Unit 7 Flashcards
what is the mission of a business ?
defines what the organisation is, and why it exists.
what are corporate objectives ?
goals set for the business as a whole that will lead to the achievement of the businesses mission.
what are the internal factors that corporate objectives are influenced by ?
. type of business form
. business culture (collective beliefs and values of business)
. business performance
what are the external factors that corporate objectives are influenced by ?
- pressures for short-termism
- changes in economy
- government policy
- environmental factors
- demographic factors
- competitors actions
- technology
what is a businesses strategy ?
plan of action to achieve a long-term goal.
what are a businesses tactics ?
short-term actions necessary to achieve the plan or strategy.
what is functional decision making ?
refers to the decisions made in a department within a business.
what is SWOT analysis ?
a tool that analyses the internal strengths and weaknesses as well as the external opportunities and threats of an organisation.
what are some examples of a strength of a business ?
specialized marketing expertise
new innovative product
what are some examples of a weakness of a business ?
a lack of marketing expertise
undifferentiated products
what are some examples of an opportunity to a business ?
a developing market such as the internet
mergers, joint ventures
what are some examples of a threat to a business ?
a new large competitor entering the market
price wars with competitors
what is the value of swot analysis ?
+ helps a firm to identify its core competencies, enabling it to build on its strengths
+ it helps a firm to focus on the future, given its past and present condition
+ its a source of strategic planning
+ it helps firms redefine and set its overall objectives
what is the balance sheet ?
shows what the business owns (assets) and owes (liabilities).
what are the most liquid type of assets ?
current assets
what are current assets ?
assets owned for less than 1 year, and include inventory, receivables, and cash.
what are non-current assets ?
assets that remain in a business for longer than 1 year, include land, buildings, vehicles etc.
what are the least liquid type of assets ?
non-current assets
what are liabilities ?
are what the business owes.
what are current liabilities ?
debts of a business that will be repaid within 1 year, include payables, overdrafts etc.
what are non-current liabilities ?
debts of a business that will be repaid in more than 1 year, include loans, mortgages etc.
what is shareholders equity ?
the money attributable to the business owners (shareholders).
what are the figures identified when drawing up a balance sheet ?
working capital (current assets - current liabilities)
net assets (overall worth of the business)
capital employed (total equity + non-current liabilities)
assets employed (non-current assets + current assets) money invested into the business
what is the income statement ?
shows the income and expenditure of a business, revealing whether a business has made a profit or loss.
why are balance sheets and income states used ?
to measure the financial performance of a business.
what are the main elements of a income statement ?
revenue
costs of goods sold
gross profit
expenses
operating profit
interest received and paid
operating profit
profit for the year (after tax)
what are the 2 ways profit can be utilised ?
retained profit (investment in long-term)
distributed to shareholders (dividends)
what is profit quality ?
the degree to which the profit is likely to continue into the future. (sustainability of profit)
what is the liquidity of a business referring to ?
the extent to which a business is able to pay its short-term debts.
For data (ratios) to be useful they need to be what ?
+ compared against previous years results to see if there is a trend
+ compared with results from other businesses in the same industry
What is “window dressing” ?
Making financial statements appear better than they are.
How can financial statements be “window dressed” ?
. Sale of an asset, improving the profit figure of the business
. Using intangibles such as the brand name and goodwill to inflate the value of the business
Why can ratio analysis be limited in usefulness ?
- Only focuses on financial performance
- ignores the external environment (competitors, economic environment, technological advancement)
What are other things business can find from marketing data, other than sales volume, market share etc… ?
. the market itself
. Consumer behaviour
. Competition
what are core competencies of a business ?
one or more aspects of a business that give it a competitive advantage against competitors.
a core competency should …
. be difficult for competitors to replicate
. provide opportunities for a business to expand into new markets
. provide significant benefits to customers
what are some criticisms of core competencies ?
- problems with outsourcing, if a businesses focuses to much on its core competencies then it may lose control over other areas
- need to be responsive to changing and evolving external environment
how ca long-term sustainable shareholder value be achieved ?
