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Business > What is a Business? > Flashcards

What is a Business? Flashcards

1
Q

what are the main functions of business objectives

A

-state what needs to be achieved
-a focus for all activity
-targets for individual and group achievement
-a way to measure performance

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2
Q

what are some corporate objectives

A

-sales revenue
-profit
-return on investment
-growth
-market share
-cash flow
-value of a business
-corporate image and reputation

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3
Q

what should business objectives be

A

SMART
Specific- must state exactly what needs to be achieved
Measurable- must be possible to determine how far its been achieved
Achievable- should be realistic
Relevant- must be relevant to the people responsible
Time Bound- must be set with a time frame/deadline

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4
Q

describe the hierarchy of objectives

A

(increasingly strategic) Mission, Corporate, Functional, Team, Individual (increasingly detailed)

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5
Q

what would an example of a functional objective be if the corporate objective is to increase market share

A

successfully launch 5 new products in existing markets over the net two years

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6
Q

what would an example of a functional objective be if the corporate objective is to reduce unit costs

A

increase factory productivity by 10% within 2 years

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7
Q

what would an example of a functional objective be if the corporate objective is to increase cash flow

A

reduce the average time taken by customers to pay invoices from 75 to 60 days

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8
Q

what would an example of a functional objective be if the corporate objective is to increase customer satisfaction

A

achieve 95% level of high customer service

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9
Q

what is a mission statement

A

-the purpose of a business
-the reason for its existence
-supports the stated vision for the future

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10
Q

what is a mission statement NOT

A

-not a statement of goals
-not a statement of core values
-not a statement of how the business intends to compete

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11
Q

who are the key audiences for a mission statement

A

-employees
-customers
-investors

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12
Q

what makes a good mission statement

A

-provides clear sense of business purpose and unites stakeholders
-easy to understand
-differentiates from competition
-for all stakeholders, not just internal members of business

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13
Q

what are common criticisms of mission statements

A

-not always supported by actions of business
-often too vague/ statements of the obvious
-could just be PR
-to be effective, must have everyone in the business “buy in” to it

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14
Q

what are costs

A

amounts that a business incurs in order to make goods/provide services

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15
Q

why are costs important

A

-drains away the profits made
-are the difference between making a good and poor profit margin
-are the main cause of cash flow problems
-they can change as the output or activity of a business changes

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16
Q

what are variable costs

A

costs that change as output changes e.g. raw materials, bought-in stocks, wages based on hrs/amount produced, marketing costs based on sales (commission)

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17
Q

what are fixed costs

A

costs that dont change as output changes e.g. rent and rates, salaries, advertising, insurance and legal fees, software

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18
Q

what is total costs

A

total costs=fixed costs+variable costs

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19
Q

what is revenue

A

revenue=amount sold x selling price per unit

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20
Q

what is demand

A

the quantity that consumers are willing and able to purchase at various prices during a given period of time

how much people would buy at different prices

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21
Q

what are examples of unincorporated business

A

sole trader, partnership

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22
Q

what are examples of incorporated business

A

private limited company (LTD), public limited company (PLC)

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23
Q

what does unincorporated mean

A

-unlimited liability
-the owner is the business (no legal difference)
-usually operate as sole traders

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24
Q

what does incorporated mean

A

-limited liability
-legal difference between the business and the owners (owners only responsible for debt to the value of their investment)
-usually operate as LTDs

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25
Q

what are sole traders

A

-is an individual owning the business alone
-can employ people
-owns all the business assets personally and is personally responsible for business debts (unlimited liability)

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26
Q

what are advantages of being a sole trader

A

-quick and easy to set up, can always become a limited company once launched
-simple to run, owner has complete control over decision making
-minimal paperwork
-easy to shut down

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27
Q

what are disadvantages of being a sole trader

A

-full personal liability
-harder to raise finance, owner has limited funds and security
-business is the owner so business suffers if the owner becomes ill/ loses interest
-can pay higher tax rate than a company

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28
Q

what is a partnership

A

-where a business is owned by more than one person
-the legal partnership sets how the business is run including how profits are shared, who will invest, how decisions made, what happens when a partner leaves
-the partners own all the business assets between them and owe all business liabilities
-unlimited liability

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29
Q

what are advantages of being a partnership

A

-simple and easy
-minimal paperwork once partnership agreement made
-business benefits from efforts of both owners
-partners can provide specialist skills
-greater potential to raise finance, they can each provide investments

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30
Q

what are disadvantages of being a partnership

A

-unlimited liability
-a poor decision by one damages the interest to the other partners
-harder to raise finance than a company
-complicated to sell or close

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31
Q

what is a company

A

is a seperate legal identity, incorporated
owners of the company known as shareholders (own shares not the whole business)

