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A-Level Business > unit 7 > Flashcards

unit 7 Flashcards

1
Q

whats ratio analysis

A

involves the comparison of financial data to gain insights into business performance

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2
Q

ratio analysis help to answer questions such as

A
  • why is one business more profitable than another
  • what returns are being earned in investment in a business
  • is a business able to stay solvent
  • how effectively is a business using its assets
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3
Q

what are the key stages in ratio analysis

A
  • gather data
  • calculate ratios
  • interpret results
  • take actions
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4
Q

where does the information for ratio analysis come from

A

income statement
balance sheet

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5
Q

whats does income statement involve

A
  • revenue
  • costs of sales
  • gross profit
  • operating profit
  • net profit (profit for the year)
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6
Q

whats does balance sheet involve

A
  • current assets
  • current liabilities
  • inventories
  • trade receivables and payables
  • long term liabilities
  • capital and reserves
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7
Q

what are the main groups of ratios

A
  • profitability (gross profit margin, operating profit margin, return on capital employed)
  • liquidity (current ratio, acid test ratio)
  • financial efficiency (payables days, receivables days, inventory turnover, gearing)
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8
Q

key users of ratios (profitability)

A
  • shareholders
  • governments
  • competitors
  • employees
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9
Q

key users of ratios (liquidity)

A
  • shareholders
  • lenders
  • suppliers
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10
Q

key users of ratios (financial efficiency)

A
  • shareholders
  • lenders
  • competitors
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11
Q

what are the limitations of ratio analysis

A
  • one data set is not enough
  • reliability of data
  • based on past
  • comparability
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12
Q

why might ratio data not be entirely reliable

A
  • financial info involves making subjective judgements
  • different businesses have different accounting polices
  • potential for manipulation of accounting info (eg window cleaning)
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13
Q

whats the importance of effective comparison

A

one ratio is rarely enough
- need to compare with competitors
- need to analyse over time (trends)

circumstances change over time
- markets and industries change
- different economic and market conditions

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14
Q

what ratios don’t tell you

A
  • competitive advantage eg brand strength
  • quality
  • ethical reputation
  • future prospects
    -changes in the external environment
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15
Q

what is window dressing

A

a short-term strategy used by companies and funds to make their financial reports and portfolios look more appealing to clients, consumers, and investors

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16
Q

why are ratios useful

A
  • very useful analytic tools
  • widely used and understood
  • identify issues, don’t solve problems though
  • part of a range of indicators of business performance
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17
Q

definition of balance sheets

A

a financial snapshot of the business at a moment of time

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18
Q

what does a balance sheet show

A

shows the source of all capital invested in the business for it to be able to operate, and in what form that money currently is in within the firm, eg stock, premises, debt etc

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19
Q

whats a liability

A

A liability is something a person or company owes, usually a sum of money

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20
Q

what are non current assets

A

what the business owns with a lifespan of more than a year. they are used repeatedly as part of the firms operations and will not regularly be sold

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21
Q

what are current assets

A

assets owned by the business that are likely to be turned into cash within one year. these assets constantly change form

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22
Q

what are current liabilities

A

short term debt of the business, will not have to be repaid within a year

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23
Q

what are non current liabilities

A

debts that need to be rapid, but not within one year. also known as creditors falling due after a year

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24
Q

what do capital and reserves show on a balance sheet

A

shows how the assets and business have been financed

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25
Q

what are net current assets also known as

A

working capital

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26
Q

whats liquidity

A

a firms ability to pay its short term liabilities (debts)

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27
Q

what are assets

A

items that the business owns

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28
Q

whats inventories

A

stock, worked in progress, finished goods

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29
Q

whats total equity (capital)

A

funds provided by shareholders to set up the business, fund expansion and purchase non current assets

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30
Q

whats the formula for net current assets

A

current assets - current liabilities

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31
Q

whats the formula for net assets

A

total assets - total liabilities

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32
Q

whats the formula for capital employed

A

total equity + non current liabilities

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33
Q

what are receivables (debtors)

A

money owned to the company by its customers mostly from sales on credit

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34
Q

what does income statement show

A

shows the profit or loss made by a business

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35
Q

whats gross profit

A

revenue minus cost of sales

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36
Q

whats finance income

A

any interest paid to the company on money lent or saved

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37
Q

whats finance expenses

A

any payment of interests on loans held

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38
Q

profit before tax

A

operating profit minus finance expenses plus any finance income

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39
Q

whats profit for the year

A

profit before tax minus taxation

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40
Q

what are exceptional items

A

items that have a one off affect on profits.

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41
Q

earnings per share formula

A

profit for the period/number of shares

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42
Q

purses of the income statement

A
  • to measure company performance and the impact of strategies
  • owners can assess their return on investment
  • to abide by legislation as part of being a limited company
  • gives an idea of the profit quality
  • to see how profit is being utilised
  • used to compare with other firms and past trends
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43
Q

whats profit quality

A

whether a source of profit is sustainable in the long term

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44
Q

whats high quality profit

A

a source of profit which is likely to continue

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45
Q

whats low quality profit

A

a result of actions that are unlikely to occur again

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46
Q

whats a leaseback

A

an arrangement in which the company that sells an asset can lease back that same asset from the purchaser

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47
Q

who are stakeholders

A

someone with an interest in the business

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48
Q

what are the 6 ratios

A
  • current ratio
  • gearing ratio
  • return on capital employment
  • payables days
  • receivable days
  • inventory turnover
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49
Q

whats liquidity

A
  • is a firms ability to pay short term debts (liabilities)
  • firms pay their short term debts (called liabilities) with their current asset of cash. their other current assets inventories (stock) and receivables (debtors)
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50
Q

what does insolvent mean

A

the company is unable to pay its debts

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51
Q

whats current ratio

A

although profit is the main measure of success if its important to understand if the firm is able to meet its short term debts to continue trading

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52
Q

liquidity formula

A

current assets
——————— : 1
current liabilities

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53
Q

what does a 2:1 current ratio mean

A

for every £1 you owe you have £2

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54
Q

problems with a high ratio

A

the money is sitting around and could be spent on investing

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55
Q

whats Tescos current ratio

A

7.39:1

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56
Q

whats gearing

A

gearing measures the proportion of a business’s capital (finance) provided by debt

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57
Q

why is gearing useful

A

greeting shows what proportion of the capital invested in a business has come from bank loans.

