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A Level Business (Y12) > Topic 1: What is Business > Flashcards

Topic 1: What is Business Flashcards

1
Q

What is a business ?

A

An organisation that seeks to provide goods and services on a commercial basis to customers

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2
Q

Why do businesses exist ?

A

Because they are formed by entrepreneurs and are subsequently developed if they manage to get beyond the survival stage

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3
Q

What are the external factors of a business

A

Technology
Competition
Economy
Government
Society
Environment
Legislation

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4
Q

What are the functional areas of business ?

A

Operations management
Financial Management
Marketing
People (HR)

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5
Q

HR

A

Managing people that work in a business.
Activities include: recruiting employees, organising training, managing communication with staff

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6
Q

Marketing

A

Responsible for understanding the needs and wants of customers
Activities include: market research, setting prices, obtaining customer feedback

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7
Q

Finance

A

Manages financial resources of the business and reports on financial performance
Activities include: reporting on performance, ensuring there is enough cash to pay liabilities

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8
Q

Operations

A

organises transformation process that turns inputs into finished goods and services.
Activities include: managing quality of output, organising suitable method of production

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9
Q

What is a mission statement

A

A qualitative description of what the business intends todo so that stakeholders understand its intent

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10
Q

Mission statement are usually….

A

SMART

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11
Q

Why set objectives?

A

Allows everyone to work towards overall goal
Motivates managers and staff
Allows for review

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12
Q

Why is profit important ?

A

Reward for risk taken
Survival
Shows success

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13
Q

Characteristics of an unincorporated business ?

A

The owner is the business
Owner has unlimited liability

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14
Q

Characteristics of an incorporated business ?

A

Business has a separate legal identity to the owner
owners have a limited liability

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15
Q

Sole Traders

A

A business owned by one person.
Advantages: owner keeps profits, owner makes all the decisions, easy start up
Disadvantages: Unlimited liability, heavy workload, limited skillset

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16
Q

Partnerships

A

Owned by 2 or more people.
Advantages: shared workload, varied skillset
Disadvantages: unlimited liability, shared profits, conflict over decisions

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17
Q

Public Limited Companies

A

Owned by shareholders and shares can be sold on the stock exchange
Advantages: access to large amounts of capital, limited liability
Disadvantages: AGM, lots of paperwork, minimum £50,000 share capital

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18
Q

Private Limited Companies

A

Owned by shareholders (family and friends only)
Advantages: business has a separate legal identity,
Disadvantages: AGM every year, publish finances

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19
Q

What is a non-profit organisation

A

Organisations that trade in order to benefit the community

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20
Q

What is a mutual business

A
  • They have no shareholders and no owners
  • exist solely for the best interest of its customers
    EXAMPLE: national building society
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21
Q

What is a charity?

A

People who fund the business are not liable for any debts

22
Q

Advantages of being a sole trader

A
  • Owner keeps all the profits
  • easy to set up + run
  • easy to close/ shut down
23
Q

Disadvantages of being a sole trader

A
  • unlimited liability
  • difficult to raise finance (typically only have their own funds)
  • limited skillset
24
Q

Advantages of a partnership

A
  • shared workload
  • potential for more finance
  • specialisation/expertise in different business functions
  • additional partners may have industry contacts
25
Q

Disadvantages of a partnership

A
  • unlimited liability
  • shared profits
  • shared decision-making (may lead to conflict)
26
Q

What is a deed of partnership

A

A document between partnership businesses that legally sets out how profits are distributed + how control is distributed

27
Q

How to approach a question about moving from a sole trader to a partnership

A

PLUMS
Profit distribution: 100% as ST but as P only 50% but more in long term as raising finance is easier
Limited/ unlimited liability
Management and control: as a stare you happy to share out control
Sources of finance: is there a need for finance

28
Q

What is unlimited liability?

A
  • Applies to unincorporated business e.g sole traders+ partnerships
  • owner is responsible for all debts the business incurs
  • personal assets may be at risk
29
Q

What is limited liability?