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32
Q

what are limited companies

A

-seperate legal entities to the founders
-a legal entity can own things itself, can sue and be sued
-companies are owned by shareholders and run by directors, shareholders appoint directors who run in the interests of shareholders
-shareholders own a share/part of a company, dont own the assets so arent liable for debts

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33
Q

what are advantages of being a limited company

A

-limited liability, protects the shareholders
-easier to raise finance as it has the sales of shares, easier to raise debt also
-stable, business will continue to exist even when shareholders change

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34
Q

what are disadvantages of being a limited company

A

-greater admin costs
-public disclosure of company information
-directors’ legal duties

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35
Q

what is unlimited liability

A

-a characteristic of unincorporated businesses
-business owners are personally responsible for the debts of a business
-if the unincorporated business fails, owners are liable for the debt
-adds to the risk of operating as a sole trader/partnership

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36
Q

what is limited liability

A

-a protection for shareholders in a company
-shareholders only lose/are responsible for the value of their investment
-not liable for the debts of the company

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37
Q

what are businesses in the private sector

A

-businesses are operated and owned by private individuals and companies
-usually run for profit to earn returns for the business owners/shareholders

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38
Q

what are businesses in the public sector

A

-business are owned and run on behalf by the public/ government/organisations who are funded by government
-not usually run for profit, exist to provide goods and services to the public using public funds

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39
Q

what are examples of public sector companies/businesses

A

Network Rail

owned and controlled by the government

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40
Q

what are examples of public sector organisations

A

NHS

provides goods and services and owned by public bodies, are funded by government but may need charges for some services

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41
Q

what are the types of company

A

private limited companies, public limited companies

42
Q

what are private limited companies

A

-privately owned
-shares not sold publicly, shares only given to close family/ friends
-usually just a few shareholders
-quick and cheap to set up and run

43
Q

what are public limited companies

A

-minimum share capital £50,000
-shares sold on public stock market
-usually many shareholders
-more detailed disclosure of info required
-costly to run

44
Q

what is a share

A

-an individual part of the issued share capital of a company
-most shares are “ordinary shares” (equal voting rights based on number of shares held, shareholders have right to dividends/return)

45
Q

what rewards can you receive for being a shareholder

A

dividends, capital gain

46
Q

what are dividends

A

-payments made to shareholders by the company from earned profits
-amount paid is per share
-not usually a requirement to pay dividends but most companies do

47
Q

what is capital gain/growth

A

-arises from an increase in the value of the business
-reflected in an increase in share price
-only gain from this if shareholder sells their share for more than what they paid for it
-no guarantee that a shareholding will increase in value

48
Q

what is a share price

A

-is determined by the demand for the shares
-if demand for a share is bigger than the supply, share price rises as its value is higher
-a falling share price shows that there is excess supply (more sellers than buyers) so the value is lower

49
Q

what are share prices like in a public company

A

-displayed publicly
-all trades disclosed (how many were bought/sold and what price)
-share prices widely published

50
Q

what factors affect share price

A

Factors within company’s control:
-financial performance (profit growth)
-dividend policy
-relationship with shareholders
-management reputation

Factors outside company’s control:
-state of economy
-general market sentiment
-industry developments
-alternative investments in the company’s sector

51
Q

what is a profit warning

A

-share price of a public company is influenced by market expectations
-profit warnings are warnings stating that market expectations will not be met and usually results in a fall of share price as people sell their shares

52
Q

what is market capitalisation

A

represents the total market value of the issued share capital of the company

market cap=share price x number of shares sold

53
Q

what is PESTLE analysis

A

is a framework for assessing the key features of the external environment facing a business

54
Q

what does PESTLE stand for

A

Political- competition policy, industry regulation, govt. spending, business policy

Economic- interest rates, consumer spending/income, exchange rates, business cycle

Social- demographic change, impact of pressure groups, consumer tastes, changing lifestyles

Technological- disruptive technologies, adoption of mobile technology, new production process

Legal- employment law, minimum/living wage, health and safety laws, environmental legislation

Ethical/environmental- sustainability, tax practices, ethical sourcing, pollution and carbon emissions

55
Q

what are examples of “not for profit” organisations

A

-mutual businesses
-social enterprises
-charities

56
Q

what are mutual businesses

A

-dont have shareholders or other owners
-exist only to serve their members

57
Q

what are social enterprises

A

-have primarily social objectives where profit is reinvested in the business/community rather than to maximize profit for shareholders
-makes money in a socially responsible way
-exists to benefit others

58
Q

what are charities

A

-undertake business activities e.g. charity shops, fundraising events
-ensures that the money earned from these activities are spent for achieving the aims of the charity
-activities are regulated by the charity commission

59
Q

what are real incomes

A

measure the amount of disposable income available to consumers

60
Q

what factors affect real income

A

-price inflation
-wage growth
-employment levels
-interest rates
-govt. tax policy