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58
Q

the gearing ratio

A

non current liabilities
———————————— x100
total equity + non current liabilities

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59
Q

whats a high gearing as a %

A

a value higher than 50%

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60
Q

whats a low gearing as a %

A

usually below 25%

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61
Q

benefits of high gearing

A
  • bank loans can be a cheap source of finance when interest rates are low
  • less dividend payments will be required as share capital will not be needed
  • it may imply the business is heavily investing in growth to drive the company forward and take advantage of opportunities to stay ahead of the competition.
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62
Q

benefits of low gearing

A
  • the company will have lower interest and loan payments positively impacting its liquidity
  • it makes the business a more attractive investment to potential shareholders
  • the firm will not be as vulnerable to cost impacts of interest rate changes
  • there is reduced risks as the business has less debt and fewer creditors who could put the business into liquidation if these debts go unpaid
  • if shares are sold as an alternative, share capital is permanent capital so doesn’t need to be repaid unlike loans
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63
Q

whats ROCE stand for

A

return on capital employed

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64
Q

what is return on capital employed

A

the profitability ratios help to show a firms efficiency in achieving this objective and producing a profit. they relate the profit made by the firm to its size.

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65
Q

ROCE formula

A

operating profit(before tax)
————————————— x100
total equity + non current liabilities

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66
Q

what is profitability

A

a firms profit in relation to its size

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67
Q

whats inventory turnover

A

inventory turnover measures how often each year a business sells and replaces its inventory

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68
Q

what are the financial efficiency ratios

A
  • inventory (stock) turnover
  • receivables (debtors) days
  • payables (creditors) days
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69
Q

what do the financial efficiency ratios measure

A

how efficiently the business manages its current assets and liabilities, which will also impact a firms liquidity

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70
Q

what are the 3 main types of inventory

A
  • raw materials and components
  • work in progress
  • finished goods
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71
Q

inventory turnover formula

A

average inventories held

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72
Q

how is inventory valued

A

cost price not selling price

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73
Q

industries with typically low inventory turnover

A
  • construction
  • engineering
  • industrial distribution
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74
Q

industries with typically high inventory turnover

A
  • supermarket retail
  • fast food
  • motor vehicle production
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75
Q

how can inventory turnover be increased

A
  • sell of or dispose of slow moving or obsolete inventory
  • introduce lean production techniques to reduce amounts of inventory held
  • rationalise the product range made or sold
  • negotiate sale or return arrangements with suppliers - so inventory can be returned if doesn’t sell
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76
Q

factors influencing inventory turnover

A
  • popularity
  • type op product
  • type of business/industry
  • changes in consumer tastes and fashions
  • quality of research
  • product portfolio
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77
Q

what are trade receivables (debtors)

A

amounts owed to a business by customers

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78
Q

what are trade payables (creditors)

A

amounts owed by a business to suppliers and others

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79
Q

what are receivables days

A

the average length of time taken by customers to pay amounts owned

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80
Q

what are payables days

A

the average length of time taken by a business to pay amounts it owes

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81
Q

receivables (debtors) days formula

A

trade receivables
————————- x 365
revenue (sales)

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82
Q

issues to consider with ratio analysis

A
  • is the data reliable
  • were the accounts produced accurately
  • some firms may not pursue profit maximisation but other objectives eg social enterprise
  • it may be hard to access the accounts of rivals to make comparisons
  • economic factors may have impacted the company’s performance.
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83
Q

whats inter firm comparisons

A

comparisons between different companies

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84
Q

whats intra firm comparisons

A

comparisons within the company

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85
Q

what are business objectives

A

the specific intended outcome of business strategy

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86
Q

the hierarchy of business objectives

A

TOP TO BOTTOM
mission
corporate/strategic
functional
team
individual

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87
Q

what are objectives

A

statements of specific outcomes that are to be achieved

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88
Q

4 operations of business

A
  • operations
  • finance
  • HR
  • marketing
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89
Q

what are corporate objectives

A

objectives that relate to the business as a whole

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90
Q

purposes of corporate objectives

A
  • provide strategic focus
  • measure performance
  • inform decision making
  • set the scene for more detailed functional objectives
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91
Q

key areas for corporate objectives

A
  • market
  • innovation
  • productivity
  • physical + financial resources
  • profitability
  • management
  • employees
  • public responsibility
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92
Q

what are functional objectives

A

set for each key business function and are designed to ensure that the corporate objectives are achieved

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93
Q

examples of how functional objectives might support corporate objectives

A
  • increase sales
  • reduce costs
  • increase cash flow
  • improve customer satisfaction
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94
Q

key internal influences on corporate objectives and decisions

A
  • business ownership
  • attitude to profit
  • ethical stance
  • organisational culture
  • leadership
  • strategic position and resources
  • stakeholder influence
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95
Q

key external influences on corporate objectives and decisions

A
  • short termism
  • economic environment
  • political / legal environment
  • competitors
  • social and technological change
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96
Q

what is short-termism

A

is where a business priorities short-term rather than long-term performance

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97
Q

why might businesses be concerned with short term performance

A
  • stock market (investors) focus on latest financial performance
  • reliance on bonuses based on short term performance
  • frequent changes in leadership and strategy
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98
Q

possible indicators of short termism

A
  • bonuses based on short term objectives
  • low investment in R+D
  • high dividend payments rather than reinvesting profits
  • overuse of takeovers rather than internal growth.
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99
Q

short termism may damage other measures of long term performance for example

A
  • market share
  • quality
  • innovation
  • brand reputation
  • employee skills and experience
  • social responsibility+sustainability
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100
Q

case study of short termism

A

BT stopped graduate apprentice, saved money short term, lost long term, skill shortage

