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business > unit 7 > Flashcards

unit 7 Flashcards

1
Q

what is ratio analysis

A

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

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2
Q

ratio analysis help too answer questions such as…

A
  • why is one business more profitable
    than the other
  • 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

where does the information for ratio analysis come from

A
  • income statement
  • balance sheet
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4
Q

what are included in an income statement

A
  • revenues
  • cost of sales
  • gross profit
  • operating profit
  • profit for the year
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5
Q

what are included in a balance sheet

A
  • current assets
  • current liabilities
  • inventions
  • trade receivables & payables
  • long-term liabilities
  • capital & reserves
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6
Q

main groups of ratios

A
  • profitability
  • liquidity
  • financial efficiency
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7
Q

what are the key users of profitability ratios

A
  • shareholders
  • government
  • competitors
  • employees
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8
Q

what are the key users of liquidity ratios

A
  • shareholders
  • lenders
  • suppliers
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9
Q

what are the key users of financial efficiency ratios

A
  • shareholders
  • lenders
  • competitors
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10
Q

how long does it take for a current asset to become a non-current asset

A

12 months

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11
Q

limitations of ratio analysis

A
  • one data set isn’t enough
  • reliability of data
  • based on the past
  • comparability
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12
Q

why might ratio data not be entirely reliable

A
  • financial information involves making
    subjective judgements
  • different businesses have different
    accounting policies
  • potential for manipulation of
    accounting information (window-
    dressing
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13
Q

importance of effective comparison

A
  • one ratio is rarely enough (needs to
    compare with competitors, analyse
    trends)
  • circus stances change over time
    (markets/industries change, different
    economic/market conditions)
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14
Q

what don’t ratios tell you

A
  • competitive advantages (brand
    strength)
  • quality
  • ethical reputation
  • future prospects
  • changes in the external environment
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15
Q

why are ratios good

A
  • very useful analytical tools
  • widely used and understood
  • identify issues (don’t solve problems)
  • range of indicators of firm
    performance
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16
Q

definition of balance sheet

A

a financial snapshot of the business at a moment of time

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17
Q

what does a balance sheet show

A

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 (stock, debt)

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18
Q

purpose and users of company accounts

A
  • shows the value and size of the
    business
  • gives an indication of a firms liquidity
  • helps bank to identify collateral for
    loan requests
  • shows current borrowing levels
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19
Q

what is a non-current asset

A

what the business owns with a lifespan of then a year. They are used repeatedly as part of the firms operations and won’t regularly be sold

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20
Q

what is a current asset

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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21
Q

what are current liabilities

A

short-term debts of the business, will have to be repaid within one year

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22
Q

what or non-current liabilities

A

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

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23
Q

what do capital and reserves show on a balance sheet

A

how the assets and business have been financed

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24
Q

other name for net current assets

A

working capital

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25
Q

what is liquidity

A

firms ability to pay its hot-term liabilities (debts. Suppliers, baks and other creditors will be confident that they will be paid on time

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26
Q

what are tangible assets

A

non-current assets that exits physically

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27
Q

what are intangible assets

A

non-current assets that don’t have a physical presence but still has value

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28
Q

formula for net current assets

A

current assets - current liabilities

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29
Q

formula for net assets

A

total assets - total liabilities

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30
Q

formula for capital employed

A

total equity - non-current liabilities

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31
Q

what does liquidity mean

A

a firms ability to pay their short-term debts with their current assets

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32
Q

liquidity ratio

A

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

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33
Q

what is an ideal ratio

A

1.5-2:1

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34
Q

what is gearing

A

measures the proportion of a business’ capital provided by debt

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35
Q

why is gearing useful

A
  • shows what proportion of the capital
    invested in the firm is loans
  • stakeholder view capital structure
  • measure of financial health
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36
Q

is high gearing good or bad

A

bad

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37
Q

gearing ratio

A

non-current liabilities
——————————————- X 100
total equity + non-current liabilities

