equation
Selling price - cost of bought in materials, components and services
Mission statement
Sets out a businesses overall purpose to direct and stimulate the entire organisation
Aims
Long-term plans of a business from which its corporate objectives are derived
Objectives
Medium to long-term goals established to coordinate the business
SMART objectives
To be effective, objectives should be SMART Specific Measurable Agreed Realistic Time specific
Common business objectives
Profits and Profit Maximisation Growth Survival Cash Flow Social and Ethical Diversification
Profit
Measures the extent to which revenues from selling a product exceed the costs incurred from producing it over a time period
Cash flow
The amount of money moving into and out of a business,mover a time period
Stakeholders
Individuals or groups that have an interest in a business (eg, employees, shareholders, customers, local residents)
Revenues
The earnings or income generated by a firm as a result of its trading activities
Fixed costs
Costs that do not alter when the business alters it’s level of output (eg, rent, wages)
Variable costs
Alter directly with the businesses level of outputs (eg, fuel costs, raw materials)
Total costs
Fixed costs + variable costs
Unit costs/Average costs
Total costs divided by level of production or output to give the cost of producing a single unit
What is a good?
A physical product
Private sector
When a business is owned by shareholders or by private individuals
Sole trader
A business owned and managed by one person, but may employ other people
Advantages of sole trader
Making key decisions can be motivating
Decisions can be made quickly so can react rapidly to changes in market
Have direct contact with market
Straightforward to setup
Disadvantages of sole trader
Sources of finance are limited
Rely heavily on ability of making decisions
Entail long hours, limited holiday and stress
Unlimited liability
Unlimited liability
An individual or group of individuals are personally responsible for the actions of their business. This means they could lose all their assets if the business had financial problems
Company
A business or organisation that has its own identity and has limited liability
Incorporation
The process of establishing a business as a separate legal identity that allows it to benefit from limited liability
Shareholder
An investor in and one of the owners of a company
Limited liability
Means in the event of financial difficulties the personal belongings of shareholders are safe
Dividends
A share in the profits of a company that are distributed to the holders of certain types of company shares
Public sector business
Organisations that are owned by national and local government
Market capitalisation
Total value of issued shares of a PLC
Takeover
When a company acquires control of another company by buying more than 50% of its shares
Privatisation
The process under which the state sells businesses that are previously owned and managed to private individuals and businesses
External factors influencing a business
Demographics
Economic
Ethics/environment
Market conditions
Fair trade
A social movement that exists to promote improved trading terms and living conditions for producers of products in less developed countries
Sustainable production
When the supply of a product does not impose costs on a future generations by, for example, depleting non-renewable resources
