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buisness > unit 7 > Flashcards

unit 7 Flashcards

1
Q

what is ratio analysis

A

the comparison of financial data to gain insights into business performance

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2
Q

what does ratio analysis help to answer

A

why one business is 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 is included in the income statement

A

revenues
-cost of sales
-gross profit
-operating profit
-net profit

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5
Q

what is included in the balance sheet

A

current assets
current liabilities
inventories
trade receivables and payables]
long term liabilities
capital and reserves

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6
Q

stages in ratio analysis

A

gather data- calculate ratios- interpret results- take action

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7
Q

three main groups of rations

A

-profitability
-liquidity
-Financial efficiency

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8
Q

who are the key users of ratios

A

profitability- shareholders, government, competitors, employees.
Liquidity- shareholders, lenders, suppliers
Financial efficiency-shareholders, Lenders, competitors.

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9
Q

what is liquidity

A

the ability of a company to change its assets into cash.

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10
Q

different between income statement and balance sheet

A

income is within one day whereas balance is within one year

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11
Q

what his the difference between Current liabilities and non current liabilities

A

current is something you have to pay in 12 months, non current is more long term like a loan

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12
Q

what are net assets

A

non current plus current assets minus liabilities

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13
Q

limitations of ratio analysis

A

one data set is not enough
reliability of data
based on the past
comparability

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14
Q

why might ratio data not be entirely reliable

A

-financial information involves making subjective judgements
-different business have different accounting policies
-potential for manipulation of accounting information (window dressing) -boosting figures, look carefully on where the data has come from.

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15
Q

the importance of effective comparison

A

one ratio is rarely enough- need to compare with competitors- need to analyse over time.

Circumstances change over time
-markets and industries change
-different economic and market conditions.

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16
Q

what ratios don’t tell you

A

competitive advantages
quality
ethical reputation
future prospects
changes in the external environment

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17
Q

what is the definition of a balance sheet

A

a document describing the financial position of a company at a particular point in time. It compares the items owed by the organisation (assets) with the amount it owes (its liabilities) and shows how the firm has been funded

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18
Q

what are non-current assets

A

what the business owns with a lifespan of more than a year.

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19
Q

what are current asset

A

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

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20
Q

what are current liabilities and what are non-current liabilities

A

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

non-current liabilities, are debts that need to be repaid, but not within one year

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21
Q

why is a balance sheet beneficial.

A

shows thew 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, e.g stock, premises, debt

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22
Q

what are net current assets also known as

A

working capital

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23
Q

liquidity

A

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

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24
Q

what needs to be the same on a balance sheet

A

net current assets and total equity.

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25
Q

what are assets

A
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26
Q

what are tangible assets

A
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27
Q

what are intangible assets

A

reputation, good will.

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28
Q

what are inventories

A
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29
Q

what are receivables

A

debts owed to a business by their customers

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30
Q

what is total equity

A
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31
Q

what is the calculation for net current assets

A

current assets-current liabilities

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32
Q

what is the calculation for net assets

A

total assets- total liabilities

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33
Q

what is the equation for capital employed

A

total equity + non- current assets

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34
Q

what does an income statement describe

A

the income and expenditure of a business over a period of time, usually a year.
-shows the profit or loss made by a business
-also known as the profit and loss account.

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35
Q

what are exceptional items

A

money from selling or buying that only happens once- selling machinery

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36
Q

what’re finance income

A

any interest paid to the company on money lent or saved

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37
Q

what are finance expenses

A

any payments of interest on loans held

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38
Q

what type of business is needed to post their income statement

A

plc
and

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39
Q

why are public and private limited companies charged corporation tax on profits

A

they have gone through the legal incorporation process

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40
Q

what is the earnings per share formula

A

profit for the period/number of shares

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41
Q

what does earnings per share tell you

A

an indication of the amount of money per share but assumes all profit will be returned as dividends.
-firm decides what percentage of profit will be paid back.

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42
Q

purposes of income statement

A

-measures company performance and impacts pf strategies.
-owners can assess their return on investment
-to abide by legislation as part of being a limited company.

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43
Q

what is profit quality

A

whether a source of profit is sustainable in the long term.