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38
Q

what percentage is seen as high and low for gearing

A
  • 50% high
  • 25% low
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39
Q

what does it men if you have high gearing

A

borrowed a lot of money

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40
Q

benefits of high gearing for a firm

A
  • imply firm investing in growth to drive
    company forward to stay ahead of
    competition
  • loans are cheap when interest rates
    are low
  • less need to raise finance through
    share capital when loans are used,
    less shareholder making it easier to
    keep control of the firm and make
    long-term strategic decisions
  • less dividend payments required as
    share capital won’t be needed, when
    firm makes high profit there’s more
    retained profit for reinvestment
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41
Q

benefits of low gearing for a firm

A
  • company will have lower interest and
    loan repayments positively impacting
    liquidity
  • firm more attractive investment to
    potential shareholders
  • firm not as venerable to the cost
    impacts of interest rate chargers
  • reduced risk as business has less debt
    and fewer creditors who can liquidate
    firm if debts not paid back
  • if shares sold as alternative, share
    capital is permanent capital so doesn’t
    need to be repaid unlike loans
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42
Q

what is ROCE

A

return on capital employment

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43
Q

ROCE formula

A

operating profit
—————————————— X 100
total equity + non-current liabilities

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44
Q

what does ROCE show

A
  • firms efficiency in achieving this
    objective and producing profit.
  • relate profit made by the firm to its
    size
  • lets potential investors understand
    how efficient the firm is
  • sides at running the firm and
    controlling costs
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45
Q

what is inventory turnover

A

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

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46
Q

what do financial efficiency ratios measure

A

how efficiently the firm manages its current assets and liabilities

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47
Q

what are the 3 main types of inventory

A

raw materials, work in progress, finish goods

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48
Q

how is inventory valued

A

cost price not selling price

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49
Q

types of industries with low inventory turnover

A
  • construction
  • engineering
  • industrial distribution
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50
Q

industries with high inventory turnover

A
  • supermarket retail
  • fast-food
  • motor vehicle production
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51
Q

how can inventory turnover be increased

A
  • sell of or dispose of slow-moving
    inventory
  • lean production
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52
Q

factors influencing inventory turnover

A
  • popularity
  • type of product
  • type of business/industry
  • changes in consumer tastes + fashion
  • quality of research
  • product portfolio
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53
Q

receivables days formula

A

trade receivables
————————- X365
revenue (sales)

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54
Q

payables days formula

A

trade payables
———————- X100
costs of sales

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55
Q

issues to consider with ratio analysis

A
  • is the data reliable
  • wether its historical data
  • performance change regularly,
    accounts may become outdated
  • hard to access accounts of rivals
  • PESTLE (economic*)
  • different companies have different
    views towards risk and borrowing
  • firms may not pursue profit
    maximisation but other objectives
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56
Q

what does inter-firm comparison mean

A

comparisons between different companies

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57
Q

what are objectives

A

Statements pf specific outcomes that are to be achieved

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58
Q

what are business objectives

A
  • specific intended outcomes of
    business strategy
  • targets which the business adopts in
    oder to achieve its aims
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59
Q

the hierarchy of business objectives

A
  • mission
  • corporate/strategic
  • functional
  • team
  • individual
    (lower you are less strategic you are)
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60
Q

4 functions of a business

A
  • operations
  • HR
  • financial
  • marketing
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61
Q

example of a corporate objective

A
  • market share 12%
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62
Q

definition of corporate objective

A

objectives that relate to the business as a whole

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63
Q

example of functional objective

A

sales per customer of £45

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64
Q

example of unit objective

A

shop sales if £500,000

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65
Q

purposes of corporate objectives

A
  • provide strategic focus
  • measure performance of firm
  • inform decision-making
  • set the scene for more detailed
    functional objectives
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66
Q

key ares for corporate objectives

A
  • market
  • innovation
  • productivity
  • physical & financial resources
  • profitability
  • management
  • employees
  • public responsibility
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67
Q

what is offshoring

A

moving your factory production across seas e.g. China

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68
Q

example of corporate objective (context)

A
  • Starbucks
  • maintain as standing one of the most
    recognised and respected brands in
    the world
  • Premier Inn + Costa
  • reach 85,000 uk rooms
  • £2.5 billion system sales in Costa
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69
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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70
Q

examples of how functional objectives might support corporate objectives

A
  • increases sales
  • reduce costs
  • increase cash flow
  • improve customer satisfaction
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71
Q

key internal influences on corporate objectives & decisions

A
  • firm ownership
  • attitude to profit
  • ethical stance
  • organisations culture
  • leadership
  • strategic position & resources
  • stakeholder influence
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72
Q

key external influences on corporate objectives & decisions

A
  • short-termism
  • economic environment
  • political/legal environment
  • competitors
  • social & technological change
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73
Q

definition of short-termism

A

where a business prioritises short-term rather than long term performance

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74
Q

why might businesses be concerned with short-term performance

A
  • stock market
  • reliance on bonuses on performance
  • frequent changes in leadership +
    strategy
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75
Q