A
  • applies to incorporated businesses
  • shareholders personal assets are not at risk in the event of the business incurring debts
  • shareholders losses are limited to how much they invested into the business
30
Q

What is flotation?

A

The process of a Ltd selling shares on the stock market to therefore become a plc

31
Q

Benefits of floatation

A
  • raise external finance ( have potential investors - can use this obtained share capital rather than retained profits
  • high prestige (more media coverage higher sales and higher profit)
  • shareholders will retain limited liability
  • business will grow larger (lead to inc market shareand brand loyalty inc rev)
32
Q

Drawbacks of floatation?

A
  • expensive process (bank leading the process and underwrite flotation) ‘
  • anyone can buy shares ( inc risk of takeovers + conflict between owners and managers
  • inc legal requirements such as releasing more financial information
33
Q

What is the market capitalisation formula ?

A

No. Of ordinary issues shared x CURRENT share price

34
Q

What is the ordinary share capital formula?

A

No. Of ordinary issued shares x share price at FIRST ISSUE (THE DAY IT WENT ONTO THE STOCK EXCHANGE)

35
Q

What are dividends?

A

A distribution of a y of the profits by a company to the shareholders
- management decides size of dividends

36
Q

What are the dividend time frames

A

1) Decclaration date
2) In-Dividend date
3) Ex - Dividend date
4) Dividend pay date

37
Q

What is the declaration date?

A

When managers announce the day they will pay out the dividends

38
Q

What is the in-dividend date?

A

The date by which the shareholder must own the share so that they qualify for the dividend to be paid

39
Q

What is the ex-dividend date ?

A

The date when you buy shares that you do not qualify to receive dividends

40
Q

What is the dividend pay date

A

The date that the dividends are issued out to shareholders

41
Q

Where to apply dividend time frames in answers

A
  • when discussing influences on share prices
  • eg on ex-dividend date might see a sell off as you don’t see dividend the next day and share prices may fall
42
Q

What are the issues with dividends?

A

1) opportunity cost
- if you choose to pay out a high % of dividends where else in the business could that money have been spent eg invest in research development or new machinery

2) Short Termism/ Myopic
- not focusing on other stakeholders and too much focus on shareholders
- not considering the long-term sustainability of your company

43
Q

What is a shareholder?

A

Anyone that has a share in a public or private limited company

44
Q

What are the features of a shareholder?

A
  • vote at AGM
  • have limited liability
  • have accesstodividends
45
Q

Reasons to become a shareholder?

A
  • capital gain (buy the share with hopes that value of share increases to make capital gain)
  • earn dividends
  • more control by being a majority shareholder above 50% threshold
  • wider beliefs investing for ethical environmental reasons
46
Q

Influences on share price in a private limited company

A

Only defined by the agreement between the owner of the share and the buyer
- what they agree is the price of the share

47
Q

Influences on share price of a plc

A

Dependant on supply and demand
- an increase in the supply of shares will result in share price falling .
- a decrease in supply will increase share price
- if demand for share falls so will share price
- it demand for share rises so will the snare price

48
Q

Other 5 influences on share prices

A

1) Business Performance
2) Interet rates - if they go down, looking to put money outside of a bank, demand increase and so do price
3) Economy - if performing well, demand increase for shares due to better income inc share price vice versa sell off in shares inc supply reducing price
4) Rivals performance - if doing well, may lead to a sell off in your shares, inc supply reducing price
5) share buybacks -
6) Takeovers/ Mergers - if the market doesn’t think it is a good idea may lead to sell of

49
Q

Significance of changes in share prices

A

If share prices fall below level you paid you have lost money vice versa
- will effect the market capitalisation will change

50
Q

External environment influences

A

Competition
Market conditions
Incomes
Interest rates
Demographic factors
Environmental issues

51
Q

Pestle analysis

A

Political
Economic
Social
Technological
Legislation
Environmental

A Level Business (Y12) (6 decks)

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