Land Rover Jaguar, kept it going, short term money loss, long term saved money

all in pandemic

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101
Q

whats strategy

A
  • how the business intends to achieve its objectives
  • usually long term
  • made by senior management
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102
Q

whats tactics

A
  • support achievements of specific targets
  • usually routine and short term
  • often delegate to junior management
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103
Q

whats synergy

A

the combined power of a group of things when they are working together that is greater than the total power achieved by each working separately

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104
Q

strategic decions

A
  • external growth
  • enter international market
  • rebrand the business
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105
Q

tactical decisions

A
  • relocate staff from takeover HQ
  • choose locations in new market
  • launch rebranding campaign
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106
Q

what is lamb rippers

A

a way to remember business strategy

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107
Q

whats in LAMB RIPPERS

A

Lean production
Acquesition
Marketing
Business restructuring

Relocation
Internationalisation
Product innovation
Partnerships
Employee/ employer relations
Re-shoring
Scale of production

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108
Q

whats matrix structure

A

when people from all different sectors go and work together

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109
Q

whats lean production

A

methodology aimed at reducing waste in the form of over production, excessive lead time or product defects in order to make a business more effective and more competitive

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110
Q

lean production strategies

A
  • JIT
  • zero defects
  • Kaizen
  • Benchmarking
  • Team working
  • Quality circles
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111
Q

whats acquisition

A

taking over another from so two become one

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112
Q

what are the 2 types of acquisition

A

hostile (when the company being brought doesn’t want to be brought) or friendly (when one business is happy to be brought)

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113
Q

what are companies that have lots of business in different markers

A

conglomerates

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114
Q

advantages of acquisition

A
  • larger revenues
  • economies of scale
    synergy, 2+2=5
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115
Q

Whats marketing (lamb rippers)

A
  • 7 p’s
  • marketing mix
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116
Q

whats business (lamb rippers)

A
  • business restructuring (people, process, technology, structure)
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117
Q

whats relocation (lamb rippers)

A

moving the business can help:
- reduce cost or raise revenue
- increase brand perception
- help extract the right talent
- expansion

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118
Q

whats internnationalisation (lamb rippers)

A

business seeks more to sell more to foreign markets

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119
Q

whats product innovation (lamb rippers)

A

product innovation is bringing a new idea to market

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120
Q

whats process innovation

A

making the same product in a better different way

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121
Q

what are partnerships (lamb rippers)

A
  • joint ventures, strategic alliances and good relations with suppliers can all boost profits
  • legal and general have a strategic alliance with Barclays providing buildings and contents insurance for Barclays customers Starbucks have a strategic alliance southwest airlines providing coffee during flights
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122
Q

what is employee/ employer relation (lamb rippers)

A

good employee/employer relationship boost productivity
bad employee/employer relationship harm productivity

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123
Q

whats re shoring (lamb ripper)

A

brining manufacture or production back to the Uk. this may be because more expensive abroad or quality or time delays make it better to manufacture here

124
Q

whats scale of production (lamb rippers)

A

increasing the scale of production can help firms reduce average costs. When firms expand total cost is likely to rise but average cost can fall

125
Q

whats swot analysis

A
  • strengths
  • weaknesses
  • opportunities
  • threats
126
Q

what are porters 5 forces

A
  • rivalry of the market
  • threat of substitute products/services
  • bargaining power of market buyers
  • threat of new entrants to the market
  • bargaining power of market suppliers
127
Q

what is new entrants (porter 5 forces)

A

firms that already exist within the market need their goods to be at the right quality and price

128
Q

whats substitutes (porter 5 forces)

A

these are alternative products/services that a consumer might want to buy instead of what the business offers

129
Q

whats buyer power (porter 5 forces)

A

if a market has many producers but only a few consumers the buyers have a lot of power

130
Q

whats supplier power (porter 5 forces)

A

when there are many suppliers to the market, the power that each one has over the market is minimal

131
Q

limitations of financial data in assessing business performance

A
  • financial ratios tend to look backwards, at historical financial performance
  • financial ratios focus on measures that are possibly most important to shareholders than business management
  • financial data is not the best way of understanding how a business is performing in terms of key competitive performance
132
Q

key non financial measures of performance

A
  • Operations (efficiency, labour productivity, capacity utilisation, break even output, quality)
  • HRM (labour turnover, labour productivity, unit labour costs, absenteeism rate, revenue per employee, staff retention rate, job satisfaction)
  • Marketing (market share, sales per employee, sales growth, customer retention rate, brand rep and awareness)
133
Q

other relevant non financial measures

A
  • environmental performance
  • compliance regualtion
  • health and safety record
  • social media reach
134
Q

what is core competencies

A

a core competence is something unique that a business has, or can do, strategically well

135
Q

what are core competencies

A
  • collective learning within the business
  • ability to integrate skills and technologies
  • ability to deliver superior products and services
  • ways a business is differentiated to be competitive
136
Q

what are the three conditions to core competence

A
  • does it provide consumer benefits
  • is it easy for competitors to imitate
  • can it be leveraged widely to many products and markets
137
Q

what do Prahalad and Hamel suggest businesses do

A
  • focus on core competencies
  • outsource non core activities
138
Q

criticism of core competencies approach

A
  • over - zealous outsourcing has damaged business competitiveness
  • difficult to identify core competencies that are genuinely unique
  • possible for a business to become complacent about its core competencies
139
Q

what is meant by short termism

A

where a business prioritises short term rather than long term performance

140
Q

what performance measures does short termism emphasis

A
  • share price
  • revenue growth
  • gross and operating profit
  • unit costs and productivity
  • return on capital employed
141
Q

what are the possibilities of the expense of long term measures

A
  • market share
  • quality
  • innovation
  • brand reputation
  • employee skills and experience
  • social responsibility and sustainability
142
Q

what is the Mittelstand in Germany

A

germany has more than 1,000 companies that have been in the same family for generations but can compete with the worlds best

these companies and over 99% of all German companies are part of the ‘Mittelstand’ contributing to nearly 52% of the country’s economic output and employing more than 15 million people.