possible indictors of short-termsim

A
  • bonuses based on short-term
    objective
  • low investment in R&D
  • high divined payments rather than
    investing profit
  • overuse of takeovers rather than
    internal growth
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76
Q

what is synergy

A

two companies coming together and making more money

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77
Q

short-termsim may damage other measures of long-term performance

A
  • market share
  • quality
  • innovation
  • brand reputation
  • employee skills + experience
  • social responsibility + sustainability
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78
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 lost money, long term saved money

all in the pandemic

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79
Q

difference between strategy and tactics

A

strategy - how firm intends to achieve
objectives
- long-term

tactics - support achievement of
specific targets
- short-term

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80
Q

LAMB RIPPERS

A

Lean production
Acquisition
Marketing
Business

Relocation
Internationalism
Product innovation
Partnerships
Employee/employee relations
Re-shoring
scale of production

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81
Q

what is matrix structure

A

when people from all different sectors go and work together

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82
Q

types of lean production strategies (LAMB RIPPERS)

A
  • JIT
  • Zero defects
  • Kaisen
  • Benchmarking
  • Team-working
  • Quality circle
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83
Q

what is the difference between profit and profitability

A

profit is the difference between revenue and costs, whereas profitability is how well you can change profit into operating profit

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84
Q

what is acquisition (LAMB RIPPERS)

A

firm taking over another for so two become one (synergy)

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85
Q

what are companies called that own lots of businesses in different markets

A

conglomerates

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86
Q

what are the two types of acquisition

A

hostile (Kraft + cadbury)
friendly (Disney + 20th)

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87
Q

what is marketing (LAMB RIPPERS)

A
  • marketing mix 7 PS
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88
Q

what is business restructuring (LAMB RIPPERS)

A
  • people
  • process
  • technology
  • structure
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89
Q

what is retrenchment

A

restructuring and going back to fix problems

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90
Q

what is relocation (LAMB RIPPERS)

A
  • moving location to help your firm
  • reduce costs or raise revenue
  • increased brand perception
  • help attract the right talent
  • expansion
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91
Q

what is internationalisation (LAMB RIPPERS)

A
  • selling goods or services into foreign markets
  • good way of increasing revenue
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92
Q

what is product innovation (LAMB RIPPERS)

A
  • brining a new idea to market
  • (process innovation) making same product in a.
    better different way
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93
Q

what is partnership (LAMB RIPPERS)

A
  • firms join together
  • strategic alliance and good relations with suppliers can all boost profits
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94
Q

what is employee/employee relation (LAMB RIPPERS)

A
  • good employee-employer relations boost
    productivity
  • bad employee-employer relations harm
    productivity
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95
Q

what is re-shoring (LAMB RIPPERS)

A
  • brining manufacture or production back to the
    UK
  • could be because it has become too expensive
    abroad or quality or time of day
  • Clarks, boots to Somerset from Asia
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96
Q

what does SWOT analysis mean

A
  • strength (internal)
  • weakness (internal)
  • opportunities (external)
  • threats (external)
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97
Q

limitations of financial date in assessing business performance

A
  • financial ratios tend to look
    backwards - at historical
    financial performance
  • financial ratio 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
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98
Q

key non-financial measures of performance

A

Operations:
- quality, break even, efficiency
HRM:
- labour turnover, job satisfaction
Marketing:
- market share, sale per employee

99
Q

what are the other revenant non-financial measures

A
  • environmental performance
  • compliance regulation
  • health & safety record
  • social media reach
100
Q

definition of core competencies

A

something unique that a. business has, or can do, strategically well

101
Q

what are core competency

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
102
Q

what are the three key conditions in core competency

A
  • does it provide consumer
    benefits
  • is it easy for competitors to
    imitate
  • can it be leveraged widely to
    many product & markets
103
Q

what is the criticism of core competency

A
  • over-zealous outsourcing has
    damaged business
    competitiveness
  • difficult to identify core
    competencies that are genuinely
    unique
  • possible for. business to
    become complacent about its
    core competntenncies
104
Q

definition of short-termism

A

where a business prioritises short-term rather than long-term performance

105
Q

what performance measures does short-termisim emphasise

A
  • share price
  • revenue growth
  • gross + operating profit
  • unit costs + productivity
  • return on capital employment
106
Q

possibly at the expense of long-term performance measures

A
  • market share
  • quality
  • innovation
  • brand reputation
  • employee skills & experience
  • social responsibility & sustainability
107
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 if the Midttelstand, contributing nearly 52% of the country’s economic output and employing more than 15 million people

