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Business A-Level > Unit 7 > Flashcards

Unit 7 Flashcards

1
Q

What is a mission statement?

A

sets out the purpose of a business

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2
Q

What is the purpose of a mission statement?

A
  • allows everyone in a business to know what they are doing
  • used to motivate employees
  • make decision making easier
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3
Q

What is a vision statement?

A

sets out what the business wants to do in the future

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4
Q

What will influence a business’s mission?

A
  • the values of the founders of the business
  • the values of the business’s employees
  • the industry of which the business is part
  • society’s views
  • the ownership of the business
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5
Q

What are corporate (strategic) decisions?

A

long term goals

- turn the mission statements into something more quantifiable

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6
Q

What is meant by short-termism?

A

the pressure to deliver quick results which may harm longer term development

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7
Q

What is the difference between strategy and tactics?

A

strategy is a long term

tactics is short term

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8
Q

What is functional decision making?

A

is taken by managers responsible for one aspect of the business

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9
Q

What does SWOT analysis mean?

A

strengths weaknesses opportunities threats

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10
Q

What is SWOT analysis?

A

is a method of strategic analysis which considers the internal and external environment of the business

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11
Q

What can SWOT analysis help do?

A

support managers to develop strategies which reduce threats and weaknesses.

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12
Q

What are the benefits of SWOT analysis?

A
  • low cost
  • easy to use for all types of businesses
  • encourages management teams to develop plans that are logical
  • helps minimise threats
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13
Q

What are the limitations of SWOT analysis?

A
  • only cover issues which are classified as strengths, weaknesses, threats and opportunities. Some issues might cover 2 of these
  • offers a lot of information but no resolutions so requires further analysis
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14
Q

What is the political environment?

A

is the actions taken by local, national or international authorities that affect the activities of a business

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15
Q

What are some examples of how political environment could affect business’ activities?

A
  • encourage enterprise
  • regulation of markets
  • country’s infrastructure
  • environmental issues
  • international trade
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16
Q

What does the government do?

A

encourages people and organisations to develop their ideas as well as to establish and expand their businesses

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17
Q

What is the aim of the government?

A

to promote enterprise and reduce the degree of risk.

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18
Q

How could we check whether enterprise is being promoted?

A

self-employment figures

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19
Q

What are the examples of financial support available for small businesses?

A
  • Enterprise allowance
  • Funding for lending
  • Enterprise finance guarantee (EFG)
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20
Q

What are the examples of non financial support available for small businesses?

A
  • Finance and cash flow
  • Recruiting and developing staff
  • Improving leadership and management skills
  • Marketing, attracting and keeping customers
  • Making the most of digital technology
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21
Q

How else does the government also support enterprise?

A
  • reducing the number of regulations which constrain business activity
  • range of schemes to develop new products and processes
  • work directly with schools and colleges to encourage the use of schemes
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22
Q

What are regulations?

A

is the enforcement of principles or rules from of law

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23
Q

What are regulators?

A

are there to support those they regulate to comply with the rules in a variety of different business activities

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24
Q

How does regulation affect businesses?

A
  • Create free and fair competition between businesses
  • Regulate high profile industries - banking and financial services
  • Privatised monopolies to protect consumers and other businesses
  • Self regulation by businesses
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25
Q

How can regulation create free and fair competition?

A
  • Imposing ‘windfall’ taxes
  • Controlling prices - limiting price rises in line with inflation
  • Restricting rates of return on capital invested by businesses - they can’t set excessively high prices, could lead to higher prices as no incentive to reduce costs
  • Unbundled access - allows new entrants to a market access to the facilities of existing producers to encourage competition
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26
Q

What are windfall taxes?

A

taxes on excessive profits and occur for businesses with too much market power

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27
Q

What impact will regulation have on UK businesses?

A
  • Stops them maximising profits by charging higher prices
  • Bad publicity if fined or other sanctions
  • Take a range of functional and strategic decisions to reduce the impact of any threat - make lower risk decisions
  • Avoid tightly regulated markets
  • Provides a stable long term environment to operate
  • Reduces barriers to entry - provides competitive opportunities for new entrants
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28
Q

What is infrastructure?

A

transport, communications and energy supply

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29
Q

What are the types of non-financial data?

A
  • big data
  • data about competitors
  • environmental data
  • marketing data
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30
Q

What is big data?

A

large data sets which shows the trends in consumer behaviour

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31
Q

What can big data be used to measure?

A
  • capacity utilisation
  • measure of quality
  • productivity of labour and capital
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32
Q

What is single factor productivity?