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44
Q

types of profit quality

A

high profit quality- source of profit that is likely to continue, e.g a successful well-established product such as Heinz ketchup

low profit quality- a result of actions that are unlikely to occur again (exceptional items), e.g selling an asset such as a building.g HSBC a sale and leaseback deal for their headquarters in Canary Wharf London

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45
Q

what is profit utilisation

A

the way in which a businesses chooses to use its profit. common in two ways.
-dividends to pat shareholders
-retained profit- reinvest profit into the business to maintain its liquidity.

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46
Q

how do shareholders have authority in the businesses actions with profit

A

some shareholders have a short-term interest looking for predictable and regular dividend payments

-other shareholders, such as those of companies still run by their initial founders or family-owned private limited companies, may have more of a long term perspective and be happy to retain profit to fund expansion.

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47
Q

problem with income statement

A

its based on historical data, CEO must convince shareholders that the current year will be better.

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48
Q

what are the six financial ratios

A

current ratios
gearing ratio
ROCE (return on capital employed)
payables days
receivables days
inventory turnover

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49
Q

liquidity

A

a firms ability to pay a firms short term debts. They do so with their current assets, using a balance sheet shows how easily a firm is able to pay their short-term debts and how solvent they are.

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50
Q

what is the current ratio

A

helps to understand if the firm is able to meet its short-term debts

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51
Q

current ratio

A

current assets/current liabilities :1

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52
Q

what is the recommended ratio

A

2:1 or 1.5:1

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53
Q

what does 2:1 tell you

A

for every pound owed you have 2 pounds to pay it off

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54
Q

why is a ratio of 8:1 seen as a bad ratio

A

the firm has a lot of money sitting in banks which should be reinvested into non-current assets.

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55
Q

why might a low current ratio not be bad

A

for Land Rover and other manufacturing industries the turnover is very high

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56
Q

current ratios for Sony,apple and Tescos

A

sony-0.69:1, apple- 1.07:1, Tescos: 7.37:1

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57
Q

evaluating current ratio

A

firms have different requirements depending on their size.
How does the current ratio compare with competitors
how is it doing, trend-

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58
Q

what does gearing do

A

measures the proportion of the businesses capital provided by debt.

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59
Q

equation for gearing

A

non-current liabilities/ total equity +liabilities x100

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60
Q

why is gearing useful

A

shows stakeholders the capital structure of the business

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61
Q

why would high gearing be good

A

50% or more if the interest rates are low- opportunity to borrow money to invest, less need to raise finance through share capital when bank loans are used

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62
Q

why would low gearing be good

A

if the interest rates are low below 25%, will have lower interest and loan repayments positively impacting its liquidity.
makes a business more attractive for investment to potential stakeholders.
-less vulnerable for changes in interest rates
-easier to liquidate the business

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63
Q

what is profitability

A

a firms profit in relation to its size

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64
Q

what is ROCE

A

return on capital employed

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65
Q

what does ROCE show

A

the operating profit (a measure of the firms success compared with the total capital employed

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66
Q

ROCE equation

A

operating profit/total equity+non-current liabilities x100

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67
Q

what is the best ROCE

A

the bigger is the better

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68
Q

benefits of ROCE

A

lets the owners or potential investors understand how efficient then business is at producing profit based on capital invested in the business.

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69
Q

what is inventory turnover

A

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

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70
Q

what are the three types of inventory

A

-raw materials and components
-work in progress
-finished goods

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71
Q

what is the inventory turnover equation

A

cost of sales/average inventories held

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72
Q

how can inventory turnover be increased

A

sell-off or dispose of slow-moving or obsolete inventory
introduce lean production techniques

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73
Q

factors influencing inventory turnover

A
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74
Q

what are payables days

A

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

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75
Q

what are receivables days

A

the average length of time by customers to pay amounts owed

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76
Q

equation for receivables days

A

trade receivables/revenue x365

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77
Q

what are trade receivables

A

amounts owed to a business by customers

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78
Q

what are trade payables

A

amounts owed by a business to suppliers

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79
Q

what should be a business aim for their receivables days

A

a short period to maintain the best cash flow possible.

