2.4 Understanding Business Performance

Question 1

Quantitative data

Answer 1

titative data is statistical numeric data that can be used to support decision making
Quantitative data needs to be accurate and interpreted correctly if it is to be useful
e.g.:
graphs and charts
financial data
marketing data
tables or infographics

Question 2

Primary data

Answer 2

Primary data is collected first hand for a specific purpose

Question 3

Secondary data

Answer 3

Secondary data has been collected by someone else

Question 4

1. Information from Graphs & Charts

Answer 4

Information presented in graphs and charts is often easy to understand because it is presented visually

Question 5

Bar Chart

Answer 5

This bar graph provides a clear picture of umbrella sales between January and April and allows a manager to compare sales between each month

Question 6

Pie Chart

Answer 6

This pie chart breaks down all umbrella sales into those achieved by different models
It shows clearly that more than half of sales were ‘Ultra’ umbrellas

Question 7

Scatter Graph

Answer 7

Scatter graphs allow relationships between two variables to be identified

The scatter graph on the right shows that there is a clear relationship (a positive correlation) between the temperature and sales of barbecues
As the temperature increases sales of barbecues increase

Question 8

positive correlation

Answer 8

A positive correlation exists when an increase in one variable leads to an increase in another
On a scatter graph an upwards trend on the plots can be identified

Question 9

negative correlation

Answer 9

A negative correlation exists when an increase in one variable leads to a decrease in another
On a scatter graph a downwards trend on the plots can be identified

Question 10

strong correlation

Answer 10

strong correlation allows a line of best fit to be applied with ease
Where a weak correlation exists it is difficult to identify a line of best fit

Question 11

weak correlation

Answer 11

Where a weak correlation exists it is difficult to identify a line of best fit

Question 12

2 - Financial Data

Answer 12

Businesses can use a selection of internal and external financial data to support decision making including
* Sales revenue
* Profit
* Costs
* Tax
* Interest and exchange rates
* Valuations of assets
* Bank balances

Companies need to send key financial data to Companies House each year whereas sole traders and partnerships may keep this information private

Question 13

Marketing Data

Answer 13

Marketing data is collected through primary and secondary market research such as
* Surveys
* Focus groups
* Observation
* Customer feedback
* Retail or online footfall
* Government or trade publications
* The media

Marketing data can help business managers forecast sales and to make decisions about product development and promotional plans

Question 14

Market data

Answer 14

Market data refers to the characteristics and performance of the market in which a business operates such as
* Demographic data relates to the market’s population structure such as age, gender and income statistics
* Market dimensions includes factors such as the size of the market, the market shares of key competitors, the rate of market growth and average prices across the market
* Investment data relates to the prices of commodities (e.g. oil) as well as exchange rate data and stock market performance

Market data can help a business identify and plan for new opportunities and spot external threats such as the increased power of a competitor
It can also be used alongside other types of quantitative data to make investment decisions

Question 15

The Use of Financial Information to Businesses

Answer 15

Businesses can use financial data in several ways
* To identify trends and make calculations for comparison over time and with other businesses
* To support an application for external finance such as a loan
* To attract potential investors
* To support spending decisions

Question 16

Limitations to the use of Financial Data in Decision Making - Different interpretations of data

Answer 16

Statistical information can be interpreted in different ways - E.g. raw data may show a sharp increase in sales but when compared to competitors this increase may be less impressive

Financial data can be window dressed to present a positive impression of performance - E.g. a business may announce that 80% of customers would recommend a product to a friend without acknowledging that one in five customers would not

Question 17

Limitations to the use of Financial Data in Decision Making - Data becomes out of date quickly

Answer 17

By its very nature financial data relating to sales, costs and profit is out of date as soon as it is generated

Using financial data to make decisions relies on future performance to be at least broadly similar to past performance

Question 18

Limitations to the use of Financial Data in Decision Making - Qualitative factors are ignored

Answer 18

Businesses measure their performance against a range of financial and non-financial criteria

E.g. businesses that aim to be socially responsible or behave ethically may find it difficult to measure their successes in these areas in statistical terms