108
Q

key features of Mittlestand companies

A
  • family ownership
  • generational community
  • long-term investment focus
  • fiercely independent
  • investment in workforce
  • flexibility
  • lean organisational hierarchies
  • focus on innovation and customer
    service
  • take corporate social responsibility
    seriously
109
Q

what is the triple bottom line

A

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

110
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

111
Q

what does profit in the triple both line mean

A
  • familiar to managers
  • identified from income statement
  • audited = reliable figure
112
Q

what does planet in the triple both line mean

A
  • measure impact of business on
    environment
  • more tangible - emissions, sustainable
113
Q

what does people in the triple both line mean

A
  • measures extent to which business is
    socially responsible
  • hard to calculate & report reliably &
    consistently
114
Q

benefits and value pf the triple bottom line

A
  • encourages businesses to think
    beyond marrow measure of
    performance (profit)
  • encourages CSR reporting
  • supports measurement of
    environmental impact & extent of
    sustainability
115
Q

drawbacks & criticisms of the triple bottom line

A
  • not very useful as an overall measure of business performance
  • hard to reliably and consistently
    measure people & planet bottom-lines
  • no legal requirements to report it - so
    take-up has been poor
116
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
117
Q

main roles of business legislation

A
  • regulate the rights and duties of
    people carrying out business
  • protect customers from harmful
    business activity
  • sure employees are treated fairly and
    not discriminated against
  • provide protection to investors and
    creditors
  • deter and prevent unfair competition
118
Q

key areas to consider in business legislation

A
  • employment
  • consumer
  • environment
  • competition
  • health and safety
119
Q

what are the two main labour market

A
  • individual employment
  • industril relations
120
Q

what is the basic rule on pay - right to equality

A
  • men and women entitled to equal pay
  • contract, bonuses & pensions
  • worker right to ask employer
    information to check equality
  • if its unequal, they can the employer
    to an employment tribunal
121
Q

what is the minimum wage legalisation

A
  • employers required by law to ensure they pay their workers at least the national minimum wage
  • in the UK, for workers over 25, a top-up is applied to create the national living wage
  • it makes no difference when a worker is paid (monthly, weekly, daily, hourly) the NMW still applies
122
Q

what is employment legislation and discrimination

A

it is illegal for an employer to discriminate against employee on the basis of sex, pregnancy, race, age , religion, fixed-term or part-time

123
Q

what are the key areas where discrimination laws apply

A
  • recruitment
  • employee contract terms & conditions
  • promotions and transfers
  • providing training
  • deciding what fringe benefits
    employees receive employee
    dismissat
124
Q

what is an employment right

A

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

125
Q

what is industrial relations

A
  • protection from unfair dismissal
  • employers must recognise union is
    >50% of staff are members
  • regulation of procedures for industrial
    action
  • role/powers of employment tribunals
  • EU-works councils requirements
126
Q

examples of employment rights in uk

A
  • 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
127
Q

what must a business ensure for consumer legislation

A
  • goods fit tier description
  • must be of satisfactory quality
  • goods are fit for the purpose specific
128
Q

what are types of ways consumers are protected

A
  • not using misleading advertising
  • customers have right of return and
    full refund if goods don’t comply with
    the law
  • services - price - repaired
  • cooling off period
  • distance selling regulations provide
    further protection for consumers
    against online businesses
129
Q

what are the main consumer laws

A
  • distance selling regulations
  • the sale of goods act
  • supply of goods and services act
  • trade descirptions act
130
Q

are legal changes always good for a business

A
  • what change is to legislation
131
Q

aims of competition policy

A
  • wider consumer choice in markets for
    good and services
  • technological innovation which
    promotes gains in dynamic efficiency
  • effective price competition between
    suppliers
  • investigating allegations of anti-
    competitive behaviour with markets
    which might have negative effect on
    consumers
132
Q

why do business need to be aware of competition law

A
  • to ensure it doesn’t breach
    competition law
  • to protect its position where
    competition law is breached by a
    competitor
133
Q

main elements of competition policy

A
  • ANTI-TRUST & CARTEL
    • eliminations of agreements that
      restrict competition including price
      fixing by firms who hold a dominant
      market position
  • MARKET LIBERALISATION
    • on trudging competition in
      previously monopolistic sectors such
      as reneger supply, retail banking,,
      postal services, mobile
      telecommunications + air transport
  • STATE AID CONTROL
    • policy analyses state aid measures
      such as airline subsidies to ensure
      that such measures don’t distort
      competition in the single market
  • MERGER CONTROL
    • investigation of mergers and take-
      overs between firms which could
      result in their dominating the market
134
Q

