Unit 2 Flashcards
What is working capital
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.
Equation for working capital
Current assets - current liabilities
What is the working capital cycle
CASH - production costs - finished stock - sales.
Equation for percentage change in profit
Current years profit - previous years profit/ previous years profit
Equation for gross profit margain
Gross profit/revenue x100
Equation for operating profit margain
Operating profit/revenue x100
What do balance sheets show
Value of business’ assets and liabilities
What is a current liability
A debt that needs to be paid in under a year
What is a non current liability
A debt that will be paid over several years e.g mortgage
What is liquidity
How easily it can be turned into cash
How can liquidity be improved
- decreasing stock levels
-speeding up collection of debts - slowing down payment too creditors
What is current ratio
Compares current assets to current liabilities
Current assets/current liabilities.
What is the acid test ratio
Tougher measure of liquidity, accounts for the inventory
(Current assets-inventory)/current liabilities
What is working capital
Amount of cash a business has to pay off its day to day debts
Current assets - current liabilities
Internal factors that cause business failure (financial)
- bad management of working capital
- poor efficiency
- bad decisions
Internal factors causing business failure (non-financial)
- poor communication
- poor market research
- marketing
- failure to innovate
External factors causing business failure (financial)
Economic recession - cause consumers to have less money to spend.
Change in exchange rate
External factors causing business failure (non financial)
- actions of competitors
- change in customer trends
- poor communication.
What is job production
Used for one off items e.g wedding cakes
Produced by skilled workers.
Adv and disadv of job production
- 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
What is flow production
- assembly line to produce lots of identical products. E.g chocolate bars.
- more likely for mass market firms
Adv and disadv of flow production
+ allows business to be efficient
+ flow production factories operate 24/7
+ business can profit from economies of scale.
-
What is batch production
- 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
Adv and Disadv of batch production
- only good for business with a small product range
+allows businesses to be flexible with output.
+ can buy raw materials in larger quantities.
How can a firm increase its productivity
- machinery
- training human workforce
What is efficiency
When production happens at an overall minimum cost
How can a business increase efficiency
- increasing productivity
- cutting production costs
- adopt a lean production approach
What is a labour intensive production method
Where a firm uses people instead of machinery
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).
What’s a capital intensive firm
A business that uses lots of machinery and relatively few workers
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.
What is capacity utilisation
How much capacity a business is using.
Equation for capacity utilisation
Current output/maximum possible output x100
How can a business increase capacity
- using more of their facilities.
- buy more machines.
- increase staff levels.
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.
Drawbacks of buffer stocks
- expensive to hold
- storage costs
- wastage costs
What is lean production
Efficient form of production that focuses on waste minimisation.
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
Disadvantages to JIT
- firm has to rely on frequent deliveries
- stressful for staff
- no benefit from econimies of scale.
What is quality control
- assumes that errors are unavoidable
- detects errors and puts them right
- inspectors are responsible for the quality.
What is quality assurance
- assumes errors are avoidable
- prevents errors and aims to get it right first time.
- employees check their own work.
What is total quality management
- quality is the centre of everything a business does.
- improves overall quality of products
Advantages of TQM
- can help employees bond as a team
- boosts a companies reputation
- fewer faulty products - creates less waste.
Disadvantages of TQM
- can take a long time to introduce it
- demotivate staff - lots of effort
- expensive to introduce - training the staff.
What is kaizen
- an approach to lean production method.
- it means constantly improving in small steps.
What are quality circles
- where a group of people meet and discus the quality of a product and how to improve it.
What are interest rates
- cost of borrowing or return on savings.
- rise in interest rates mean its more expensive to borrow money.
What is inflation
- overall increase in price of goods and services-
- rate of inflation is the percentage change in the price of goods.
How can inflation be tracked
- consumer prices index.
- basket of goods.
- index number = average value of basket/base value of basket x100
Equation for average value of basket
Index number/100 x base value of basket
What is a exchange rate
The value of one currency in terms of another country.
What is a exchange rate
The value of one currency in terms of another country.
How can exchange rates be compared?
- currency index
- currency index number = exchange rate/base exchange rate x100
Taxation rates
-income tax taxes people on their income
4 stages of the business cycle
-boom
-recession
- slump
-recovery
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
Discrimination laws - recruitment
- employers aren’t allowed to state in job adverts that they must be a particular age or race…
Discrimination laws - pay
Male and female must be on equal pay and entitled to the same benefits