+ investment into research and development of new products and processes
+ focusing on customer satisfaction and loyalty
+ focusing on employee engagement and loyalty
what is Elkingtons Triple Bottom Line ?
a concept that emphasises sustainability, profit, people, and planet. (economic, social, and environmental concerns)
what is the ‘Profit’ part of Elkingtons triple bottom line emphasising ?
the economic value of the business in relation to the benefit to the surrounding community and society.
what is the ‘People’ part of Elkingtons triple bottom line emphasising ?
fair practices in labour employment and the community in which it operates in.
what is the ‘Planet’ part of Elkingtons triple bottom line emphasising ?
the use of sustainable environmental practices and the reduction of negative environmental impacts.
what is the issue with Elkingtons Triple Bottom Line ?
‘people’ and ‘planet’ are difficult to measure and compare.
what is the objective of competition law ?
to promote economic efficiency through the free-market, and to protect consumer welfare from monopoly power.
what is a competition law introduced, and what is it ?
The Competition Act 1998:
- this act prevents anti-competitive agreements between businesses e.g. price fixing
what is the CMA ?
Competition Markets Authority
- a government body responsible for the enforcement for competition and consumer law.
what is a Labour Law introduced in UK, and what is it ?
The Equality Act:
- ensures discrimination is prohibited within the workplace.
what is the aim of UK labour legislation ?
to prevent exploitation of employees by businesses by regulating relations between workers, employees and trade unions, to ensure reasonable pay and working conditions to prevent exploitation and discrimination.
what is the aim of environmental legislation ?
to minimise the negative impact of the business on the environment.
what is an environmental law introduced in the UK, and what is it ?
Environmental Protection Act 1991;
- prevents pollution and emissions
what is the main negative impact of legislation on businesses ?
increased costs, (minimum wage, environmental laws).
what is the main positive impact of legislation on businesses ?
creates a level playing field, all businesses are treated the same.
why is it in the governments best interest to encourage enterprise ?
will lead to a stronger, more vibrant economy
what are some ways the government can encourage enterprise ?
+ reducing barriers to entry for small & new businesses
+ reducing the tax burden on businesses
why do governments implement regulatory bodies within in a wide variety of industry’s and professions ?
to protect public interest, through imposing requirements, restrictions, and conditions.
what are some examples of regulatory bodies ?
CMA
OFWAT (water and sewage)
what is infrastructure ?
refers to the basic physical systems of a country that allow the economy to run smoothly, such as transportation, communication and utilities (electricity, water, gas etc.).
why is infrastructure important for the economy ?
is a key determinant of inward investment.
why is international trade important for a business to maintain a standard of living ?
+ some goods and materials cannot be produced in the uk and therefore have to be imported.
+ in other areas the UK may have an advantage allowing us to export our services (Banking and Finance).
what are the main economic factors ?
. GDP
. taxation
. exchange rates
. inflation
. fiscal and monetary policy
. open trade vs protectionism
what does GDP measure ?
a nations overall economic activity and represents the value of all finished goods and services produced within a country.
indicated economic health and standard of living.
can be used to compare performance between economies.
what are the 4 stages of the business cycle ?
recovery
boom
recession
slump
what occurs in the recovery stage of the economy ?
rising incomes and expenditures
labour shortages, increase wages
rising output
what occurs in the boom stage of the economy ?
possibly rise in inflation
high levels of demand and consumption
high profits
low unemployment
what occurs in the recession stage of the economy ?
consumers disposable incomes fall
demand for many products begin to fall
some businesses experience financial problems
excess supply
what occurs in the slump stage of the economy ?
governments may initiate lower interest rates etc.
rise in bankruptcies
high levels of unemployment
what are direct taxes ?
income taxes on individuals and firms
what are indirect taxes ?
taxes on expenditure (VAT)
what is the definition of an exchange rate ?
the price at which the currency of a country can be exchanged for another countrys currency.
what is free trade ?
the unrestricted purchase and sale of goods and services between countries without the imposition of constraints.
what is protectionism ?
where constraints are used to restrict the purchase and sale of goods and services between countries, e.g:
- tarrifs (tax on imports)
- quotas (physical restriction on volume of goods imported)
what is Globalisation ?
the increased interdependence of economies, industries and markets around the world.
what are the reasons for Globalisation ?
+ improved transport
+ technology (quicker communication)
+ more open trade
+ multinational companies
what are the positives of Globalisation ?