143
Q

key features of Mittelstand companies

A
  • family and ownership or family like corporate culture
  • generational continuity
  • long term investment focus and focus on RandD
  • fiercely independent
  • flexibility
  • lean organisations hierarchies
  • focus on innovation and customer service
  • take corporate social responsibility seriously
144
Q

what is Elkington’s triple bottom line

A

a way of assessing business performance based on three important areas: profit, people and planet

145
Q

what does the triple bottom line suggest

A

it aims to measure the financial, social and environmental performance of a business over a period of time

146
Q

what does the planet in triple bottom line mean

A

measures impact of business on environment
more tangible, eg emissions, use of sustainable inputs

147
Q

what does the profit in triple bottom line mean

A

familiar to managers identified from income statement
audited = reliable figure

148
Q

benefits of triple bottom line

A
  • encourages businesses to think beyond narrow measure of performance (profit)
  • encourages CSR reporting
  • supports measurement of environmental impact and extent of sustainability
149
Q

what does the people in triple bottom line mean

A

measures extent to which business is socially responsible hard to calculate and report reliability and consistently

150
Q

drawbacks of the triple bottom line

A
  • not very useful as an overall measure of business performance
  • hard to reliably and consistently measure people and planet bottom lines
  • no legal requirement to report it, so take up has been poor
151
Q

what is business legislation

A
  • a set of rules and regulations with which a business has to comply
  • a constraint on action or a threat
  • an opportunity
152
Q

main roles of business legislation

A
  • regulate the rights and duties of people carrying out business
  • protect customers from harmful business activity
  • ensure employees are treated fairly and not discriminated against
  • provide protection to investors and creditors
  • deter and prevent unfair competition
153
Q

key areas to consider about business legislation

A
  • employment
  • consumers
  • environment
  • competition
  • health and safety
154
Q

what are the two main Labour market areas of focus

A
  • individual employment
  • industrial relations
155
Q

what is the basic rule on pay - right to equality

A
  • men and women are entitled to equal pay for work of equal value
  • ‘pay’ includes everything in the employment contract, bonuses and pension contributions as well as basic wagers or salary
  • workers have the right to ask their employer for information to check equality
  • if they believe their pay is unequal, they can take the employer to an employment tribunal
156
Q

whats minimum wage legislation

A
  • employers required by law to ensure they pay their workers at least the national minimum wage (NMW)
  • in the Uk for workers over 25 a top up is applied to create the national living wage (NLW)
  • it makes no difference when a worker is paid (monthly, weekly, daily, hourly). The NMW still applies
157
Q

whats employment legislation and discrimination

A

‘it is illegal for an employer to discriminate against an employee on the basis of:
- sex
- race
- disability
- religion
- ….

158
Q

key areas where discrimination laws apply

A
  • discrimination laws apply in many areas of employing staff
  • recruitment
  • employee contract, terms and conditions
  • promotions and transfers
  • providing training
  • deciding what fringe benefits employees receive
  • employee dismissal
159
Q

what is an employment right

A

something to which an employee is entitled which is protected by law

160
Q

examples of employment rights in Uk

A

Laws produced of “rights” for employees including:
- reasonable notice before dismissal
- right to redundancy
- right to a written employment contract
- right to request flexible working
- right to be paid national minimum wage
- right to take time off for parenting

161
Q

what are industrial relations

A
  • protection from unfair dismissal
  • employers must recognise union is >50% of staff are members
  • regulation of procedures for industrial actions (eg ballots)
  • role/powers of employment tribunals
  • EU, works councils requirements
162
Q

what must a business ensure they do to work with consumer legislation

A
  • goods fit with description (eg organic wine must be organic)
  • must be satisfactory quality (test according to a ‘reasonable person’, must work and have no major blemishes)
  • goods are fit for the purpose specified (businesses should take care when explaining what a product can be used for)
163
Q

what are some other ways that consumers are protected

A
  • businesses may not use unfair commercial practices (misleading ads)
  • customers have the right of return and full refund if goods/services do not comply with the law
  • services must be done at a reasonable price and by the time stated
  • customers can request that unsatisfactory work be repaired or carried out again at no cost
164
Q

main consumer laws

A
  • distance selling regulations
  • the sale of goods act
  • supply of goods and services act
  • trade description act
165
Q

whats distance of selling regulations

A

gives consumers protection when they buy goods or services by mail order, phone or online

166
Q

whats the sale of goods act

A

requires good to be as described, fir for their purpose and of satisfactory quality. if they are not, the customer can reject them

167
Q

whats the supply of goods and services act

A

customers are entitled to work that’s carried out with reasonable skill, in a reasonable time, at a reasonable price

168
Q

whats the trade description act

A

required any descriptions of goods and services given to be accurate and not misleading

169
Q

aims of competition policy

A
  • wider consumer choice in markets for goods and services
  • technological innovation which promotes gains in dynamic efficiency
  • effect price competition between suppliers
  • investing allegations of anti competitive behaviour within markets which might have a negative effect on consumers
170
Q

why do business need to be aware of competition laws

A
  • to ensure it does not breach competition law
  • to protect its position where competition law is breached by a competitor
171
Q

main elements of competition policy

A
  • Anti-trust and cartels
  • market liberalisation
  • state aid control
  • merger control
172
Q

what are anti-trust and cartels in the competition policy

A

elimination of agreements that restrict competition including price fixing by firms who hold a dominant market position

173
Q

what is market liberalisation In the competition policy

A

introducing competition in previously monopolistic sectors such as energy supply, retail banking, postal services, mobile telecommunications and air transport

174
Q

whats state aid control in the competition policy

A

policy analyses state aid measures such as airline subsidies to ensure that such measures do not distort competition in the single market

175
Q

whats merger control in the competition policy

A

investigation of mergers and take overs between firms which could result in them dominating the market

