What is a business? Flashcards
What is a mission statement?
A qualitative description about the organisation allowing stakeholders to know the businesses intention
What are the main functions of a business objective?
- Defines the overall objectives of the business
- Driven by the mission statement
What is the main purposes of a functional objective?
- Defines the objectives of each department
- Driven by business objectives
List 4 functions of profit.
- Source of finance
- Attracts investors
- Motivates employees
- Allows for financial stability
Define revenue
The total made from sales
Define fixed costs
Costs that do not vary with output
Define variable costs
Costs that vary with output
Give two examples of incorporated businesses
LTD
PLC
What type of businesses have limited liability
Incorporated businesses
What is meant by having limited laibility?
The owners and the business are seen as two separate legal entities
Shareholders do not put their personal assets at risk
Is limited liability advantageous or disadvantageous
Advantageous
What are two examples of an unincorporated business
Sole trader
Partnerships
What type of liability do unincorporated businesses have?
Unlimited laibility
What is meant by unlimited liability?
When the business and the owner are seen as the same legal entity, thus in the situation of the business incurring debts, they put their assets at risk
Who finances the public sector businesses?
Financed by governments
Who finances the private sector businesses
Financed by entrepreneurs
How do we calculate market capitalisation?
Number of ordinary issued shares x Share price (At current market price)
How do we calculate ordinary share capital
Number of ordinary shares issued x share price (At first issue)
What is a non profit organisation?
A business that is set up to pursue objectives that benefit society
How do non profit organisations raise their money?
Fundraising
Advantages of non profit organisations
Lower tax= more profit= more to reinvest into persuing social objectives
Is a LTD incorporated?
TRUE
What is an LTD
An LTD is a company that is owned by shareholders and is managed by directors in which shareholders can choose
Properties of an LTD
Shareholders are invite only
Shares are not sold on the stock exchange
Shareholders can only loose what they invest
Pros of an LTD
Limited liability
Additional sources of finance
Control over who becomes a shareholder
Cons of an LTD
Shared profits
Legally must publish financial accounts
more beauracracy
What questions may arise if a firm wants to switch from a LTD to a PLC
Will profits be higher
Do you need control over who becomes a shareholder?
Do you need financing from the stock exchange
What type of business is a sole trader?
Unincorporated business
What is a sole trader?
A business owned by one individual who retains all profits generated
Pros of a sole trader
- Simple to setup
- No need to publish finances
- Retain all profits
- Fast decision making
Cons of sole trader
- Unlimited liability
- Fewer sources of finance
- Limited expertise
- Hard to take time off
Why shold a sole trader become an LTD?
Will you make more profits?
Got any assets you want to risk
Do you need full control
is there a need for external financing?
What is a PLC
A PLC is a company that commonly offers its shares to the general public via the stock exchange.
List 3 features of a PLC
ANY FROM:
1. Limied liability
2. must raise 50000 in share capital
3. minimum of 2 directors and 1 secretary
4. Needs to publish its financial accounts
What does an LTD gain access to when it becomes a PLC
The stock exchange
Why might an LTD become a PLC
Greater profits
Loss of control
greater financing
What is meant by the stock exchange
The stock exchange is a market where PLCs can sell shares to the public
What is meant by the term Flotation
Flotation is the process of an LTD offering shares for sale on the stock market to therefore become a PLC
Pros of flotation
Raises finance
Shareholders retain limited liability
more media exposure
Cons of flotation
Expensive
Anyone can buy shares- risking a takeover
short sighted shareholders only care about dividends
What features of the external environment can affect cost and demand
Competition
Market conditions
Incomes
Interest rates
Demographic
Environmental issues
How does competetion affect costs for firms?
High competition= Higher marketing costs
How does competition affect demand
Consumers are more sensetive to a change in price
how does Market conditions affect costs
High unemployment= larger supply of labour=hire high skill at low price
How do market conditions affect demand
seasonality- increases in the hospitality industry in the summer due to increased tourism
How do incomes affect costs?
If the economy is doing well, incomes rise= increase in costs
How do incomes affect demand?
Income increases lead to increases in demand for luxury goods
How do interest rates affect costs
Higher interest rates means higher costs on loans increasing COPs
How do interest rates affect demand?
Higher interest rates = less spending as people are incentivised to save
How do demographic factors affect costs?
Increases in immigration increases the supply of labour lowering costs
How do demographic factors affect demand?
Ageing population increases demand for certain industries
How do environmental issues affect costs?
Fairtrade= ethical =expensive
How do environmental issues affect demand
Fairtrade= ethical = higher demand
