Business Studies Flashcards
3.1 - WHAT IS BUSINESS?
what are business objectives?
specific intended outcomes of business strategy and activity.
what are the four main functions of business objectives?
- states what needs to be achieved.
- provides focus for all activity.
- sets targets for individual and group achievement.
- a way to measure performance.
what are some corporate objectives?
- Sales Revenue
- Profit
- ROI
- Growth
- Market Share
- Cash flow
- Corporate image & reputation
what is the acronym SMART?
what does it say about business objectives?
Specific - exactly what is to be achieved
Measurable - whether it has been achieved
Attainable - realistic in the circumstances set
Relevant - to the people responsible for achieving them
Timely - set within a time frame in mind
how should corporate objectives feed into functional objectives?
- (CO) increase market share - (FO) successfully launch five new products in existing markets over the next two years (marketing)
- (CO) unit costs - (FO) increase factory productivity by 10% within 2 years (Operations)
what is a mission statement?
“the overriding goal of the business and the reason for its existence”
who are the mission statements’ main audiences?
Investors
Customers
Employees
Society
what makes an effective mission statement?
Differentiates the business from its competitors.
Defines the markets or businesses in which the business wants to operate.
It is relevant to all major stakeholders - not just shareholders and managers.
Excites inspires, motivates & guides - particularly important for employees.
what is an example of a mission statement?
ikea - “Our vision is to create a better everyday life for the many people”
what are three criticisms of mission statements?
Not always supported by the actions of the business.
Often too vague and general or merely statements of the obvious.
PR stunt?
what are two business costs?
variable and fixed costs
what are costs?
Amounts that a business incurs in order to make goods and/or provide services.
why are costs importance?
Drains away the profits made by a business.
Difference between making a good and a poor profit margin.
Main cause of cash flow problems in business.
Change as the output or activity of a business changes
what are variable costs?
Costs which change as output varies.
what is the VC calculation?
Change in cost X Change in units.
what are three examples of variable costs?
Raw materials
Bought-in stocks
Wages based on hours worked
what are fixed/overhead costs?
Costs which do not change when output varies.
what are fixed/overhead costs calculations?
TC - VC
what are three examples of fixed costs?
Rent & rates
Salaries
Advertising
what is the turnover calculation?
Number of employees leaving during the period/ Average number employed during period x 100
what is the total cost calculation?
Fixed costs (FC) + Variable costs (VC)
what is the turnover calculation?
Number of employees leaving during the period/ Average number employed during period x 100
what are the different forms of business?
sole traders
private limited companies and public limited companies
private sector and public-sector organisations
non-profit organisations such as charities and mutuals.
Issues with different forms of business include:
unlimited and limited liability
ordinary share capital
market capitalisation
dividends.
what/who are sole traders?
- An individual owns the business on their own.
- Can employ people but the individuals are not business owners.
- Sole Traders own all of the business assets personally and are personally responsible for the business debts as they have Unlimited Liability.
what are the advantages of operating as a sole trader?
- The lack of legal restrictions as they will not face a lengthy setting up period or incur expensive administration costs.
- Quick & easy to set up - business can always be transferred to a limited company once launched.
- Simple to run - owner has complete control over decision-making.
- Easy to close/shut down.
what are the disadvantages of operating as a sole trader?
- Full personal liability - “unlimited liability” and may be forced to sell personal possessions or use personal savings to meet those debts.
- Harder to raise finance - sole traders often have limited funds of their own and security against which to raise loans.
- The business is the owner - the business suffers if the owner becomes ill, loses interest etc.
what is a Private Limited Company (Ltd)?
- Tend to be relatively small businesses but can be big ie. Littlewoods & Reebok
- Shares can only be transferred “privately” and cannot be administered to the general public.
- Are often family businesses owned by members of the family or close friends.
- Directors of the firm are normally shareholders and are involved in running the business.
what are the advantages associated with becoming an LTD?
- Shareholders have limited liability and are prepared to risk their money than in a partnership.
- More capital can be raised as there is no limit on the shareholders.
- Control of the company cannot be lost to outsiders.
what are the disadvantages associated with becoming an LTD?
- Profits have to be shared out among a much larger number of members.
- There is a legal procedure in setting up the business - this takes time and money.
- If one shareholder decides to sell their shares it may take some time to find a buyer.
what is a Public Limited Company (Plc)?