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80
Q

equation for payables days

A

trade payables/cost of sales x 365

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81
Q

what should be a businesses payables days aims

A

firms that receive long credit periods will have high figures; those that pay in cash will have low figures

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82
Q

comparing receivables and payables

A
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83
Q

what are objectives

A

statements of specific outcomes that are to be achieved

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84
Q

what are business objectives

A

specific intended outcomes of business strategy

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85
Q

what is the hierarchy of business objectives

A

-mission
-corporate/strategic (whole company)
-functional
-team
-individual
gets increasingly detailed as it goes down
further up the more strategic

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86
Q

what are the four functions of a business

A

finance.
operations.
HR
Marketing

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87
Q

examples of hierarchy of objectives

A

corporate objective- 12% market share
functional objective- sakes per customer of £45
unit objective-shop sales of £500,000

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88
Q

what are corporate objectives

A

those that relate to the business as a whole

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89
Q

purposes of corporate objectives

A

provide strategic focus
-measure performance of a firm as a whole
-inform decision making
-set the scene for more detailed functional objectives

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90
Q

key areas for corporate objectives

A

market
innovation
productivity
physical and financial resources
profitability
management
employees
public responsibility

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91
Q

what is offshoring

A

manufacturing abroad where the labour costs are cheaper.

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92
Q

example of a corporate objective

A

start bucks- ‘the most recognised and respected brands in the world’.- however they lost respect due to tax evasion.
costa and premiering,’reach 85,000 uk hotel rooms and 2.5 billion system sales in Costa by 2020

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93
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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94
Q

examples of how functional objectives might support corporate objectives

A

increase sales- successfully launch five new products in the next two years

reduce costs- increase factory productivity by 10%

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95
Q

key influence on corporate objectives

A

business ownership
attitude to profit
ethical stance
organisational culture
leadership
strategic position
stakeholder infleunce

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96
Q

external influences on corporate objectives

A

short-termism
economic environment
political/legal environment
competitors
social and technological change

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97
Q

what is short terms

A

when a business prioritises short term rather than long term performance

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98
Q

what is the problem with short terms

A

thinking about short terms could cost you in the long term e.g reputation- use in evaluation
might damage:
market share
-quality
-innovation- BT vs Land Rover Jaguar
Land Rover jaguar decided to keep their apprentaships running with high costs in recession. After recession they came out on top. Caused BT to have natural wastage.
-brand reputation
-employee skills and experience
-social responsibility- funding a local football team

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99
Q

why might a business be concerned with short term performance

A

stock market focus on latest financial performance

-reliance on bonuses based on short term performance

-frequent change of leadership and stratergy

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100
Q

possible indicators of short terms

A

bonuses based on short term objectives
low investment in research and development
high dividend payments rather than reinvesting profits
overuse of takeovers rather than internal growth

might help a company to be sold

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101
Q

what is synergy

A

two companies companies coming together to form a better income

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102
Q

what is the difference between a statergy and a tactic.

A

tactics- short term, normally to address a problem- buy one get one free to real competitors
-strategy- long term- how a business intends to achieve its objectives e.g equal up the work place, positive discrimination- hiring types of people you don’t have.

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103
Q

an example of leaders being increasingly critical of short-termism

A

Since Polman took over as CEO in 2009 of Unilever he stopped updating stock market every quarter, which influenced short terms

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104
Q

examples of strategic decisions

A

external growth via takeover
enter international market
rebrand the business
-adopt cost minimisation stratergy

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105
Q

examples of tactical decisions

A

relocate staff from takeover HQ chose locations in new market
launch rebranding campaign

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106
Q

what is LAMB RIPPERS

A

a way of remembering the business strategies

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107
Q

what is lean production

A

aimed to reduce waste in the form of overproduction, excessive lead time, product defects in order to make a business more efficient and more competitive.- cost minimisation

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108
Q

what strategies does lean production comprise off

A

just-in-time, zero-defects, Kaizen, Benchmarking, team-working, quality circles

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109
Q

what is m

A

marketing- 7ps

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110
Q

what is b

A

business restructuring- people, process, technology, structure

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111
Q

what is retrenchment

A

getting smaller as a business- beneficial in recession.

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112
Q

how does process help as a business strategy

A

the reducing need for physical stores, banking switching to online.

