Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Studies > Chapter 4- Business size, growth and external growth > Flashcards

Chapter 4- Business size, growth and external growth Flashcards

1
Q

What factors need to be taken into account when making a judgement about the size of a business?

A
  • Number of employees
  • Number of factories, shops or offices
  • Turnover and profit levels
  • Stock market value
  • Capital employed
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Number of employees

A
  • Normally it would be expected that a ‘large’ business will employ a large number of employees.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Why would the number of employees not be an accurate measure of size?

A
  • It may not be appropriate to judge it on this as many factories are highly automated and capital intensive.
  • So they an produce a lot of output but do not employ a large number of people.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

In the UK, based on employees, what size of the business would they regard it as?

A
  • A business with fewer than 50 employees is regarded as small.
  • A business with more than 250 employees is regarded as large.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Number of factories, shops or offices

A
  • The higher the number of factories, shops or offices a business has, the more it will be perceived as large.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Why would the number of factories, shops or offices not be an accurate measure of size?

A
  • A similar criterion is whether the business has them in other countries an if so how many.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Turnover and profit levels

A
  • A high turnover and the higher the profit level is usually associated with a large business.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Why would turnover and profit levels not be completely accurate as a measure of size?

A
  • If there is only one expensive shop they could still have a high turnover because of the high value of the relatively few products sold.
  • However a large firm may temporarily be having trade difficulties so therefore will be making a lower than usual turnover and profit.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is turnover?

A

The value of a business’s sales.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Stock market value

A
  • The higher the figure, the larger the company is likely to be .
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Why is stock market value not completely accurate as a measure of size?

A
  • If the share price falls, it reduces the value of the comapny.
  • So this means on this measurement of size the business has become smaller even though a change in share price has no immediate impact on the number of factories, employees or machines.
  • Share prices can change daily so it can be misleading.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is an axample of a company whose share price fell?

A
  • Throughout 2013 and most of 2014, Tesco’s share price steadily fell as it struggled to cope with competition from business’s such as Aldi and Lidl, but this did not change the size of the company.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How can you calculate the value of a public company?

A

By multiplying the current share price by the number of shares issued.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is capital employed?

A

It is the total value of a business’s assets- factories, machines offices and so on.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Capital employed

A
  • If the figure is high, it’s reasonable to assume that the business is large.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Why would capital employed not be completely accurate as a measure of size?

A
  • Stock market, valuation, prices and therefore values, of factories and office blocks can rise or fall without any changes in the actual number owned.
  • Geographical location of assets also affect their value.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What factors did the EU choose to determine the size of a business?

A
  • Number of employees
  • Turnover (£m)
  • Balance sheet total (£m)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is an example of how location affects the value of capital employed?

A
  • A factory unit in North London will be more valuable than a business of exactly the same type, in exactly the same unit in South Wales.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Micro (employees)

A

<10 (less than)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Small (employees)

A

<50 (less than)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Medium sized (employees)

A

<250 (less than)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Micro (Turnover)

A

_<2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Small (Turnover)

A

_<10

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Medium sized (Turnover)

A

_<50

24
Q

Micro (Balance sheet total)

A

_<2

25
Q

Small (Balance sheet total)

A

_<10

26
Q

Medium sized (Balance sheet total)

A

_<43

27
Q

Why are the EU definitions important?

A

Since one of the objectives of the EU’S regulation of business’s is that they are all ‘operating on a level playing field’.

28
Q

Definition of business size?

A

The EU has a standardised way of measuring size based on the number of employees, and turnover or balance sheet value.

29
Q

What factors affect the size of a business?

A
  • Market size
  • Nature of the product
  • Personal preferance
  • Ability to acess resources for expansion
30
Q

Market size

A
  • Where the market is small it is often dominated by relatively small business’s.
  • This is because large firms don’t think they can gain economies of scale or the level of sales to gain the desired level of profit.
  • Consideration also needs to be given as to whether the market is expanding, static or contracting.
31
Q

Nature of the product

A
  • If a product is large and technologically complicated the firm will usually be larger because of the resources necessary to make and upgrade it.
  • Where the product is highly standardised it’s usually made by a large business since it can gain economies of scale from manufacturing it.
  • A less standard product made, and marketed, with a ‘personal touch’ will often be supplied by a smaller business.
32
Q

Personal preference

A
  • An entrepreneur may not want to expand nationally or even regionally.
  • They may prefer to be the ‘big fish in a small pond’.
  • There may be the consideration of whether the time and trouble that will need to be devoted to any expansion is ‘worth it’ in terms of risks and personal sacrifices that may have to be made in terms of family life.
33
Q

Ability to access resources for expansion

A
  • Are funds available ?
  • Banks could be reluctant on it preventing many small and medium sized firms from expanding.
34
Q

What are reasons why a business might want to grow?