A

measure output in relation into single inputs e.g capital and labour productivity

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33
Q

What is multifactor productivity?

A

measure output in relation to all inputs

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34
Q

How can quality be measured?

A
  • customer satisfaction

- repeated sales

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35
Q

What are the environmental issues?

A
  • emissions to land, water and air

- use of sacre and non-renewable resources

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36
Q

What is environmental data used?

A

to compare to official guidelines and regulatory limits

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37
Q

What are core competencies?

A

basics in order to gain a competitive advantage

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38
Q

Why are core competencies important?

A
  • competitive advantage
  • enhances the businesses performance
  • adds value
  • market power - distinct products
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39
Q

What are the 2 issues with core competencies?

A

outsourcing

outdated

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40
Q

What are the other ways of assessing performance?

A

Elkington’s triple bottom line

Kaplan and Norton’s balanced scorecard

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41
Q

What are the 4 perspectives in the balanced scorecard?

A
  • financial performance - revenue
  • internal processes - productivity
  • organisational capacity - training
  • customer value - loyalty
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42
Q

What is the aim of the balanced scorecard?

A

is to align the businesses activities to the vision and strategy of the business

  • also to improve internal and external communications
  • monitor performance against strategic goals
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43
Q

What are 3 components of Elkington’s triple bottom line?

A

people planet profit

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44
Q

What is profit in Elkington’s triple bottom line?

A

broader the community the business operates in

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45
Q

What is people in Elkington’s triple bottom line?

A

social impacts and responsibilities

46
Q

What is planet in Elkington’s triple bottom line?

A

impacts on the environment

47
Q

What economic factors affect a business?

A
  • fiscal policy
  • monetary policy
  • taxation
  • exchange rate
  • interest rate
  • inflation
  • GDP
48
Q

What are some external influences of corporate objectives and decisions?

A

state of the economy
global prices
technological changes
migration

49
Q

What are some internal influences of corporate objectives and decisions?

A

poor performance

ownership

50
Q

What does financial statements help do?

A

assist stakeholders in assessing their performance and to inform decision making

51
Q

What are the 2 types of financial statements?

A

balance sheet

income statements

52
Q

What does a balance sheet represent?

A

a business’s financial position at a give time

53
Q

what does a balance sheet show?

A

What a business owns (assets) and what it owes (liabilities)

54
Q

What are some examples of assets?

A

cash in bank, vehicles and property

55
Q

What are some examples of laibilities?

A

loans and mortgages

56
Q

What are the 2 categories which assets can be split up in?

A

non-current assets and current assets

57
Q

What are non-current assets?

A

are turned into cash in over a year e.g property and land

58
Q

What are current assets?

A

are turned into cash in under a year e.g inventories

59
Q

What is a liabilitiy?

A

a debt owed by the business

60
Q

What are current liabilities?

A

debt settled in less than a year

61
Q

What are non-current liabilities?

A

debt settled in more than a year

62
Q

What is working capital?

A

is the amount of money a business has available for its day-to-day operations e.g wages

63
Q

What is the problem of having too high working capital?

A

means that there is a insufficient use of resources as cash is just sitting in a bank account

64
Q

What is net assets?

A

the overall worth of the business to it’s shareholders

65
Q

What factors would influence how much working capital a firm holds?

A
  • Volume of sales
  • Amount of trade credit offered by the business
  • Whether or not the firm is growing
  • The length of the operating cycle - time between paying for raw materials and receiving payment from customers
  • The rate of inflation
66
Q

What does the balance sheet work out?

A 
net current assets/ liabilities
capital employed
assets employed
net assets
working capital
67
Q

What is capital employed?

A

the total amount of money invested into the business

68
Q

What is the calculation for capital employed?

A

total equity + non-current liabilities

69
Q

What is assets employed?

A

represents what the business has invested on

70
Q

What is the calculation for assets employed?

A

current assets + non-current assets

71
Q

What is depreciation?

A

decrease in value of an asset over time

72
Q

What are the 2 types of profits identified in a income statement?

A

gross profit and net profit

73
Q

What is ratio analysis?

A

compares 2 pieces of financial information

74
Q

What are the 4 categories for ratios?

A

liquidity
profitability
gearing
efficiency

75
Q

What is gearing?

A

the relationship between external and internal finance

76
Q

What are the 3 profitability ratios?

A

gross profit margin
operating profit margin
net profit margin

77
Q

How is gross profit calculated?