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113
Q

how does structure help with business strategy

A

centralised and decentralised decision making

114
Q

why might a business want to relocate

A

-need to be nearer to a supplier, or workforce- helps lean production/ just in time
-raise costs
-increase brand perception
-expansion

115
Q

examples of relocation

A

post Brexit- Dyson moving HQ to Singapore

-panasonic is moving its European HQ from the UK to Amsterdam

116
Q

what is re-shoring

A

bringing manufacturers back to the original business

117
Q

what is internationalisation

A

or globalisation is when you sell your goods or services into foreign markets

118
Q

what is p

A

product innovation- new idea to the market
marking the same product in a better different way

119
Q

example of products which failed to innovate

A

Hitachi

120
Q

what is the second p

A

partnerships

121
Q

why are partnerships important in strategic strategies

A

joint ventures- two companies voluntarily come together to work as one.
e.g airbus consortium- made up of several aircraft companies that could not compete against Boeing.

122
Q

another example of partnerships

A

Starbucks, both west airlines

123
Q

what is e

A

employee relations

124
Q

what are employee/employer relationships

A

good relationships can boost productivity.

use employees strengths

125
Q

what does re-shoring do

A

bringing back parts manufacturers back to UK
e.g reshoring clarks bringing desert boots home to Somerset from Asia.

126
Q

what does s mean

A

scale of production

127
Q

what does sale of production mean

A

increasing the scale of production can help firms reduce average costs. when firms expand, costs are likely to rise but average costs can fall.
small business/handmade find it hard to upscale.

128
Q

what is swot analysis

A

analysing the strategic position of a business
-helps a business assess its competitive strength and external environment

129
Q

what does swot stand for

A

strength( internal)
weaknesses (internal)
opportunities (external)
threats (external)

130
Q

what are examples of strengths

A

technological skills
leading brand
distribution channels
customer loyalty
production quality
scale
management

131
Q

examples of weaknesses

A

absence of important skills
weak brands
poor access to distribution
low customer retention
unreliable product
sub-scale
management

132
Q

examples of external opportunities

A

changing customer tastes
technological advances
changes in government politics
lower personal taxes
changes in population age
new distribution channels.

133
Q

examples of external threats

A

-changing customer base
-closing of geographic markets
-technological advances
-changes in government politics
-tax increases
-changes in population age
-new distribution channels

134
Q

why asses strengths and weaknesses

A

-competitive advantages
-key performance indicators
-roles for benchmarking

135
Q

evaluating strengths+ weaknesses

A

-reliability
-how sustainable are the strengths
-can the weaknesses be overcome (do we need to go abroad?)

136
Q

assessing opportunities and threats

A

how to make threats opportunities

137
Q

what are porters five forces

A

new entrants
substitutes
Buyer power
supplier power
rivalry

138
Q

what does porter describe

A

the competitiveness of a market as determined by its key external factors

139
Q

what in non financial data

A
140
Q

limitations of financial data in assessing business performance

A

finance ratios tend to look backwards- at historical 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.

141
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
job satisfaction
Marketing: market share, sales per employee
sales growth
customer retention rate

142
Q

making connection between financial and non financial methods of performance

A

e.g improving operating profit margin compared with key competitors might indicate one or more of these non-financial measures. e.g higher market share, economies of scale, increased customer retention and more.

143
Q

core competencies

A

something unique that a business has, or can do strategically well.
e.g dyson- innovation

144
Q

where in swot analysis does core competencies link to

A

strengths- competitive advantage

145
Q

examples of 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

146
Q

how has Netflix stuck to its core competence

A

‘spare us the trip to a video rental store’.

147
Q

how do you know if it provides a core competencies

A

does it provide consumer benefits.
is it easy for competitors to imitate
can it be leveraged widely to many products and markets.

148
Q

what prahalad and Hamel suggest businesses do

A

outsource non core activities.
however over zealous outsourcing has damaged business competitiveness

149
Q

other criticism of core competencies

A

difficult to identify core competencies that are genuinely unique
-possible for business to become complacent about its core competencies.
e.g codec camera

150
Q

what is short terms

A

prioritises short term rather than long term performance.

151
Q

what might increasing share price in short term stop a business from doing

A

not investing in marketing, and research and development

152
Q

what might increasing gross profit or operating profit stop a business form doing

A

decrease quality- using cheaper raw material.