+ free trade, greater profits
+ free movement of labour, more employment
+ increased investment
what are the negatives of Globalisation ?
- greater competition, pressure on costs and prices, domestic firms struggle to compete
- takeovers
- global economy
what are emerging markets/economies ?
are countries in the process of rapid growth and industralisation (Brazil, India)
why are emerging economies important ?
+ large and growing markets
+ growth of middle class
+ low cost locations and production costs
what is demographic change referring to ?
changes in the structure, size, and make-up of a population.
what are the 2 main aspects of the UK population that have to be considered by businesses ?
ageing population
increasing population (immigration)
what is Migration ?
the movement of people between countries.
what are the benefits of Migration ?
+ increases the labour force, adding skills
+ it boosts the demand in the economy
+ it has positive impact on some sectors, such as higher education, where foreign students finance towards domestic students education.
what is urbanisation ?
the movement of people from rural areas to more urban areas.
what problems can urbanisation cause ?
- traffic congestion
- over-crowding
- lack of suitable housing
- inequalities
why do changes in consumer lifestyle and buying behaviour change overtime ?
. increased awareness of alternative lifestyles
. changing fashion
. rising incomes
. more leisure time
. advances in technology
how does a business create a highly respected internet presence ?
. creating a high quality, and user-friendly website
. a carefully targeted audience
. personalised content
. mobile capabilities for modern consumers
. integrated sales channels
why has technological change led to new products being brought to the market more quickly and cheaply ?
CAD (computer aided design), shortened lead times
CAM (computer aided manufacture), made production more efficient
what are the benefits of technological change ?
+ lower costs (improved efficiency, less waste)
+ improved communication (quicker and easier)
+ increased sales (access to wider markets, particularly for small businesses)
+ cleaner and safer working environment
+ quality improved
what are the problems with technological change ?
- pace of change (businesses must keep on moving forward to stay ahead of competition, which is costly)
- competition
- security (hackers being able to access confidential material and consumer information)
what is Corporate Social Security (CSR) ?
the continuing commitment by businesses to behave ethically and contribute to economic development.
what are the reasons for CSR ?
+ cost-saving (less packaging, less energy)
+ brand differentiation
+ customer and employee engagement
+ the ‘right thing to do’
+ prevent government intervention
what are the reasons against CSR ?
- profit (costly)
- customer perception (more expensive products)
- state of economy (during periods of low growth and lower profit it may be difficult to do)
- stakeholder views and disagreements
what are some long-term benefits of CSR to the business (stakeholders) ?
+ treating employees better means they are more likely to be more engaged
+ providing higher quality products and having a socially responsible image, means more customers are likely to buy your products
In Carolls corporate social responsibility pyramid, what are the 4 main areas ?
top: Philanthropic responsibilities ( be a good corporate
citizen, and to improve the lives of others)
ethical responsibilities
legal responsibilities
bottom: economic responsibilities
what are the pressures for greater CSR ?
. state regulation
. the media
. consumer perception
what is Porters 5 Forces Model ?
a tool for understanding where power lies in an industry, enabling a business to understand its on competitive strengths more clearly.
what are Porters 5 Forces ?
1)> Threat of new entrants
2)> Buyer power
3)> Supplier power
4)> rivalry
5)> Substitute threat
describe the threat of new entrants (force) ?
threat of new entrants depends on:
. cost of entry
. government barriers
. patents
. economies of scale
. access to suppliers
. brand loyalty
what are the 3 generic strategies that porter identified that could be implemented by a business to create a competitive advantage ?
cost leadership strategy
differentiation strategy
focus strategy
what is a cost leadership strategy ?
aims to gain a competitive advantage in the market by having lower costs
what is a differentiation strategy ?
aims to gain a competitive advantage in the market by being unique, giving consumers a reason to buy their product over others.
what is a focus strategy ?
aims to gain a competitive advantage in the market by focusing on a specific segment.
what is investment appraisal ?
is an analytical tool used to evaluate the attractiveness of an investment proposal.
what are the factors influencing investment decisions ?
. the economy
. competition
. industrial relations (impact on workers, trade unions)
. corporate image and objectives
. logistics (availability of machinery or equipment purchased)
what is sensitivity analysis ?
an analytical tool that attempts to predict the consequences of different outcomes, when an investment is made.