examples of anti-competitive behaviour

A
  • price fixing and market sharing
  • predatory pricing and limit pricing
  • charging excessively high prices
  • refusal to deal/discrimination
  • patent misuse
  • protectionist policies limiting overseas
    trade
135
Q

examples of prohibited agreements

A
  • agreements which directly or
    indirectly fix purchase or selling
    prices, or any other trading condition
  • agreements which limit or control
    production, markets, technical d
    development or investment
  • agreements which share markets or
    sources of supply
136
Q

what is the competition act

A

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

137
Q

what is the completion and markets authority responsible for (CMA)

A

prosecuting such firms who engage in these activities, and can levy fines up to 10% of their annual UK turnover for every year in which a violation has taken place up to a maximum of three years.

138
Q

what isn’t allowed in 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
    a smaller or weaker competitor out of
    the market
139
Q

examples of abuse 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
  • tying (stipulating that a buyer wishing
    to purchase one product must also
    purchase other products)
140
Q

what is abuse of dominant position

A
  • UK competition law prohibit
    businesses with significant market
    share unfairly exploiting their strong
    market positions
  • a dominant share is 50% or more
  • having a dominant position doesn’t
    itself breach competition law
  • it is the abuse of that position that is
    prohibited
141
Q

what are the penalties for getting caught abuse of dominant position

A
  • up to 10% of annual turnover
  • criminal prosecution
  • disqualification as directors
  • civil action by those affected
142
Q

examples of regulators in the uk

A
  • water monopolies
  • CMA
  • telecoms & broadcasting
  • financial services
  • rail regulator
  • general energy markets
143
Q

what do competition regulators actually do

A
  • monitor and regulate prices
  • standards of customer service
  • open up new markets
  • the ‘surrogate competitor’
144
Q

what is 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

145
Q

key areas where a business must comply to environmental legislation

A
  • emissions into the air
  • storage, disposal & recovery of
    business waste
  • storing and handling hazardous
    substances
  • packaging
  • discharges wastewater
146
Q

health and safety regulation

A

health and safety is about preventing people from being harmed at work or becoming ill, by taking the right precaution and providing a satisfactory working environment

147
Q

health and safety responsibilities

A
  • an employer has important
    responsibilities for health and
    safety
  • its not just about protecting staff
    health and safety applies to
    many people who come into
    contact with business
148
Q

what does health ad safety apply 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
149
Q

examples of H&S industry issues

A
  • food processing (hygiene)
    -hotels (guest safety,hygiene)
  • chalice production (waste disposal)
  • air travel (passenger and crew safety)
  • tour operators
150
Q

what is exchange rates

A
  • 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
151
Q

examples of a currency that devalued due to war

A

Russian ruble after Ukraine war

152
Q

what are the concept links to exchange rates

A
  • international trade
  • business costs
  • pricing
  • competitiveness
  • PED
153
Q

ways exchange rates impact business activity

A
  • price of exports in international
    markets
  • cost if goods bought from overseas
  • revenues and profits earned overseas
  • converting cash receipts from
    customers overseas
154
Q

what might cause an increase in the exchange rate

A
  • increasing demand for exports =
    higher demand for the currency
  • lose 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
155
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 for a
business products

156
Q

what does SPICED mean

A

strong
pound
imports
cheap
exports
dearer

157
Q

what is inflation

A

a sustained increase in the average price level of a economy

158
Q

concept links to inflation

A
  • gross profit margin
  • PED
  • selling prices
  • business costs
  • exchange rates
159
Q

how is inflation measured

A
  • measured by annual percentage
    change in the level of prices as
    measured by the consumer price
    index
  • a sustained fall in the general price
    level is called deflation - in this
    situation, the rate of inflation
    becomes negative
160
Q

effects of inflation on consumers

A
  • money loses its 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 eafe demands
    people try to maintain their living
    standard
  • consumers on fixed incomes
161
Q

what is the consumer price index (CPI)