153
Q

what are the long term expenses of short terms

A

market share
quality
innovation
brand rep
employee skills and experience
social responsibility and sustainability

154
Q

what is mittlestand companies

A

group of 1,000 companies, contribute to 52% of the countries economic output

155
Q

what is unique about mittlestand

A

they invest in long termism- invest in workforce (also family run)- been flexible with workforce, lean production, focus on innovation and customer service.

156
Q

what is Elkington’s triple bottom line

A

a way of assessing business performance based on three important areas. Profit, people and planet.

what the purple for a business organisation are
share holder concept- purpose of a business is to reward its shareholder.
stakeholder concept- business have a moral obligation to act in a socially .responsible manor

157
Q

what is profit in tbl

A

focus on financial measures such as ROCE, gearing and shareholder returns.

158
Q

what is people in tbl

A

focus on shareholders through employee welfare, customer satisfaction, supply chain management and community projects.

159
Q

what is planet in tbl

A

measuring the impact that the organisation has on the environment and taking steps to limit Any negative impacts.

160
Q

what are business legislations

A

set of rules or regulations at which a businesses has to comply with.

161
Q

examples of business that changed before a legaslation

A

mark and Spencer’s plan a- switched to paper bags

Coca Cola- Coke Zero avoiding sugar tax

162
Q

how does legaslation effect investors

A

prevents lying about balance sheet and financial statement

163
Q

key areas to consider for legaslation

A

employment
consumers
environment
competition
health and safety

164
Q

example of unequal pay

A

BBC presenters gap between men and women

165
Q

what is the basic rule fright to equality

A

man and women are entitled to equal pay for work of equal value

166
Q

what has changed in the legaslation

A

workers have the right to go to employer and asked for pay If they think its unequal.
if its unequal they can take the employer to an employment tribunal.

167
Q

what is an employment tribunal

A

an unbiased tribunal not based on money case for both employer and employee

168
Q

what are other types of employment legislation

A

discrimination- it is illegal for an employer to discriminate against an employee on the basis of sex, age, race, disability, sexual orientation, religion/belief

169
Q

key areas in which discrimination laws apply

A

employing staff
recruitment
employee contract
promotions and transfers
providing training
fringe benefits
employee dismissal

170
Q

what is an employment right

A

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

171
Q

examples of employment rights

A

right to have 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

172
Q

what are work councils

A

not trade union- independent body in organisation in EU- strict an powerful- every single person is a member of it

173
Q

what must a business ensure in consumer legeslation

A

goods must fit their description, businesses must avoid inaccurate claims
-must be of satisfactory quality- has to be tested, must work and have no blemishes
-goods are fit for the purpose specified, take care when explain what the product is used for.

174
Q

what are the main customer laws

A

distance selling regulations- gives consumers protection when they buy goods or services by mail order, phone or online
-Requires goods to be as described, fit for their purpose and of satisfactory quality. If they are not, the customer can reject them.
-supply of goods and services act- customers are entitled to work that’s carried out with reasonable skill in a reasonable time, at a reasonable price

175
Q

aims of competition law

A

wider consumer choice in markets for goods and services

-technological innovation which promotes gains in dynamic efficiency
-effective price competition between suppliers
-investigating allegations of anti-competitive behaviour.

176
Q

main elements of competition policy

A

anti-trust and cartels- elimination of agreements that restrict competition including price fixing by firms who hold a dominion market position. gas and oil

market liberalisation: Introducing competition in previously monopolistic sectors such as energy supply, retail banking, postal services, air transport. ROYAL MAIL

state aid control: Policy analysis state aid measures such as airline subsidies to ensure that such measures do not distort competition in one market

Merger control-
Investigation of mergers and takeovers between firms which could result in their dominating the market ALDI & SAINSBURY

177
Q

examples of anti competitive behaviour

A

price fixing and market sharing

-predatory pricing and limit pricing

-charging excessively high prices

-refusal to deal

-patent misuse

-protectionist policies limiting overseas trade

178
Q

examples of prohibited agreements

A

limit or control production, markets, technical development

179
Q

what is the competition act 1998

A

aims to prevent companies from acting in ways to distort, restrict or prevent competition, aims to take action against firms that use restrictive practices such as collusion, price fixing

180
Q

what is the competition and market authority (CMA)

A

prosecutes such firms who engage in these events, and can levy fines of 10% of their revenue for every year in which a violation has taken up to a maximum of 3 years.