176
Q

examples of anti competitive behaviour

A
  • price fixing and market sharing
  • predatory pricing and limit pricing
  • charing excessively high prices
  • refusal to deal/discrimination
  • patent misuse
  • protectionist policies limiting overseas trade
177
Q

examples of prohibited agreements

A
  • agreements which directly or indirectly fix purchase or selling prices or any other trading condition (eg discounts or rebates)
  • agreements which limit or control production, markets, technical development or investment
178
Q

what the competition act 1998

A

aims to prevent companies from acting in ways that distort, restrict or prevent competition. it attempts to take action against firms that use restrictive practices such as collusion, price fixing, agreeing to limit supply to drive up prices, sharing info etc

179
Q

whats the enterprise act 2002

A

This Act establishes the Office of Fair Trading, the Competition Appeal Tribunal, and the Competition Service. It regulates mergers and market practices, amends the functions of the Competition Commission, and introduces penalties for entering into anti-competitive agreements. It allows for the disqualification of company directors involved in such practices, makes provisions for consumer protection, regulates information disclosure under competition and consumer laws, and amends the Insolvency Act 1986, with related measures.

180
Q

what isn’t aloud with price fixing

A
  • agree prices with competitors
  • share markets or limit production to raise prices
  • impose minimum prices on different distributors such as shops
  • agree with competitors what purchase price will be offered to suppliers
  • cut prices below cost in order to force smaller or weaker competitor out of the market
181
Q

whats abuse of dominant position

A
  • uk competition law prohibit businesses with significant market shares unfairly exploiting their strong market position
  • a dominant share is 50% or more
  • having a dominant position does not itself breach competition law
  • it is the abuse of that position which is prohibited
182
Q

examples of abuses of dominant position

A
  • imposing unfair trading terms, such as exclusivity
  • excessive, predatory or discriminatory pricing
  • refusal to supply or provide access to essential facilities
183
Q

penalties for getting caught with a dominant position

A
  • up to 10% of annual turnovers
  • criminal prosecution
  • disqualification as directors
  • civil action by those affected
184
Q

examples of regulators in the Uk

A
  • water monopolies
  • cma
  • telecoms and broadcasting
  • financial services
  • rail regulator
  • general energy market
185
Q

what do competition regulators actually do

A
  • monitors and regulate prices
  • ensure standards of customer service
  • open up markets
  • the ‘surrogate competitor’
186
Q

whats the surrogate competitor

A

regulation can act as a form of surrogate competition, attempting to ensure that prices, profits and service quality are similar to what could be achieved in competitive markets

187
Q

key environmental areas where businesses must comply

A
  • emissions into the air
  • storage, disposal and recovery of business waste
  • storing and handling hazardous substances
  • packaging
  • discharges of waste water
188
Q

health and safety responsibilities

A
  • an employer has important responsibilities for health and safety
  • it is not just about protecting staff, health and safety applies to many people who come into contact with the business
189
Q

health and safety applies to

A
  • employees working at the business premises, from home, or at another site
  • visitors to the premises, eg customers or subcontractors
  • members of the public, even if they are outside the business premises
  • anyone affected by products and services the business designs, produces or supplies.
190
Q

examples of the health and safety industry issues

A
  • food processing (hygiene)
  • hotels (guest safety)
  • chalice production (waste disposal)
  • air travel (passenger and crew safety)
  • tour operators
191
Q

what is the business (economic) cycle

A
  • the level of demand in most markets is influenced by the rate of economic growth
  • economies vary in terms of their ‘normal’ long term growth. A mature economy like the UK has a long term growth rate of around 2-3%.
  • GDP growth will vary depending on the state of the economic cycle
192
Q

what is a net importer

A

a country or territory whose value of imported goods and services is higher than its exported goods and services over a given period of time.

193
Q

what is GDP

A

measure of the value of output (activity) in the economy

194
Q

what is demand

A
  • how much of a good or service a consumer wants and is able to pay for
  • for a business, demand turns into revenues
195
Q

what are the stages of the business cycle

A
  • the sequence of slump, recovery, boom and recession
196
Q

what are the main causes of the business cycle

A
  • changes in the level of business and consumer confidence
  • alternating periods of stocking and de-stocking
  • changes in the value of consumer spending and business investment
  • changes in government policy which can induce a change in the economy
197
Q

whats boom in the business cycle

A

high levels of consumer spending, business confidence, profits and investment. Prices and costs also tend to rise faster. Unemployment tends to be low

198
Q

whats recession in the business cycle

A

falling levels of consumer spending and confidence mean lower profits for businesses - which start to cut back on investment. Space capacity increases + rising unemployment

199
Q

whats slump in the business cycle

A

very weak consumer spending and business investment; many business failures; rapidly rising unemployment; prices may start falling

200
Q

whats recovery in the business cycle

A

things start to get better; consumers begin to increase spending; businesses feel a little more confident and start to invest again; but it takes time for employment to stop growing

201
Q

strategies during a recession

A
  • diversification into new markets
  • restructuring and delayering to reduce cost and minimise risks
  • greater investment, often when firms cut investment when struggling during a recession larger firms may be able to get ahead by investing eg apple, Dyson
  • sales promotions and price cuts
  • cutting costs/cost minimisation, reduced R&D, pay freezes, pay cuts, redundancies, different working patterns
  • mergers and takeovers, BA & Iberia
202
Q

what is an exchange rate

A
  • an exchange rate is the price of one currency expressed in terms of another currency.
  • the exchange rate determines how much of one currency has to be given up in order to buy a specific amount of another currency
203
Q

ways exchange rates impact business activity

A
  • price of exports in international markets
  • cost of goods bought from overseas
  • revenues and profits earned overseas
  • converting cash receipts from customers overseas
204
Q

what might cause an increase in the exchange rate

A
  • increasing demand for exports = higher demand for the currency
  • lower demand for imports = lower demand for the currency
  • speculation, traders may bet that the exchange rate will rise
  • an increase In interest rates, making it more attractive to hold the currency
  • foreign direct investment into the country, higher demand for the currency
205
Q