A
  • Entrepreneur wants a greater challenge
  • Owner wants a higher return on their investment
  • Opportunity to gain unit cost reductions through economies of scale
  • A bigger stronger business is better placed to fight any economic or competitive threats successfully
35
Q

What is the effect of a business’s size on its stakeholders?

A
  • There can be a tendency to assume that a larger business is always better for its stakeholders than a small one because it is bigger and stronger but that’s not the case.
36
Q

Examples of stakeholders ?

A
  • Employees
  • Suppliers
  • Local community
  • Shareholders
  • Customers
37
Q

Advantage for employees in a large business

A
  • greater job security
  • A large firm will have a specialist human resources department which will ensure compliance with legislation
  • The business may recognise the trade union or have some other method of employee participation in order to improve communication and productivity.
38
Q

Disadvantages for employees in a large business

A
  • Feeling remote from those who make the decisions that affect them.
  • Issue of poor morale and motivation that may affect productivity.
  • There may be problems of effective coordination and control that negatively impacts upon the business’s operation and profitability.
39
Q

Advantages for suppliers in a large business

A
  • Regular orders
  • Large orders
  • Security
40
Q

Disadvantages for suppliers in a large business

A
  • May be offered a take it or leave it approach to conditions of supply and payment.
  • Over dependence on a large customer can cause problems if the large firm decides to change supplier.
41
Q

Advantages for the Local community in a large business

A
  • Creation of jobs
  • Local ‘multiplier effect’ boosting economic activity.
42
Q

Disadvantages for local community in a large business

A
  • Possible negative externalities such as pollution and or congestion around the business
  • Large business may drive the existing local firms out of the market, thus reducing choice and variety.
43
Q

Advantages for shareholders in a large business

A
  • The large firm may have some market power so may have a degree of control over prices- leading to higher profits, dividends and share prices.
  • Large firms can gain managerial economies of scale to improve performance.
44
Q

Disadvantages to shareholders in large businesses

A
  • If managers make the wrong decisions they can have a significant effect on the business’s profits and then therefore share price and dividends
45
Q

Advantages for customers in a large business

A
  • Business can be expected to treat customers well in order to maintain it’s image
  • Business can seek out/ develop new products
  • Economies of scale- lowers costs and thereore prices
46
Q

Disadvantages to customers in a large business

A
  • Customers might be swayed into buying products they don’t want through contact exposure to marketing
  • Diseconomies of scale may raise costs which will be passed on in the form of higher prices
47
Q

What is organic growth?

A
  • It’s achieved by increasing the firms sales
  • This comes from selling more to existing customers, finding new customers or both
  • If a business constantly achieves high levels of organic growth it indicates managers are taking the right actions in terms of marketing and are using the business’s resources efficiently.
48
Q

What is a merger?

A
  • It is where two companies join together to form a new larger business.
49
Q

What does a takeover involve?

A
  • it involves acquiring control of another company by buying it’s shares
  • If the takeover is successful the target company will continue to exist as an independant legal entity controlled by the acquirer .
50
Q

Why would a takeover go smoothly?

A

Because the shareholders of both companies consider it to be beneficial

51
Q

What is an example of a takeover?

A

In 2014 the American pharmaceutical giant Pfizer made a takeover bid for the UK company AstraZeneca which did not succeed but it was the largest attempted takeover in the UK corporate histor- £69 billion

52
Q

What is a joint venture?

A
  • It’s a formal business arrangement between two or more business’s who commit to work together on a particular project
  • Both parties invest money, time and effort in this project
53
Q

How is a joint venture different to a merger?

A
  • There is no change in ownership involved for either firm
  • A joint venture may only be in existence for a particular project or it could be ongoing
54
Q

What is an example of a joint venture?

A

In 2014 the UK-Dutch oil company Shell announced a joint oil exploration venture with Russia’s state-owned oil business Gazprom

55
Q

Reasons why to undertake a joint venture?

A
  • A single business might consider the venture as too much of a risk
  • The capital cost of a particular project might be very high and be well beyond the resources of a single business so a joint venture allows allows both parties to share the cost burden.
  • It’s an effctive way of gaining access to markets or resources in another country
56
Q

What will you have to do if your going to do a joint venture?

A

-It will mean drawing up a contract that specifies responsibilities and goals
- This may be expensive due to legal costs but it will be crucial for avoiding disagreement in the future

57
Q

What is a strategic alliance?

A
  • Similar to a joint venture
  • Alliance means ‘cooperation’
  • Less involved and less permanent to a joint venture although the aim is similar

Business Studies (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions