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Unit 2 Flashcards

1
Q

What is working capital

A

The amount of cash a business has to be able to pay off it’s day to day debts. The more working capital a business has the more liquid it is.

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2
Q

Equation for working capital

A

Current assets - current liabilities

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3
Q

What is the working capital cycle

A

CASH - production costs - finished stock - sales.

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4
Q

Equation for percentage change in profit

A

Current years profit - previous years profit/ previous years profit

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5
Q

Equation for gross profit margain

A

Gross profit/revenue x100

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6
Q

Equation for operating profit margain

A

Operating profit/revenue x100

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7
Q

What do balance sheets show

A

Value of business’ assets and liabilities

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8
Q

What is a current liability

A

A debt that needs to be paid in under a year

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9
Q

What is a non current liability

A

A debt that will be paid over several years e.g mortgage

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10
Q

What is liquidity

A

How easily it can be turned into cash

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11
Q

How can liquidity be improved

A
  • decreasing stock levels
    -speeding up collection of debts
  • slowing down payment too creditors
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12
Q

What is current ratio

A

Compares current assets to current liabilities
Current assets/current liabilities.

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13
Q

What is the acid test ratio

A

Tougher measure of liquidity, accounts for the inventory

(Current assets-inventory)/current liabilities

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14
Q

What is working capital

A

Amount of cash a business has to pay off its day to day debts

Current assets - current liabilities

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15
Q

Internal factors that cause business failure (financial)

A
  • bad management of working capital
  • poor efficiency
  • bad decisions
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16
Q

Internal factors causing business failure (non-financial)

A
  • poor communication
  • poor market research
  • marketing
  • failure to innovate
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17
Q

External factors causing business failure (financial)

A

Economic recession - cause consumers to have less money to spend.
Change in exchange rate

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18
Q

External factors causing business failure (non financial)

A
  • actions of competitors
  • change in customer trends
  • poor communication.
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19
Q

What is job production

A

Used for one off items e.g wedding cakes
Produced by skilled workers.

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20
Q

Adv and disadv of job production

A
  • skilled workers need to be paid a higher wage which increases costs
  • firm is unable to take advantage of economies of scale
    + customers are willing to pay higher prices for one off handmade products
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21
Q

What is flow production

A
  • assembly line to produce lots of identical products. E.g chocolate bars.
  • more likely for mass market firms
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22
Q

Adv and disadv of flow production

A

+ allows business to be efficient
+ flow production factories operate 24/7
+ business can profit from economies of scale.
-

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23
Q

What is batch production

A
  • same equipment being used to make a batch of products.
  • when first batch is made, production is stopped and equipment is cleaned.
    E.g clothes company might make a batch of identical T-shirts and then switch and make a batch of jeans
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24
Q

Adv and Disadv of batch production

A
  • only good for business with a small product range
    +allows businesses to be flexible with output.
    + can buy raw materials in larger quantities.
25
How can a firm increase its productivity
- machinery - training human workforce
26
What is efficiency
When production happens at an overall minimum cost
27
How can a business increase efficiency
- increasing productivity - cutting production costs - adopt a lean production approach
28
What is a labour intensive production method
Where a firm uses people instead of machinery
29
Advantages and disadvantages to labour intensive PM
+ Humans are more flexible than machines + Humans can solve problems - harder to manage people - people can be unreliable (sickness, breaks, holidays).
30
What’s a capital intensive firm
A business that uses lots of machinery and relatively few workers
31
Advantages and disadvantages of capital intensive firm
+ machines can be cheaper in the long run. + machines have consistent quality levels. + machines can work 24/7 - machines only suited to one task - machines can break down, delays in production.
32
What is capacity utilisation
How much capacity a business is using.
33
Equation for capacity utilisation
Current output/maximum possible output x100
34
How can a business increase capacity
- using more of their facilities. - buy more machines. - increase staff levels.
35
Benefits of buffer stocks
- avoids business running out of stock - beneficial for a business in mass market. - discount for bulk buying loads of stock - economies of scale.
36
Drawbacks of buffer stocks
- expensive to hold - storage costs - wastage costs
37
What is lean production
Efficient form of production that focuses on waste minimisation.
38
What is Just In Time stock management.
- method of lean production - storage costs are reduced which improves cash flow - business becomes more flexible and can adapt to customers
39
Disadvantages to JIT
- firm has to rely on frequent deliveries - stressful for staff - no benefit from econimies of scale.
40
What is quality control
- assumes that errors are unavoidable - detects errors and puts them right - inspectors are responsible for the quality.
41
What is quality assurance
- assumes errors are avoidable - prevents errors and aims to get it right first time. - employees check their own work.
42
What is total quality management
- quality is the centre of everything a business does. - improves overall quality of products
43
Advantages of TQM
- can help employees bond as a team - boosts a companies reputation - fewer faulty products - creates less waste.
44
Disadvantages of TQM
- can take a long time to introduce it - demotivate staff - lots of effort - expensive to introduce - training the staff.
45
What is kaizen
- an approach to lean production method. - it means constantly improving in small steps.
46
What are quality circles
- where a group of people meet and discus the quality of a product and how to improve it.
47
What are interest rates
- cost of borrowing or return on savings. - rise in interest rates mean its more expensive to borrow money.
48
What is inflation
- overall increase in price of goods and services- - rate of inflation is the percentage change in the price of goods.
49
How can inflation be tracked
- consumer prices index. - basket of goods. - index number = average value of basket/base value of basket x100
50
Equation for average value of basket
Index number/100 x base value of basket
51
What is a exchange rate
The value of one currency in terms of another country.
52
What is a exchange rate
The value of one currency in terms of another country.
53
How can exchange rates be compared?
- currency index - currency index number = exchange rate/base exchange rate x100
54
Taxation rates
-income tax taxes people on their income
55
4 stages of the business cycle
-boom -recession - slump -recovery
56
What happens to a business in this business cycle?
Booms - businesses can raise prices, this increases profitability and slows demand. Recessions - make workers redundant to save wage costs - increase capacity utilisation. Local recession - business’ market their goods elsewhere in the country
57
Discrimination laws - recruitment
- employers aren’t allowed to state in job adverts that they must be a particular age or race…
58
Discrimination laws - pay
Male and female must be on equal pay and entitled to the same benefits

Business (8 decks)

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