factors affecting the significance of exchange rates on businesses

A
  • the impact of changes in exchange rates on businesses will depend on:
  • how much they export to other economies
  • whether domestic businesses face strong competition from overseas firms in their markets
  • how much a business relies on importing goods and services from overseas in order to operate
  • the price elasticity of demand (PED) for a business’ products.
206
Q

what does SPICED stand for

A

strong
pound
imports
cheaper
exports
dearer

207
Q

what is inflation

A

inflation is a sustained increase in the average price level of an economy

208
Q

how is inflation measured

A
  • by the annual percentage change in the level of prices as measured by the consumer price index
  • a sustained fall in the general price level os called deflation, in this situation the rate of inflation becomes negative
209
Q

effects on inflation on consumers

A
  • money loses value and people lose confidence in money as the value of savings is reduced
  • inflation can get out of control, price increases lead to higher wage demands as people try to maintain their living standard
210
Q

whats consumer price index (CPI)

A
  • the consumer price index is the main measure of inflation for the UK
  • the government has set up the Bank of England a target for inflation (using CPI) of 2%
  • the aim of this target is to achieve a sustained period of low and stable inflation
  • low inflation is also known as price stability
211
Q

why was the rate of inflation so low in the uk (until post pandemic)

A
  • falling global commodity prices including oil
  • slow wage growth in the labour market
  • falling food prices (globally and supermarket price wars)
  • sustained price deflation in technology products
  • slower real economic growth, falling towards 2%
  • still some spare capacity on the supply side of the economy
212
Q

why did inflation rise in 2022

A
  • inflation in the Uk peeked at 11.1% in October 2022. interest rates increased in a bid to control the economy.
  • higher energy costs, soaring wages as companies struggle to fill vacancies and disruption along supply chains
  • external shock - war in Ukraine gas disrupted supply chains of gas, oil and wheat
  • current inflation rate is 2.2% (October 2024), fallen from 6.8% (July 2023)
213
Q

possible causes of demand pull inflation

A
  • an appreciation of the exchange rate decreases the price of imports
  • a reduction in direct or indirect taxation, consumers have more disposable income causing more demand
  • rising consumer confidence and an increase in the rate of growth of house prices
  • fasters rates of economic growth In other countries, providing a boost to Uk export overseas.
214
Q

what are the two types of inflation

A
  • demand pull (when there is excess demand)
  • cost push (when costs arise)
215
Q

whats demand pull inflation

A
  • occurs when there is excess aggregate demand in the economy or market
  • businesses respond to high demand by raising prices to increase their profit margins
  • demand pull inflation is associated with the boom phase of the business cycle
216
Q

whats cost push inflation

A

occurs when costs of production are increasing
causes:
- external shocks
- a depreciation in the exchange rate
- acceleration in wages
what happens?
- firms raise prices to protect their profit margins
- ‘wages often follow prices’
- a rise in inflation can lead to rising inflationary expectations

217
Q

inflation costs and consequences

A
  • money loses its values and people lose confidence in money as the value of savings is reduced
  • inflation can get out of control, price increases lead to higher wage demands as people try to maintain their living standards. this is known as a wage price spiral
  • consumers and businesses on fixed incomes lose out because their income falls, employees in poor bargaining positions lose out
  • inflation can favour borrowers at the expense if savers
  • inflation can disrupt businesses planning and lead to lower capital investment
218
Q

is inflation always bad for businesses

A

no some inflation is good for business
- industry wide price rises enable revenues to grow
- growing revenues + constant gross margin = higher gross profit
- makes using debt as a source of finance cheaper in real terms

219
Q

whats fiscal policy

A

the use of government spending, taxation and borrowing to acheive relevant objection

220
Q

whats monetary policy

A

use of interest rates to determine cost of money

221
Q

what are the fiscal taxes

A
  • income tax
  • corporation tax
  • VAT
222
Q

what are taxes spent on by the government

A
  • health
  • education
  • social security
223
Q

who manages the monetary policy

A

Bank of England

224
Q

what is budget surplus

A

where taxation is greater than government spending

225
Q

what is budget deficit

A

government spending is higher than taxation

226
Q

what is balanced budget

A

taxation is equal to government spending

227
Q

what are direct taxes

A

taxes taken directly from a persons income or a firm profit, eg national insurance, income tax, corporation tax

228
Q

what are indirect taxes

A

taxes on products and spending not directly taken from income eg VAT, road tax, stamp duty, fuel tax.

229
Q

what can taxes be used for

A
  • impact consumer spending and therefore demand
  • to provide and incentive to consumers to purchase products that benefit society eg solar panels
  • too dissuade consumers from purchasing those goods that have a negative impact eg alcohol, fuel and cigarettes
230
Q

whats corporation tax

A

a 20% tax rate companies oat on their profits. The current UK government have cut this rate in the past to encourage foreign firms to invest in the uk

231
Q

whats income tax

A

this is paid by all Uk taxpayers earning over a certain amount annually

232
Q

whats national insurance payments

A

national insurance payments are taken automatically from workers pay and contribute towards state benefits, such as pensions

233
Q

whats capital gains tax

A

paid when companies sell or dispose of assets that they may have made a profit on

234
Q

whats custom duties

A

taxes paid on some imported products

235
Q

whats excise duty

A

a tax on the production of certain products in the Uk eg tobacco, petrol, alcohol and gambling.

236
Q

whats proportional tax

A

With a proportional tax, the marginal rate of tax is constant leading to a constant average rate of tax
Eg: National insurance contributions (NICs)

237
Q

whats progressive tax

A

With a progressive tax, the marginal rate of tax rises as income rises. I.e. as people earn extra income, the rate of tax on each additional pound goes up. This causes a rise in the average rate of tax.
Eg: Income tax (basic and higher rates)

238
Q

whats regressive tax

A

With a regressive tax, the rate of tax paid falls as incomes rise – I.e. the average rate of tax is lower for people on higher incomes
Eg: Excise duties on tobacco and alcohol

239
Q

whats transfer payments

A

welfare payments made to benefit recipients such as the state pension and the jobseekers allowance

240
Q

whats current spending

A

spending on state provided goods and services such as education and health

241
Q

whats capital spending

A

infrastructural spending such as spending on new roads, hospitals, motorways and prisons.