181
Q

what is a dominant position

A

with 50% or more of the market share
-does not itself breach competition law

182
Q

example software abuses of dominant position

A

imposing unfair trading terms, such as exclusivity
-tying
-refusal to supply or provide access to essential facilities.

183
Q

penalties for getting caught

A

disqualification as directors
civil action by those affected.

184
Q

examples of regulators

A

CMA
OFWAT-water monopolies
OFGEM

185
Q

key areas where businesses must comply

A

emissions into the air
storage, disposal,recovery of business waste
packaging
waterwaste

186
Q

health and safety regulation

A

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

mclaren prams- button that closed pram, but was faulty and people got fingers caught.

nissan rtr- accelerator kept getting stuck.

187
Q

examples of h and s industry issues

A

food processing- hygiene
hotels- guest safety, hygiene
chemical production- waste disposal
air travel- passenger and crew safety
tour operators

188
Q

what is gdp

A

gross domestic product

189
Q

what is the business cycle

A

the level of demand in most markets that is influenced by the rate of economic growth

190
Q

how does gdp effected by economy

A

the gap growth will vary depending on the state of the economic cycle

191
Q

what happened in 2020 on the business cycle

A

massive fall to -9.92%

192
Q

what is GDP

A

a measure of the value of output in the economy, value use to access changes in economic growth

193
Q

what is demand

A

how much of a good or service a consumer wants or is able to afford, for a business demand turns into revenue

194
Q

what is the business cycle also known as

A

the economic cycle

195
Q

what is in a business cycle

A

sequence of slump, recovery boom and recession, measured by changes in GDP from one quarter to the next.

196
Q

main causes of the cycle

A

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

197
Q

how can businesses benefit of a recession

A

lower interest rates.

198
Q

Discuss the view that a recession can only be viewed as a threat for all UK businesses. (16 marks)

A

re.cessions can cause declines in sales- less consumer confidence.
damage small businesses. Means UK businesses will have two cut costs- high operating costs in UK

199
Q

what are exchange rates

A

the price of one currency expressed in terms of another currency

200
Q

example of a currency that devalued due to war

A

Russian ruble after Ukrainian war.

201
Q

what concepts do exchange rates link to

A

pricing
competitiveness-costs more fro imports
PED- oil
business costs- increase due to exchange rates
international trade

202
Q

ways exchange rates impact business activity

A

-price of exports in international markets
-cost of goods brought from overseas
-revenues and profits earned overseas
-converting cash receipts from customers overseas

203
Q

what might cause an increase in exchange rates

A

increasing demand for exports- higher demand for the currency
-lower demand for imports- lower demand for the currency
-speculation- traders may bet 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

204
Q

factors affecting the significance of exchange rates on businesses

A

impact how much they export to other economies
wether domestic businesses face strong competition from overseas firms in their market

205
Q

what does SPICED

A

strong pound imports cheaper exports dearer( more expensive)

206
Q

what is inflation

A

a sustained increase in the average price level of an economy

207
Q

how is inflation measured

A

measured by the annual percentage change in the level of prices as measured by the consumer price index.

208
Q

what is a sustained fall in the price level called

A

deflation

209
Q

concept links

A

PED
Selling prices
business costs
exchange rates
gross profit margins

210
Q

what is the government target for inflation

A

2%
low and stable

211
Q

what is low inflation also known as

A

price stability

212
Q

effects of inflation

A

afford few goods and services
-higher wage demand- higher prices

213
Q

link to PED

A

if a product is elastic- reduction in customers- lower profit margins.

214
Q

how do governments measure inflation

A

CPI basket of goods- 744 items looked at and prices are logged.

215
Q

when did the UK inflation rate rise

A

2022- covid or Ukraine

216
Q

why was the UK inflation rate so low before pandemic

A

falling global commodity prices including oil
-slow wage growth in the labour market
-falling food prices
-sustained price deflation in technology products
-slower real economic growth- towards 2 percent
-still some spare capacity on the supply-side of the economy.