- The shares of this company can be bought and sold on the public stock exchange.
- Limited Liability.
what are the advantages associated with becoming a PLC?
- Huge amounts of money can be raised from the sale of shares to the public.
- Production costs may be lower as firms may gain economies of scale.
- Easier to raise finance as financial institutions are more willing to lend to plcs.
what are the disadvantages associated with becoming a PLC?
- The setting up costs can be very expensive - running into millions in some cases.
- Since anyone can buy their shares, it is possible for an outside interest to take control of the firm.
- Accounts are published to the public so competitors may use them to their advantage.
what is an unincorporated business?
what do they operate mainly as?
The owner is the business - no legal difference.
Unlimited Liability - all losses and debts of the business.
This adds to the risk of operating as a sole trader.
what is an incorporated business?
what do they mainly operate as?
Limited Liability - There is a legal difference between the company and the owners (Separate Legal Entity) and shareholders can only lose the value of their investment, not the company’s debt.
Incorporated businesses mainly operate as:
Private Limited Companies
Public Limited Companies
what are Private Sector Organisations?
Are operated and owned by private individuals and companies.
Private sector businesses are generally run “for profit” - to earn returns for the business owners (e.g. shareholders)
what are Public Sector Organisations?
Are owned and run on behalf of the public, either by the Government itself, or by organisations who are funded by and report to Government.
- Exist to provide goods and services to the public using public funds.
- (e.g. RBS (nationalised), Network Rail)
- These are funded by central & local government, but may still levy charges for some services (e.g. the NHS
what are Non-profit Organisations such as charities and mutuals?
Not every business organisation exists to earn profits for its owners.
Other organisations engage in business-related activities, but their aims and objectives are different.
Common examples of “not-for-profit” organisations are:
- Mutual businesses
- Social enterprises
- Charities
what are Mutual Businesses?
Mutual businesses don’t have shareholders or other owners.
- They exist only to serve their “members”.
Halifax Building Society
Nationwide Building Society
- were operated on behalf of members who had taken out mortgages or held savings accounts there.
what are Social Enterprises?
Is a proper business that makes its money in a socially responsible way.
- These ventures are not necessarily formed to reinvest all profits into the communities.
Social entrepreneurs can make a good profit themselves. - However, their business model is also designed to benefit others.
Social enterprises compete alongside other businesses in the same marketplace, but use business principles to achieve social aims.
- E.G - the Eden Project.
what are charities?
Many charities undertake business activities.
- These range from running high street charity shops to operating services and fund-raising events.
Charities have to ensure that the proceeds earned from these activities are spent in accordance with the stated aims of the charity.
Their activities are regulated by the Charity Commission.
what is a share?
An individual part of the issued share capital of a company.
what are Dividends?
Payments made to shareholders by the company from earned profits.
Amount paid is “per share” e.g - £1 per share held.
what is Capital Growth/Gain?
Increase in value of business = Increase in value of share price.
Only realised when share(s) sold.
No guarantee that share holding will increase in value.
what are examples of Shareholder Rewards?
Annual dividend payments
Rise in the value of shares. (Capital Growth/Gain)
what is a Share Price?
The cost of a company’s shares.
Determined by demand for a share > supply (more buyer than sellers) then share price should rise.
A falling share price indicates excess supply (more sellers than buyers).
what is the Share Price of a Private Company?
Initially set when shareholders “subscribe” for their shares
Thereafter only determined when shares are bought or sold
No active market in the shares of a private company - so hard to judge current value
what is the Share Price of a (quoted) Public Company?
Highly transparent - displayed publicly, in real-time .
All trades are disclosed (how many bought/sold and for what price.
Share prices widely published and tracked.
what are Factors that influence a PLC’s Share Price?
- Within the Company’s Control
Financial Performance
Dividend Policy
Management Reputation.
-Outside Control
State of the economy
General market sentiment
Potential for takeover
what are Profit Warnings?
Unexpected warnings indicating that market expectations will not be met almost always resulting in significant fall in share price.
what is Market Capitalisation?
Represents the total market value of the issued share capital of the company.
what is the Market Capitalisation Calculation?
Number of issued shares x current share price
what is Revenue?
The sales value of what a business actually sells.
what is the revenue calculation?
Selling price x Quantity sold