A
  • main measurement of inflation for the
    UK
  • government has set the Bank of
    England a target for inflation 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
162
Q

why was the rate of inflation so low in the UK

A
  • falling global commodity prices
    including oil
  • slow wage growth in labour market
  • falling food prices (supermarket price
    war)
  • sustained price deflation in
    technology products
  • slower real economic growth - falling
    towards 2%
  • still some pare capacity on the supply-
    side of the economy
163
Q

why did inflation rise in 2022

A
  • rose ot 11.1%
  • higher energy costs, wages
  • external shocks - war, oil, wheat
164
Q

two main causes of inflation

A

demand pull - where there is excess
demand
cost push - when costs rise

165
Q

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
166
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 pricers
  • faster rates of economic growth in
    other countries - providing a boost to
    UK exports over seas
167
Q

coast push inflation

A
  • occurs when costs of production are
    increasing
    causes:
  • external stocks
  • depreciation in exchange rates
  • acceleration in wages
    what happens
  • firm raise prices to protect their profit
    margins - better able to do this when
    market demand is price inelastic
  • wages often follow prices
  • a rise in inflation can lead to rising
    inflationary expectations
168
Q

inflation costs and consequences

A
  • money loses its 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 standards. this is known as
    a wage-price spiral
  • consumers and businesses on fixed
    incomes lose out because their real
    incomes falls - employees in poor
    bargaining positions lose out
  • inflation ca favour borrowers at the
    expense of savers - because inflation
    erodes the real value of existing debts
  • inflation can disrupt business
    planning and lead to lower capital
    investment
  • inflation is a possible cause of higher
    unemployment in the long term -
    because of a lack of competitiveness
  • rising inflation is associated with
    higher interest rates - this reduces
    economic growth and can lead to a
    recession
169
Q

is inflation good for business

A
  • 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
170
Q

what are the two types of government policy

A
  • monetary
  • fiscal
171
Q

what is fiscal

A

taxation and spending money of the government

172
Q

what is monetary

A

use of interest rates and money supply to influence the level of economic activity

173
Q

what are the three main types of taxes

A
  • income tax
  • corporation tax
  • VAT
174
Q

what is budget surplus

A

where taxation is greater than government spending

175
Q

what is budget deficit

A

government spending is higher than taxation

176
Q

what is balanced budget

A

taxation is equal to government spending

177
Q

what is direct taxes

A

taxes taken directly from a persons income or a firms profit
e.g. national insurance, income tax

178
Q

what is indirect taxes

A

taxes on products and spending not directly taken from income
e.g. VAT, road tax, fuel tax

179
Q

examples of taxation

A
  • income tax
  • national insurance tax
  • capital gains tax
  • customs duties
  • excise duty
180
Q

types of taxation

A
  • proportional tax
  • progressive tax
  • regressive tax
181
Q

progressive tax

A

a larger proportion of income taken depending on the individuals or firms earnings, e.g. income tax brackets

182
Q

proportional tax

A

the same proportion of someone’s income regardless of how much they earn, eg a 20% rate

183
Q

regressive tax

A

A tax that takes a larger percentage of income from low-income groups than from high-income groups

184
Q

why does the government tax

A

take money from rich and give to poor
- NHS
- Teachers
- Benefits
- raise revenue
- manage aggregate demand
- changing the distribution of income
and wealth
- market failure and environmental
targets

185
Q

main types of government spending

A
  • transfer payments - pension
  • current spending - NHS
  • capital spending - roads
186
Q

why ova government spending

A
  • direct government provision of
    public goods, merit goods
  • provide welfare support for low
    income households/unemployment
  • government spending is also a means
    of redistributing income within society
    e.g. to reduce the scale of relative
    poverty
  • government spending ca also be used
    as a tool to manage aggregate
    demand (GDP) as part of
    macroeconomic
187
Q

what is monetary policy

A
  • the us of money supply and/or the
    interest rate to influence the level if
    economic activity, inflation the
    balance of payments and the
    exchange rates
188
Q

what 4 factors influence business investment

A
  • actual & expected demand
  • expected profit ad business taxes
  • interest rates + availability of business
    finance
  • business confidence
189
Q

what happens when interest rates fall

A
  • cost of servicing loans/debt is reduced
    boosting spending power
  • consumer confidence should increase
    leading to more spending
  • effective disposable income rises -
    lower mortgage costs
  • business investment should be
    boosted
  • housing market effects
  • exchange rate and exports
190
Q

what’s money supply

A

the narrow majority 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

191
Q

what is quantitive easing

A

a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary policy that came into wide application after the 2007–2008 financial crisis

192
Q

what is free trade

A

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

193
Q

what is protectionism

A

government policies that restrict international trade to help domestic industries

194
Q

what is open trade

A
  • opposite of protectionism
  • involves the removal or reduction of
    barriers to international trade
195
Q

examples of protectionism

A
  • legislation impacting foreign firms
  • tariffs
  • quotas and licenses
  • tax breaks
  • biased legal systems and a lack of
    intellectual property protection
  • subsidies
  • loans and grants with favourable
    repayment conditions
196
Q

legislation impacting foreign firms

A

quality restrictions, limits o the industries that foreign businesses can operate in, restrictions on the ownership of domestic firms by foreign companies.

