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Business > What Is A Business? > Flashcards

What Is A Business? Flashcards

1
Q

What are the three types of ownership in the private sector

A

-sole trader
-private limited company (ltd)
-public limited company (plc)

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2
Q

What are the advantages and disadvantages of being a sole trader?

A

Advantages
-own boss
-flexible hours
-control prices
-keep all profit
Disadvantages
-unlimited liability
-can’t sell shares
-a lot of pressure
-no holiday pay

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3
Q

What are the advantages and disadvantages of a ltd?

A

Advantages
-limited liability
-easier to raise finance- sale of shares
-stable form of structure
-no chance of hostile takeover
Disadvantages
-greater admin cost
-public disclosure of company information

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4
Q

What are the advantages and disadvantages of a plc?

A

Advantages
-limited liability
-easier to raise finance
-can sell shares on stock market
Disadvantages
-chance of hostile takeover
-public disclosure of company information

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5
Q

What reasons might someone have for starting up a business?

A

-make profit
-flexibility
-be their own boss
-ethical reasons

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6
Q

What is a business objective?

A

An aim or something to achieve

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7
Q

What are example of some business objectives?

A

-profit
-growth
-survival
-cash flow
-social
-ethical

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8
Q

What should business objectives be ideally? (SMART)

A

Specific
Measurable
Achievable
Relevant
Time bound

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9
Q

What is a mission statement?

A

The overriding goal of the business and the reason for its existence. It is a vision for the future.

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10
Q

What makes a good mission statement?

A

-differentiates a business from its competitors
-relevant to all major stakeholders
-excites, inspires, motivates and guides

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11
Q

What are some criticisms for mission statements?

A

-often vague or unclear
-companies don’t always act on what they are saying
-not a true reflection of reality
-often a PR exercise to appear better to the public

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12
Q

What examples of corporate objectives?

A

-increasing sales (marketing)
-reducing cost (operations)
-increasing cash flow (finance)
-improve customer satisfaction (people)

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13
Q

Why do businesses set objectives?

A

-To keep employees motivated
-to provide targets
-to reduce uncertainty

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14
Q

Why do businesses set objectives?

A

-To keep employees motivated
-to provide targets
-to reduce uncertainty

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15
Q

What is the difference between a mission statement and objectives?

A

A mission statement is a clear vision for the future whereas business objectives and more specific and achievable goals for the company.

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16
Q

Why is profit so important to a business?

A

-ensures businesses can cover its costs
-can reinvest money in research, expansion and development
-attracts investors
-profitability allows businesses to offer better salaries (employee incentives)

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17
Q

What is an unincorporated business? (Sole trader/ partnership)

A

-the owner is the business
-owner has unlimited liability for business actions (including debt)

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18
Q

What is an incorporated business?
(PLC/Ltd)

A

-legal difference between the business and the owner

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19
Q

What is limited liability?

A

-where you are protected from debts of a business
-personal assets are protected

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20
Q

What are public sector companies?

A

Companies owned or controlled by the government e.g. RBS or network rail

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21
Q

What are public sector organisations?

A

Organisations that provide goods and services which are owned and operated by public bodies. These are funded by central & local government. Eg. NHS, highways agency, Teachfirst

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22
Q

What are non profit organisations?

A

Businesses that trade in order to benefit the community. Often have social or ethical aims.

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23
Q

What are social enterprises?

A

Businesses that put the interest of people and the planet ahead of shareholder gain. Eg community development trusts and housing associations

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24
Q

What is ordinary share capital?

A

The money raised by a business through the sale of new shares to shareholders

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25
Q

What is market capitalisation

A

It is a measure of the size and value of a company and can be used to compare companies within the same industry.

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26
Q

What is the equation for market capitalisation?

A

Number of issues shared x share price

27
Q

What are dividends?

A

The payments made to shareholders from the profits made by the company. They are part of the return on the investments received by shareholders

28
Q

What are the role of shareholders in Ltds?

A

Shareholders are responsible for appointing the board of directors (the people who are in charge of the day-to-day running of the business)

29
Q

How does demand affect share price?

A

-if the demand for a share is greater
-(more buyers than sellers)
-the share price should rise

30
Q

What does a falling share price indicate?

A

An excess supply (more sellers than buyers)
Or less demand

31
Q

What internal factors influence share price?

A

-businesses financial performance
-dividend policy
-relationship with key investors
-management reputation

32
Q

What external factors influence share price?

A

-state of the economy
-general market sentiment (attitude of investors)
-whether the company is a takeover target
-alternative investments in the company’s secotor

33
Q

How does being a sole trader affect mission and objectives?