242
Q

why does the government tax

A
  • fund projects (NHS)
  • fund benefits, distribution of wealth, tax high earners to give to poorer
  • Potholes
  • Pay public sector workers eg public school teachers, NHS workers.
  • Raise Revenue
  • Taxes may help correct market failures
243
Q

why have government spending

A
  • direct government (public sector) provision of : public goods, merit goods
  • provide welfare support for low income households / the unemployed
  • government spending is also a means of redistributing income within the society eg to reduce the scale of relative poverty
  • government spending can also be used as a tool to manage aggregate demand as part of macroeconomic policy
244
Q

whats monetary policy

A

the use of the money supply and/or the interest rate to influence the level of economic activity, inflation, the balance of payments and exchange rates

245
Q

what 4 factors influence business investment

A
  • actual and expected demand
  • expected profits and business taxes
  • business confidence
  • interest rates + availability of business finance
246
Q

what happens when interest rates fall

A
  • cost of servicing loans/ debt is reduced
  • consumer confidence should increase leading to more spending
  • effective disposable income rises
  • business investment should be boosted
  • housing market effects
  • exchange rate and exports
247
Q

whats money supply

A

the narrow money definition of the money supply is a measure of the value coins and notes in circulation and other money equivalents that are easily convertible into cash such as short term deposits in the banking system

248
Q

whats quantitive easing

A

is a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity.

249
Q

whats forward guidance

A

is a tool used by a central bank to exercise its power in monetary policy in order to influence, with their own forecasts, market expectations of future levels of interest rates.

250
Q

whats free trade

A

Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

251
Q

whats protectionism

A

the theory of practice of shielding a country’s domestic industries from foreign competition by taxing imports.

252
Q

whats are quotas

A

A limit on the amount of a specific product that can be imported into a country.

253
Q

what are examples of trade and protectionism

A
  • legislation impacting foreign firms
  • tariffs
  • quotas and licences
  • tax breaks
  • biased legal system and a lack of intellectual property protection
  • subsides
  • loans and grants with favourable repayment conditions
254
Q

what are subsidies

A

payments to domestic firms to encourage them to produce particular products and to help cover costs to enable lower prices to be charged than foreign rivals

255
Q

define globalisation

A

‘the geographic dispersion of industrial service and activities, for example research and development, sourcing inputs, production and distribution and the cross border networking of companies, for example through joint ventures and the sharing of assets’

256
Q

whats technical cooperation

A

allows co production and joint assembly

257
Q

whats franchising

A

selling the right to use brands and patents to another firm in exchange for an initial fee and share of future profits.

258
Q

whats licensing

A

permission to make a product in a certain country granted by the original manufacturer in exchange for a fee, eg Carlsberg, coca-cola. useful to pass on many costs such as transportation and manufacture to another firm

259
Q

key points of globalisation

A
  • a process in which economies have become increasingly integrated and inter dependent
  • globalisation is dynamic rather than an end state
  • globalisation is not inevitable - it can reverse, indeed the growth of world trade in goods and services slowed in recent years following the global financial crisis
260
Q

key characteristics of globalisation

A
  • greater trade across borders in goods and services
  • increase in transfers if capital including the expansion if foreign direct investment 51% of the largest economies in the word are corporations
  • high levels of labour migration both within and between countries
  • a shift in balance of economic and financial power from developed to emerging economies and markets
261
Q

factors contributing to globalisation

A
  • containerisation
  • technological change
  • economies of scale
  • differences in tax systems
  • less protectionism
  • growth of MNC/Transnational Co’s
262
Q

whats containerisation

A

a system of freight transport for use in sea shipping that has reduced the transport costs of moving thousands of different goods across the globe

263
Q

benefits to globalisation

A
  • encourages producers and consumers from deeper division of labour and economies of scale
  • competitive markets reduce monopoly profits and incentives businesses to seek cost reducing innovations
  • enhanced growth has led to higher per capita incomes
264
Q

what is an emerging market

A

is used to describe an economy in the process of rapid growth and industrialisation

265
Q

common features of emerging market

A
  • economies making a transition
  • rapid industrialisation
  • have potential to become developed economies
  • faster long term economies growth than most developed economies
  • many inhabitants still in poverty though economic growth is taking many out of poverty
  • business struggle to access global markets
266
Q

what are the four classic original emerging markets (BRICs)

A
  • Brazil
  • Russia
  • India
  • China
267
Q

What happened to the BRICs

A
  • research 15 years ago highlighted the prominent rise of the 4 emerging markets
  • particularly significant for developed economies, because of their scale and growth rate
  • Brazil has since entered a prolonged recession (As Russia did)
  • China has now become the worlds largest economy and in many respects is now a developed economy
268
Q

examples of current emerging markets

A
  • guyana
  • Mozambique
  • Rwanda
  • Bangladesh
  • Ethiopia
269
Q

perceived business threats from emerging markets

A
  • increasingly large pool of skilled, but low cost labour
  • undervalued currencies make their exports cheaper
  • inadequate protection of brand and other intellectual property
  • state subsidy of industries to make them more competitive globally
270
Q

business opportunities in emerging markets

A
  • growing numbers of educated middle class consumers, = growing consumer spending
  • cultural shifts, eg a higher demand for personal products, private education and health care
  • demand for infrastructure and other products and services from developed economies
  • source of high skilled but low cost labour (outsourcing/offshoring)
  • great potential for joint ventures and acquisitions
271
Q