197
Q

tariffs

A

additional payments on imports grids causing higher prices to be charged

198
Q

quotas and licenses

A

limits on amount of products that can be imported

199
Q

subsidies

A

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

200
Q

types of trade blocks

A

EU, ASEAN, NAFTA

201
Q

cons of protectionism

A
  • harms people its mean too help
  • undermines opportunities for new
    competitors to enter the scene
  • often leads to trade wars where
    everybody loses
  • consumers have less choice
  • higher prices from tariffs hit lower
    incomes consumers the hardest
  • free trade creates more jobs than it
    destroys
  • consumer has to pay higher prices
  • causes of war, American revolution
    due to British tariffs and taxes
202
Q

what is globalisation

A

the geographic dispersion of industrial and service activities (trading between nations, either free or for cost)

203
Q

how can a firm expand and operate internationally

A
  • offshoring - apple
  • exporting
  • setting up base overseas
  • internal growth (organic)
  • external growth (integration)
  • joint ventures
  • technical cooperation
  • franchising
  • licensing
204
Q

what is joint ventures

A

two or more companies collaborating which is increasingly popular for companies expanding into Asia. EU firms provide cash, machinery skills; Host firm provides staff, land, buildings

205
Q

what is technical cooperation

A

allows co-prodcuction and joint assembly

206
Q

what is franchising

A

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

207
Q

what is licensing

A

permission to make a product in a certain country granted by the original manufacturer in exchange for a free, e.g. Carlsberg, Coca-cola. Useful to pass on many costs such as transportation and manufacture to another firm

208
Q

key points about globalisation

A
  • globalisation is 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
209
Q

key characteristics of globalisation

A
  • greater trade across borders in goods
    and services
  • increase in transfers of capital
    including the expansion of foreign
    direct investment 51% of the largest
    economies in the world are
    corporations. The top 500 TNCs
    account for nearly 70% of world trade
  • greater use of outsourcing and
    offshoring of production. E.g. iPhone -
    part of a complex global supply chain.
    Designed in Silicon Valley, enhanced
    software - engineers in India.
    Assembly China and Taiwan
  • high levels of labour migration both
    within and between countries
  • new nations joining the trading
    system, for example Russia joined the
    world trade organisation
  • a shift in the balance of economic and
    financial power from developed to
    emerging ebonies and markets
  • increasing spending on capital
    investment, innovation and
    infrastructure across large parts of the
    world
  • globalisation is a process of making
    the world economy more connected
    and inter-dependant
  • many emerging countries are winning
    a rising share of world trade.
    emerging countries now account for
    more than 57% of global GDP. The EU
    has a share of global GDP of less than
    17%
210
Q

factors contributing to globalisation

A
  • containerisation
  • technological change
  • economies of scale
  • difference in tax systems
  • less protectionism
  • growth of MNC/transnational Co’s
211
Q

benefits and gains from globalisation

A
  • encourages producers and consumers
    to benefit 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 - and helped many
    of poorest countries to achieve faster
    economic growth and reduce extreme
    poverty measured as incomes
  • advantages
212
Q

connect links to emerging markets

A
  • economic growth
  • international trade
  • market development
  • globalisation
  • growth strategy
213
Q

definition of emerging market

A

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

214
Q

common features of emerging markets

A
  • economies making a transition
  • rapid industrialisation (secondary +
    tertiary sector development)
  • have potential to become developed
    economies
  • faster long-term economic growth
    than most developed economies
  • many inhabitants still in poverty,
    though economic growth is taking
    many out of poverty
  • businesses struggle to access global
    markets (trade barriers)
215
Q

what is BRICs

A
  • Brazil
  • Russia
  • India
  • China
216
Q

example of emerging markets

A
  • Bangladesh
    85% of exports are driven by the textiles industry, is forecast to see the strongest growth in Asia. In fact, over the last 30 years, the country of 170 million people has not had a single year of negative growth
    170 million population
217
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
218
Q

