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Business > Unit 2 > Flashcards

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
Q

How can a firm increase its productivity

A
  • machinery
  • training human workforce
26
Q

What is efficiency

A

When production happens at an overall minimum cost

27
Q

How can a business increase efficiency

A
  • increasing productivity
  • cutting production costs
  • adopt a lean production approach
28
Q

What is a labour intensive production method

A

Where a firm uses people instead of machinery

29
Q

Advantages and disadvantages to labour intensive PM

A

+ Humans are more flexible than machines
+ Humans can solve problems
- harder to manage people
- people can be unreliable (sickness, breaks, holidays).

30
Q

What’s a capital intensive firm

A

A business that uses lots of machinery and relatively few workers

31
Q

Advantages and disadvantages of capital intensive firm

A

+ 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
Q

What is capacity utilisation

A

How much capacity a business is using.

33
Q

Equation for capacity utilisation

A

Current output/maximum possible output x100

34
Q

How can a business increase capacity

A
  • using more of their facilities.
  • buy more machines.
  • increase staff levels.
35
Q

Benefits of buffer stocks

A
  • avoids business running out of stock - beneficial for a business in mass market.
  • discount for bulk buying loads of stock - economies of scale.
36
Q

Drawbacks of buffer stocks

A
  • expensive to hold
  • storage costs
  • wastage costs
37
Q

What is lean production

A

Efficient form of production that focuses on waste minimisation.

38
Q

What is Just In Time stock management.

A
  • method of lean production
  • storage costs are reduced which improves cash flow
  • business becomes more flexible and can adapt to customers
39
Q

Disadvantages to JIT

A
  • firm has to rely on frequent deliveries
  • stressful for staff
  • no benefit from econimies of scale.
40
Q

What is quality control

A
  • assumes that errors are unavoidable
  • detects errors and puts them right
  • inspectors are responsible for the quality.
41
Q

What is quality assurance

A
  • assumes errors are avoidable
  • prevents errors and aims to get it right first time.
  • employees check their own work.
42
Q

What is total quality management

A
  • quality is the centre of everything a business does.
  • improves overall quality of products
43
Q

Advantages of TQM

A
  • can help employees bond as a team
  • boosts a companies reputation
  • fewer faulty products - creates less waste.
44
Q

Disadvantages of TQM

A
  • can take a long time to introduce it
  • demotivate staff - lots of effort
  • expensive to introduce - training the staff.
45
Q

What is kaizen

A
  • an approach to lean production method.
  • it means constantly improving in small steps.
46
Q

What are quality circles

A
  • where a group of people meet and discus the quality of a product and how to improve it.
47
Q

What are interest rates

A
  • cost of borrowing or return on savings.
  • rise in interest rates mean its more expensive to borrow money.
48
Q

What is inflation

A
  • overall increase in price of goods and services-
  • rate of inflation is the percentage change in the price of goods.
49
Q

How can inflation be tracked

A
  • consumer prices index.
  • basket of goods.
  • index number = average value of basket/base value of basket x100
50
Q

Equation for average value of basket

A

Index number/100 x base value of basket

51
Q

What is a exchange rate

A

The value of one currency in terms of another country.

52
Q

What is a exchange rate

A

The value of one currency in terms of another country.

53
Q

How can exchange rates be compared?

A
  • currency index
  • currency index number = exchange rate/base exchange rate x100
54
Q

Taxation rates

A

-income tax taxes people on their income

55
Q

4 stages of the business cycle

A

-boom
-recession
- slump
-recovery

56
Q

What happens to a business in this business cycle?

A

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
Q

Discrimination laws - recruitment

A
  • employers aren’t allowed to state in job adverts that they must be a particular age or race…
58
Q

Discrimination laws - pay

A

Male and female must be on equal pay and entitled to the same benefits

Business (8 decks)

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