217
Q

how would a government increase demand

A

increase tax e.g income, VAT

218
Q

what is cost push inflation

A

when cost of production are increasing, causes are external shocks, depreciation in exchange rates, acceleration of wages

219
Q

what would cost push cause

A

firms raising prices to protect their profit margin
wages often follow prices

220
Q

what is demand pull inflation

A

occurs when there is excess aggregate
-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

221
Q

what are the two main causes of inflation

A

demand pull- when there is excess demand

cost pull- when costs rise

222
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
    -rising consumer confidence
    -faster rates of economic growth in other countries- boost to UK exports overseas.
223
Q

costs and consequences of inflation

A
  • money loses its value and people lose confidence in money as the value of savings is reduced.
    -can get out of control- price increases- increase wage demand, wage-price spiral.
    -income falls for businesses
    -inflation can favour borrowers
    -can disrupt business planning
    -cause of higher unemployment, lack of competitiveness
  • rising inflation associated with increased exchange rates.
224
Q

consequences of general inflation

A

sales rev should rise
-workers are more likely to demand higher pay to compensate for consumer price inflation
-labour intensive industries more at risk.

225
Q

consequences of input cost inflation

A

cost-push inflation will vary from industry to industry
-firms that need to buy significant materials may find profit margins squeezed.

226
Q

two types of government policy

A

fiscal and monetary

227
Q

what is fiscal policy

A

involves the use of government spending, taxation and borrowing to affect the level and growth of aggregate demand , output and jobs
attempt to influence the direction of the economy

228
Q

what is monetary policy

A

the use of the money supply to influence the level of economic activity

229
Q

what is budget surplus

A

where taxation is greater than government spending

230
Q

what is budget deficit

A

government spending is higher than taxation

231
Q

what is balanced budget

A

taxation is equal to government spending

232
Q

what is taxation

A

a government tool to impact economic activity

233
Q

types of taxes

A

direct- directly from a persons income. Income, corporation, national insurance
indirect- on products or spending
vat, road tax, stamp duty, fuel tax

234
Q

how can taxes be used as an incentive

A

to customers to purchase products that benefit society, such as green tech e.g solar panels.

235
Q

examples of taxes

A

VAT- value added tax- however some things don’t have vat e.g energy saving materials is only 5%

corporation tax- 20%- pay on profits, government have cut in the past to encourage foreign firms to invest in the business

236
Q

what is national insurance

A

taken automatically from workers who pay and contribute towards state pensions such as pensions.

237
Q

what is proportional tax

A

same percentage of tax for all incomes

238
Q

what is progressive tax

A

tax rate increases as the taxable amount increases

239
Q

what is regressive tax

A

larger proportion of income is taken as the individual earns less e.g 20% VAT is a bigger proportion of someones spending if they are on a low income.

240
Q

how does fiscal policy work

A

expansion and contraction policy

241
Q

what is an expansion policy

A

wants the economy to grow and expand, Gove people and firms more money. More disposable income. Buy more- increased demand in country.

cut incorporation tax, more post tax profit

242
Q

what is a contractionary fiscal policy

A

increasing taxes

243
Q

why do we need government spending

A

to provide low income support
redistributing money
help to decrease crime rates.

244
Q

what are the types of poverty

A

relative and absolute poverty
I
I
v
relative to the normal person

245
Q

what is monetary policy

A

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

246
Q

what are ate key factors influencing the amount of business investment

A

-actual and expected demand, -expected profits and business taxes
-interest rates and availability of business finance
-expected profits and business taxes
-business confidence

247
Q

what happens when interest rates fall

A

costs of servicing loans is reduced
-increased spending power
-consumer confidence increases
-disposable income rises
-business investment boosted
-housing market effects- more demand and higher property prices
-exchange rate and exports- cheaper currency will increase exports.

248
Q

what is money supply

A

a measure of the value of coins and notes circulating and other equivalents that are easily exchangeable into cash.

249
Q

what is quantative easing

A

last resort for banks after interest rates cannot be reduced more. inject money directly into an economy aims to prevent inflation. central bank rates new money, which is used to buy government bonds, banks sell these bonds and receive cash, increases liquidity, supports increase in lending.

also could drive bond prices higher, higher bond prices cause a fall in interest rates of bonds, makes it cheaper for governments to borrow money, increase government spending.