business opportunities in emerging markets

A
  • growing numbers of educated middle
    class consumers = growing consumer
    spending
  • cultural shifts - e.g. higher demand for
    personal products, private education
    and healthcare
  • 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
219
Q

key risks and threat of emerging markets

A
  • political instability
  • cultural differences/sensitivities
  • variable approaches to financial and
    legal dealings
  • corruption and bureaucracy still an
    issue
  • emerging markets becoming major
    exporters
  • low-cost production makes developed
    economies competitive in some
    markets
220
Q

multinational have led investment into emerging markets

A
  • most important reason for expansion
    into emerging markets
  • global brands need operate
    globally
  • by definition they need to be active
    in fast-growing emerging markets as
    well as having established market
    shares in developed economies
221
Q

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

A
  • urbanisation process continues
  • industrialisation - E Asia and S
    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 (China, India, Korea)
222
Q

concept links of corporate social responsibility

A
  • business ethics
  • sustainability
  • shareholders
  • stakeholders
  • profit
223
Q

other names for corporate social responsibility

A
  • corporate citizenship
  • corporate responsibility
  • corporate sustainability
  • sustainable business
  • social responsibility
224
Q

is CRS the same as business ethics

A
  • clearly an overlap
  • both concern values, objectives and
    decision based on something other
    than the pursuit of profit
  • socially responsible firms must act
    ethically
  • the difference:
    • ethics concern actions which can be
      assessed as right or wrong by
      reference to moral principles
    • CSR is about the organisations
      obligations to all stakeholders - and
      not just shareholders
225
Q

ethics 2019 survey - which business areas need addressing

A
  • 33% copra tax avoidance
  • 29% executive pay
  • 28% environmental responsibility
  • 18% exploitative labour
  • 18% work-home balance for
    employees
226
Q

what is CSR

A
  • the extent to which a business
    addresses the concerns and
    obligations to its wider stakeholders
  • the actions a business takes over and
    above the minimum required by law
    in addressing societal needs and
    wants
227
Q

CSR is based on the idea that the needs of business & society are interdependent

A

society needs business
- employment & wages
- investment & innovation
- profits and taxes

business needs society
- create demand
- public assets & infrastructure
- legal protection

228
Q

how can businesses meet society needs and improve them

A
  • protect environment
  • education
  • protect consumers
  • financial security
  • better nutrition
  • better health
  • help the ageing
229
Q

the stakeholder concept

A
  • firms don’t have an unquestioned
    right to operate in society
  • those managing business should
    recognise that they depend on society
  • business relies on inputs from society
    and on socially created institutions
  • there’s a social contract between
    business and society involving mutual
    obligations that society and business
    recognise that they have to each other
230
Q

concept links to CSR pyramid

A
  • sustainability
  • shareholder concept
  • stakeholder concept
  • economic environment
  • legal environment
  • business ethics
231
Q

the four responsibilities of carols CSR pyramid

A
  • economic
  • legal
  • ethical
  • philanthropic (firms that promotes
    welfare of others for public good)
232
Q

basics 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 &
    regulations
  • before a business considers its
    philanthropic options, it also needs to
    meet its ethical duties
233
Q

ECONOMIC

A

responsibility of business to be profitable
Only way to survive and benefit society in long-term

234
Q

LEGAL

A

responsibility to obey laws and other regulation e.g. employment, competition, health and safety

235
Q

ETHICAL

A

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

236
Q

PHILANTHROPIC

A

Responsibility to give back to society
Discretionary but still important
e.g. charitable donations, staff time on projects

237
Q

strengths of carols CSR pyramid

A
  • easy to understand
  • simple message - CSR has more than
    one element
  • emphasises importance of profit
238
Q

weakness of carols CSR pyramid

A
  • perhaps too simplistic
  • should ethics be at the top
  • businesses don’t always do what they
    claim when it comes to CSR
239
Q

technology and marketing opportunities

A
  • new markets
  • new products
  • new ways to sell those products
240
Q

technology and selling to customers

A
  • easier to communicate with
    customers
  • more people are spending more
    time on the internet = opportunity
    for promotion
  • distribution - Spotify, Netflix
  • cost savings
  • collection of consumer data
241
Q

technology and operations management

A
  • affect how businesses operate
  • new businesses have been created
242
Q

process innovation

A
  • new methods of production
  • lower unit costs
  • CAD
  • CAM
  • 3D computing
  • High tech goggles
243
Q

disruptive technology

A

the information of a new product or new process that radically changes the competitive advantage of an existing market.

business (15 decks)

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