61
Q

what factors affect market demand/conditions

A

Real income- how much money households have available to spend

Employment and job security- when job market is improving, consumer confidence and income improves

Household wealth- a rise in wealth increase consumer demand as they have more available to spend

Expectations and sentiment- economic uncertainty causes spending to fall, weakens demand

Market interest rates- interest rates affect the incentive to save and cost of borrowing

62
Q

what is interest rate

A

is the reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed

63
Q

what is share capital

A

AKA equity finance
is the finance that is provided by those who share ownership/equity of a company

64
Q

what is the main alternative to equity finance

A

debt finance-finance provided by external funders who receive a return but dont own a share in the company

65
Q

what are features of equity finance

A

-returns (dividends/capital growth)
-part of the ownership of the company
-long term source of finance
-returns are higher given higher risk
-can be repaid

66
Q

what are features of debt finance

A

-most commonly in the form of loans/overdrafts
-return (interest on amount loaned and outstanding)
-repaid over an agreed period
-can be short or longterm
-no participation in the ownership of the company
-often secured against the assets of a company

67
Q

how do public companies issue new shares

A

flotation or rights issue

68
Q

why do companies issue new shares

A

because shareholders will buy more shares and therefore the company gains more cash and more shareholders

69
Q

what is flotation

A

the admission of the shares of a public company to a stock exchange for the first time

70
Q

what are advantages of raising finance through the issue of new shares

A

-able to raise substantial funds if the business has good prospects
-broader base of shareholders
-equity rather than debt=lower risk

71
Q

what are disadvantages of raising finance through the issue of new shares

A

-can be costly and time consuming
-existing shareholders’ holdings may be diluted
-equity has a cost of capital that is higher than debt

72
Q

true or false
a PLC doesnt have to offer its shares on a stock exchange

A

true

73
Q

not for profit organisations are also known as:

A

social enterprises

74
Q

true or false
will profits that are better than market expectations result in higher share price

A

true

75
Q

what happens to demand when prices are high

A

demand decreases

76
Q

what is revenue

A

overall income made by a business from giving services or selling goods

77
Q

what is the quarternary sector

A

provides information and IT e.g. software development, financial services, data processing

78
Q

what is the tranformation process

A

when a company adds value to resources to make products to sell to consumers to gain profi

79
Q

what is cash flow

A

the movement of cash into and out of a business over time

80
Q

what are objectives

A

medium to long term targets to coordinate the business

81
Q

what is diversification

A

an objective where a business produces a larger range of unrelated goods and services

82
Q

what is average costs

A

total cost of production / level of production = cost of producing one unit of output

83
Q

what is gross profit

A

the difference between money received from sales and the cost of making them

84
Q

what is operating profit

A

the company’s earnings after deducting operating expenses and costs

85
Q

what is a takeover

A

when a company gains control of other companies by buying more than 50% of its share capital

86
Q

what is privatisation

A

process when a state sells business previously owned to private individuals

86
Q

what is incorporation

A

the process of establishing a business as a separate legal identity so it can benefit from limited liability

87
Q

whats the formula for variable costs

A

variable costs=cost per unit x number of units produced

88
Q

what is the formula for profit

A

profit= revenue - total costs

89
Q

what are inputs into the transformation process

A

people, resources, time

90
Q

what is profit satisficing

A

-businesses may seek to earn greatest possible profits to satisy shareholder’s desire for high dividends
-could provide acceptable amounts of dividends but also growth in value of business

91
Q

what is profit maximisation

A

when difference between sales revenue and total costs is greatest

92
Q

why do businesses want to grow

A

-as managers may feel that the business may not survive otherwise
-benefits shareholders as it provides them with higher dividends and job security

93
Q

when do businesses have an objective to survive

A

-periods of recession or competition
-times of crisis e.g. hostile takeover
-business may have to take actions such as lowering prices

94
Q

what is a cash cycle

A

the time between the outflow of cash to pay for resources needed and reciept of cash following the sale of a product

95
Q

what are examples of businesses with long cash cycles

A

pharmaceuticals and construction as theres large outflows over long time before products sold

96
Q

why is cash flow important

A

-needed to be able to pay debt in time
-could have dire consequences if cant pay debt

97
Q

what are social objectives

A

-include targets e.g. providing employment for ppl or improving facilities for ppl

98
Q

what are ethical objectives

A

-based on moral principles e.g. protecting the environment throught sustainable production, ensuring suppliers recieve fair payment

99
Q

why are social and ethical objectives important

A

-some investors may only invest in businesses that trade with ethical objectives
-alot of customers ay only purchase from sustainable businesses
-creates a distinctive image

100
Q

why do businesses diversify

A

allows businesses to spread its risk by selling a range of products therefore if a market becomes competitive alternative products will still provide income

Business (4 decks)

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