250
Q

what is forward guidance

A

an advanced warning of forecast expectations for interest rates.

251
Q

what is protectionism

A

is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. Amin aim is to cushion domestic businesses

252
Q

what is free trade

A

trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold economically liberal positions,

253
Q

types of protections

A
  • legislation impacting foreign firm
    -tariffs
  • quotas and licenses
  • tax breaks
  • subsidies
254
Q

what is intellectual property

A

copyright, patents, logo,

255
Q

what are subsidies

A

amount of money that a government gives to a business to protect them against foreign competition. mostly fledgeling businesses, renewable energy. e.g arms companies

256
Q

difference between subsidy and loan/grant

A

subsidy could happen for a longer duration

257
Q

cons of protectionism

A

consumers have less choice
-free trade creates more jobs than it destroys
-consumers have to pay higher prices.

258
Q

the UK’s developing countries trading scheme

A
259
Q

notes on handouts

A
260
Q

what is globalisation

A

trading between nations, either for free or for costs.

261
Q

examples of takeover or mergers as an example of external growth

A

craft taking over Cadbury

262
Q

what is internal growth

A

or organic growth- opening up factories abroad funded through own reserves.

263
Q

what is a joint venture

A

two or more companies collaborating which is increasingly popular for companies expanding into Asia, EU firms provide cash, machinery skills. example is airbus which was a consortium of businesses.

264
Q

what is technical cooperation

A

allows co-production and joint assembly. could include using distribution channels, especially for smaller companies. this could lead them to be taken advantage off.

265
Q

what is licensing and an example

A

permission to make a product in a certain country granted by the original manufacturer in exchange for a fee. Carlsberg- Coca Cola.

266
Q

globalisation

A

a process in which economies have become increasingly integrated and inter-dependent

is dynamic

not inevitable

267
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.
greater use of outsourcing and offshoring of production. e.g iPhone. part of a complex supply chain
high levels of labour migration.

268
Q

what are the facts contribution to globalisation

A

containerisation: cost of ocean shipping have come down
technological change: reduced the cost of transmitting information
economies of scale: increase in the minimum effect scale
differences in tax systems: lower unit labour costs, to attract FDI
less protectionism: import licensing and foreign exchange controls have been gradually dismantled
growth of MNC: global businesses and brands have invested increasingly in expanding internationally.

269
Q

benefits from globalisation

A

encourages producers and consumers to benefit from economies of scale.
-competitive markets reduce monopoly profits and incentivise businesses to seek cost-reducing innovations
-helped poor countries to experience large economic growth.
-

270
Q

drawbacks of globalisation

A

inequality
finish off.

271
Q

what is an emerging economy

A

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

272
Q

concept links of emerging markets

A

market development
globalisation
growth strategy
economic growth
international trade

273
Q

common features of emerging markets

A

economies making a transition
-rapid industrialisation
-have potential to become developed economies
-faster long-term economic growth than most developed economies
-many inhabitants still in poverty
-businesses struggle to access global markets.

274
Q

examples of emerging economies

A

Guyana- fastest growing economy
11 billion barrels

Bangladesh 6.8%- 85% of exports are driven by the textiles industry. Bangladesh has 170 million inhabitants.

275
Q

perceived business threats in emerging markets

A

-increasingly large pool of skilled but ow cost labour
undervalued currencies make their exports cheaper
-inadequate protection of brand and intellectual property
-state subsidy of industries to make them more competitive globally.

276
Q

business opportunities in emerging markets

A

-growing number of educated middle class consumers- growing consumer spending

-cultural shifts, 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

-great potential for joint ventures and acquisitions.

277
Q

risks of emerging markets

A

politically instability
-cultural differences
-variable approaches to financial and legal dealings
-corruption and bureaucracy still an issue
-emerging markets becoming major exporters
-low cost production makes developed economies uncompetitive in some markets.

278
Q

what has led to investment into emerging markets

A

multinationals

279
Q

what will emerging markets do

A

drive economic growth
by 2035 , emerging markets will contribute about 65% of global economic growth.

280
Q
A

buisness (14 decks)

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