key risk and threat of emerging markets

A
  • political instability
  • cultural differences / sensitivities
  • variable approaches to financial and legal dealings (eg contractual law)
  • corruption and bureaucracy still an issue
  • emerging markets becoming major exporters
  • low cost production makes developed economies uncompetitive in some markets
272
Q

why emerging economies are likely to continue to enjoy high growth rates

A
  • urbanisation process continues
  • industrialisation, especially in east Asia and SS Africa
  • population growth
  • per capita income growth, rise of middle classes and consumer society
  • workforce will continue to improve skills and be more productive
  • technological innovation in many emerging markets (especially in Korea, China, India
273
Q

what does CSR stand for

A

corporate social responsibility

274
Q

what else may CSR be called

A
  • corporate citizenship
  • corporate responsibility
  • corporate sustianability
  • sustainable business
  • social responsibility
275
Q

differnece between ethics and CSR

A
  • ethics concern actions which can be assessed as right or wrong by reference to moral principles
  • CSR isd about the organisations obligations to all stakeholders - and not just shareholders
276
Q

what is CSR

A

the extent to which a business addresses the concerns and obligations to its stakeholders

the actions a business takes over and above the minimium required by law in addressing societal needs and wants

277
Q

what are the 2 key questions in CSR

A
  • what is the purpiose of a business
  • what contribution should businesses make to society
278
Q

how can businesses meet society needs and improve them

A
  • better nutrition
  • financial security
  • protect consumers
  • education
  • protect the enviornment
  • help the ageing
  • better health
279
Q

whats the stakeholder concept (csr)

A
  • busineseses do not have an unquestioned right to operate in society
  • those managing businesses should recognise that they depend on society
  • businesses relies on inputs from society and on socially created instituations
280
Q

arguments for CSR (stakeholder concept)

A
  • the ethical thing to do
  • improves a business’ image and rep
  • necessary in order to avoid axcessuive regulation
  • soically responsible actions can be profitable
  • improved social enviornment benefits business
  • help attract investors
  • can increase employee motivation
  • helps to correct the social problems caused by business
281
Q

social responsibility to consumers

A
  • value for money
  • product quality and safety
  • fair and honest advertising
  • after sales service
  • country/place or origin
  • local sourcing
  • sustainable products
  • product testing
  • responsible selling and promotion
  • fair handling of complaints
282
Q

CSR in workplace - issues

A
  • fair treatment at work
  • workforce diversity and equal opportunities
  • right to be kept informed
  • health and safety
  • work life balance/flexible working
  • opportunities for participation in decision making
  • training in new skills
  • provision of soical facilites
  • job design and satisfaction
  • working conditions
  • attitude to disadvantaged groups
283
Q

CSR in the community - issues

A
  • minimising noise and other pollution
  • consultation about major change
  • sourcing from local suppliers
  • protecting local employment
  • labour rights in the supply chain
  • product health and safety
  • diversity in the workplace
284
Q

CSR and the enviornment - issues

A
  • effects of pollution, noise, waste disposal, congestion
  • waste management
  • chemical use
  • avoiding axcessive packaging
  • use of energy
  • water consumption
  • biodiverstiy
  • carbon emissions
285
Q

case against CSR (shareholder concept)

A
  • the only social responsibility of business is to create shareholder wealth
  • the efficient use of resources will be reduced if businesses are resticted in how they act
  • businesses cannot decide what is in societys interest
  • extra cost will be incurred which must be passed on to consumers
286
Q

whats cause promotion

A

increasing awarness and concern for social causes

287
Q

whats cause related marketing

A

contributing to causes based on sales

288
Q

whats corporate social marketing

A

behaviour changes initiatives

289
Q

whats corporate philanthropy

A

donating directly to causes - usually cash

290
Q

whats community vouluntering

A

employees donating time and talents in the community

291
Q

whats socially responsible business practice

A

discretionary practices and investment to support causes

292
Q

who made the CSR pyramid

A

Carroll

293
Q

whats on the CSR pyramid

A
  • philanthropic (top)
  • ethical
  • legal
  • econmic (bottom)
294
Q

what are the basis of the CSR pyramid

A
  • a simple approach for how businesses should approach CSR
  • CSR is built on the foundation of profit, it must come first
  • then comes the need for a business to ensure it complies with all laws and regulations
  • before a business considers its philanthropic options, it also needs to meet its ethical duties
295
Q

what is economic (csr pyramid)

A

responsibility of business to be profitable, only way to survive and benefit society in long term

296
Q

what is legal (csr pyramid)

A

responsibility to obey laws and other regulation eg employment, competition, health and safety

297
Q

what is ethical (csr pyramid)

A

responsibility to act morally and ethically.
go beyond narrow requirements of the law eg treatment of suppliers and employees

298
Q

what is philanthropic (csr pyramid)

A

responsibility to give back to soicety discretionary but still important eg charitable donations, staff time on projects

299
Q

advanatges of CSR pyramid

A
  • easy to understand
  • simple message, CSR has more than one element
  • emphasises importance of profit
300
Q

disadvantage of CSR pyramid

A
  • too simplisitc maybe
  • should ethics be at top
  • businesses dont always do what they claim when it comes to CSR
301
Q

what are corporate social reports

A

a document that communicates a company’s social and sustainability performance to stakeholders

302
Q

what may corporate social reports contain

A
  • An introduction that explains the company’s CSR philosophy and strategy
  • Detailed sections on CSR initiatives and activities
  • Data and analysis that shows the impact of these activities
303
Q

why are corporate social reports important

A

they help investors, customers, and employees understand a company’s commitment to social and environmental issues

304
Q

how is technology creating marketing opportunites

A
  • new markets, create highly valuable markets and generate high revenue streams
  • new products
  • new ways to sell those products
305
Q

whats process innovation (technology)

A
  • new methods of production
  • lower unit costs
  • CAD - computer aided design
  • CAM - computer aided manufacturing
  • 3D computing
  • High tech goggles
306
Q

whats disruptive technology

A

is the introduction of a new product or new process that radically changes the competitive advantage of an exisitng market.

A-Level Business (22 decks)

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