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Description
Flashcards by Freya Coombes, updated more than 1 year ago
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Created by Freya Coombes
over 8 years ago
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| Question | Answer |
| Why Does A Business Exist? | - Creates employment (increases GDP) - Creates wealth (taxes) - Creates new products -Enhances the country's reputation |
| Business Categories According To Economic Sectors | - Primary- agriculture, mining, farming - Secondary- manufacturing, construction -Tertiary- hotels, transport, health care Can operate in more than one sector |
| Define Mission Statement | A qualitative statement of an organisation's aims which describe the general purpose of the company. |
| SMART | Mission objectives should be: Smart Measurable Achievable Realistic Time |
| Common Objectives | - Profits and profit maximization (smaller family owned businesses, achieve other targets, satisfy shareholders-dividends) - Growth (can exploit market position for higher profits, higher dividends, better salaries and job security) - Survival (important in recessions, intense competition and times of crisis e.g. hostile takeover) |
| Benefits Of Setting Objectives | - Know what you are doing - Organisation - Motivates employees - Measures progress - Review success of the business plan |
| Profit Equation | Total revenue - Total costs |
| Total Costs | Fixed costs- Variable costs - Can help decide on product price |
| Revenue | Quantity sold x Average selling price - Reduction of price usually equals more sales |
| Total Variable Costs Equation | Variable costs per unit x No. units sold |
| Define Profitability | Being able to make a product. |
| Private Sector Busiensses | - Owned by shareholders/ private individuals - Not owned by the government, local authorities or state organisations - E.g. soletraders |
| Sole Traders | An individual establishes and operates their own business e.g. plumber. |
| Benefits Of Being A Sole Trader | - Easy to set up (don't have to register with government agencys if all profits are declared to HMRC) - Freedom- be your own boss, make your own decisions, self motivated - You decide what happens to the profit |
| Drawbacks Of Being A Sole Trader | - Unlimited liability - No shared responsibilities - Difficult holidays and sick days - Hard to raise finances |
| Define Unlimited Liability | If you can't pay the businesses debts then you use your personal belongings to pay it off e.g. house. |
| Public Limited Companies (PLC) Legal Status | - Incorporated - Accounts are public |
| Benefits Of Being A PLC | - Limited liability - Easy to raise large sums of capital - Publicity is low cost- in papers - Takeover-can buy other companies by offering shares to other company's shareholders - Increase capital by selling shares on the stock exchange |
| Drawbacks Of Being A PLC | - Shareholders own the company - Chance of a take over - Difficult to pursue objectives |
| Define Market Capitalisation | - The value of the company based on share prices and the number of outstanding stocks. - Measures the size of a PLC Current share price x No. outstanding shares |
| Define Limited Liability | In the event of financial difficulties personal belongings are safe. |
| Private Limited Companies (LTD) Legal Status | Incorporated |
| Benefits Of Being A LTD | - Limited liability - Quick set up - Separate legal identity - Only taxed on profits |
| Drawbacks Of Being A LTD | - Publish accounts - Expensive set up - Less power |
| Benefits Of Profit | - More customers - More likely to gain investors, cheaper to raise finance - May be bought by a larger rival - Have confidence of suppliers so could make delayed payments |
| Define Aims | Long term plans which a businesses objective are derived - Set by senior employees - Relate to the whole business - From this they set quantifiable objectives |
| Define Objectives | Medium to long term goals to coordinate the business. |
| Companies | - Owned by shareholders - Limited liability - Shareholders benefit from dividends and company value - Businesses pay auditors to check accounts annually - E.g. Private or Public limited - Must have a memorandum of association and a article of association |
| Role of Shareholders | - Influence decision making - Buy shares - Shares are worth voting rights, more shares is more voting rights which means more company influence |
| Influences On Share Prices | - Company performance (perform well and share prices are anticipated to rise) - Businesses environment in which they trade (good economic conditions means investors are more confident, more finance) |
| Significance Of Share Price | It doesn't have a direct impact on the companies immediate financial position. - Falling- poor performance, hard to raise capital, vulnerable to takeover. - Rising- reflects well on the management team, good job, receive bonuses, easier to raise capital, potential shareholders are more willing to buy assets and banks are more willing to offer loans |
| Positive Effects Of The External Environment | - Change in taste means a rise in demand - Competition leaves the market - Consumer numbers increase - Interest falls so it's cheaper to borrow money - Steadily rising income- higher demands for products as people can afford more |
| Negative Effects Of The External Environment | - Consumers want environmentally friendly product which costs more - New businesses enter the market so more competition - Over supplied market so prices are lowered to compete- unemployment, lower consumer income, less spending |
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