A

-objectives are more likely to be based on survival (most start ups fail)
-can make all of their decisions as they don’t have to consider shareholders
-can set their mission and objectives

34
Q

How does being a Ltd affect mission and objectives?

A

-shareholders in a Ltd are likely to be involved with the running of a business
-allow for a more long-term view
-objectives likely to be about market share, customer satisfaction or revenue growth rather than profit maximisation

35
Q

How does being a plc affect the companies mission and objectives?

A

-plc shareholders are interested in higher dividends
-so objectives are often based around profit maximisation

36
Q

What are 6 main categories of the external environment? (PESTLE)

A

Political
Economic
Social
Technological
Legal
Ethical/environmental

37
Q

What is the external environment?

A

-Consists of elements outside the control of the business
-they can affect both cost and demand often by impacting on customers and their ability to purchase the product of service

38
Q

Who sets interest rates?

A

The bank of england

39
Q

What are interest rates?

A

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

40
Q

What happens to cost and demand when interest rates increase?

A

-cost of borrowing is higher
-for businesses that have bank loans the cost will be higher

-cost of borrowing is more
-customers less likely to borrow & spend
-lower demand for business

41
Q

What happens to cost and demand when interest rates decrease?

A

-cost of borrowing is lower
-for businesses with bank loans costs will be lower

-cost of borrowing is less
-consumers more likely to borrow and spend more
-higher demand for business

42
Q

What is the equation for interest rates?

A

Repayment- money borrowed
—————————————— x100%
Money borrowed

43
Q

What happens if interest rates fall?

A

-cost of loans/debt is reduced
-more spending
-disposable income increases
-business investment should be boosted
(Rising demand)
-more demand and higher property prices
-cheaper currency will increase exports

44
Q

What happens when interest rates rise?

A

-cost of borrowing rises
-higher Mortgage payments
-repayments of debts increase
-possible slowdown in housing market
-contraction in retail credit
-currency (pound) may get stronger
-exports more expensive

45
Q

What are market condition?

A

Refers to a number of features of a market such as the level of sales, the rate at which they are changing and the number and strength of competitors

46
Q

What are market condition?

A

Refers to a number of features of a market such as the level of sales, the rate at which they are changing and the number and strength of competitors

47
Q

What is demand?

A

A term used to indicate the amount of particular good or service that consumers or organisations want, and can afford. It shows the level of sales that businesses can expect

48
Q

What is economic growth?

A

It is the increase in the production of goods and services in an economy over time. Normally measured by the rise in GDP.

49
Q

What is gross domestic product? (GDP)

A

The value of a countries economy based on levels of business activity.

50
Q

What is a fast growing market?

A

One that encourages new entrants (firms or businesses) as well as benefiting existing competitors

51
Q

What is a slow growing market?

A

Where market conditions are much tougher, competitors fighting for their share of weak demand.

52
Q

What is real income?

A

The amount of disposable income available to consumers.

53
Q

What are factors that affect real income?

A

-price inflation
-wage growth
-employment levels
-interest rates
-government tax policy

54
Q

What are elastics? give examples
(Luxuries)

A

Products for which demand is strongly influenced by income levels:
-luxury electrical items
-restaurant meals
-jewellery
-long haul holidays
-household furniture

55
Q

What are inelastics? Give examples
(Essentials)

A

products for which income has little influence on demand:
-bread, milk and other basic foods
-water
-petrol
-cigarets and tobacco
-lottery tickets

56
Q

What is a demographic?

A

Refers to statistical characteristics of a population (age/gender/income).
Changes in population dynamics occur slowly but can be significant for a business

57
Q

How can an aging population affect businesses?

A

-greater demand for services to support population (eg healthcare)
-increasing disposable income of older people reflected in higher demands for elastics (eg holidays)

58
Q

How does a continued high net immigration affect businesses?

A

-higher costs of but greater demands for public services (eg. Education, heath, housing)
-incurred in size of labour force - potentially keeping wage rates low

59
Q

What are some key environmental issues for a business?

A

-sustainability
-minimising packaging
-carbon emissions
-complying with environmental laws
-transportation/ shipping

60
Q

How can being environmentally friendly be an advantage for a business?

A

-can make them stand out
-can lead to brand recognition
-gives opportunity to charge higher prices
-Can allow smaller businesses to compete with larger ones
-may lower costs if the business looks to cut energy usage

61
Q

How can being environmentally friendly be negative for a business?

A

-often have to increase costs
-invest in a new production process
-may have to use sustainable recourses which are more expensive

62
Q

What is fair trade?

A

A social movement that exists to promote improved trading terms and living conditions for producers of products in less developed countries.

63
Q

How does fair trade help farmers and workers?

A

-better prices
-safer working conditions
-local sustainability
-fair terms of trade

Business (3 decks)

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