A

Revenue - Direct costs (COGS) = Gross profit

78
Q

How is gross profit margin calculated?

A

GP/Sales revenue x 100

79
Q

How is operating profit calculated?

A

Gross profit - Indirect costs

80
Q

How is operating profit margin calculated?

A

OP/Sales revenue x 100

81
Q

How is profit for the year calculated?

A

operating - remaining costs

82
Q

How is operating profit margin calculated?

A

NP/Sales revenue x 100

83
Q

What is ROCE (returns on capital employed)?

A

compares the profit earned with the amount of capital employed

84
Q

What is the calculation for ROCE?

A

operating profit / total equity + non-current liabilities x 100

85
Q

What do liquidity ratios allow?

A

the managers to monitor the business’ cash position. It looks at what they own that can be easily converted into cash.

86
Q

What is the liquidity ratio calculation?

A

current ratio = Current assets / Current liabilities

87
Q

What does the gearing ratio measure?

A

the long term liquidity of a business. It looks at how a firm has raised its long-term capital

88
Q

What are the 2 types of long term finance?

A

total equity

non current liabilities

89
Q

What is total equity?

A

selling shares and increasing the value of the business

90
Q

What is the gearing ratio calculation?

A

non-current liabilities / total equity + non-current liabilities x 100

91
Q

What are the 3 efficiency ratios?

A

inventory turnover
receivable days
payable days

92
Q

What do the efficiency ratios measure?

A

the effectiveness with which management controls the internal operation of the business

93
Q

What does the inventory turnover measure?

A

a company’s success in converting inventories into sales

94
Q

What are the 2 calculations to work out inventory turnover?

A

costs of sales / average inventory held
or
inventories / cost of sales x 365

95
Q

What does receivables days measure?

A

the time taken by a business to collect the money it is owed

96
Q

What is the calculation to work out receivable days?

A

receivables / revenue X 365

97
Q

What does payable days measure?

A

the time taken by a business to pay the money it owes

98
Q

What is the calculation to work out payable days?

A

payables/ cost of sales X 365

99
Q

What is good about ratio analysis?

A

gives an insight to stakeholders of the businesses performance, but to get the most interest it needs to be compared with:

  • The results over previous years
  • The results with other businesses in the same industry
  • The results from other industries
100
Q

What is bad about ratio analysis?

A

Only considers the financial aspect of a business’s performance, without accounting for other elements such as:
The market in which the business is trading
The position of the firm in the market
The quality of the workforce and management team
The economic environment

101
Q

What are the 3 elements of the legal environment we have to consider?

A
  • competition
  • employment of labour
  • environmental issues
102
Q

What are the 3 competition laws?

A
  • competition act 1998
  • enterprise act 2002
  • enterprise and regulatory reform act 2013
103
Q

What are the 3 things that the competition act looks at?

A

cartel activity
abusing a dominant market position e.g unfair prices
other anti-competitive practices e.g limiting production

104
Q

What is cartel activity?

A

agreements between businesses to not compete against each other

105
Q

What is the competitive environment made up of?

A
  • rivals and their power
  • suppliers influence
  • customers influence
106
Q

What is Michael Porter’s five factor model?

A

is a framework for assessing and analysing the competitive strength and position of a business

107
Q

What are the 5 factors from Porter’s model?

A
  • bargaining power of suppliers
  • bargaining power of customers
  • threat of substitute products
  • threat of new entrants
  • competitive rivalry
108
Q

When does the power of suppliers arise?

A
  • number of suppliers - fewer means more power
  • cost of changing supplier - if it expensive and difficult supplier has more power
  • the availability of substitutes - if there are no substitutes or resources produced are scarce then supplier has power
109
Q

When does the power of buyers arise?

A
  • when they can find substitutes as products are similar to others
  • products have high PED
110
Q

When is the threat of substitutes high?

A
  • the price of that substitute falls, making it more attractive
  • if it easy for customers to switch between substitutes
111
Q

Why should the threat of new entrants be considered?

A
  • decrease customer loyalty
  • how quick new business might be able to benefit from EOS
  • whether the new entrants have access to supplier
112
Q

What impact does changes in the competitive environment have?

A
  • seek new entrants
  • develop new product ranges
  • seek alliances or mergers
  • suppliers - changes in production process and change its reliance on the product sold by the supplier, taking over the supplier or negotiating favourable deals with smaller rivals
  • power of buyers - reducing prices, enhanced credit terms, selling in new markets
  • substitutes - increase (emphasise) degree of differentiation heavy investment in R&D

Business A-Level (11 decks)

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