Section 7,8 and 9

Question 1

What is strategic decisions?

Answer 1

High risk, long term plan used to achieve corporate objectives.

Question 2

What is functional decisions?

Answer 2

Short term, lower risk decisions used for single departments.

Question 3

What is an asset?

Answer 3

This is something owned by the business that can be used to make money. Eg. Machinery, factories

Question 4

What’s the difference between a current and a non current asset?

Answer 4

Current asset- An asset that is used up within a year. Eg. Stock, receivables.

Non current asset- An asset that is kept for over an accounting year. Eg. Machinery, Factories.

Question 5

What is a current and a non current liability?

Answer 5

Current liability- A debt that needs to be payed within a year. Eg. Stock, wages, overdraft.

Non current liability- A debt that is payed off for over a year. Eg. Mortgage, Loans.

Question 6

How to calculate net assets?

Answer 6

Net assets= (Current assets+Non current assets) -Non current liabilities.

Question 7

What is working capital?

Answer 7

This is the money used for day to day operations, to pay off current liabilities. Eg. Stock, wages

Question 8

Why should you have enough working capital but not too much?

What effects how much you need?

Answer 8

You need to have enough so you can pay off day to day operations. However, you shouldn’t have too much as cash is a lousy way to make profit.

It is effected by inflation, if inflation is high you will need more money as wages will go up and machinery may be more expensive to repair.

Question 9

What is bad debt?

Answer 9

This is when your debtors have not payed. It means you cannot get the money and leads to putting it down as an expense on the balance sheet.

Question 10

What is SWOT analysis and what does it stand for?

Answer 10

Swot analysis is used to analyse business decisions.
Strengths- Eg. Good quality product, Good location
Weaknesses- Poor customer service, High price doesn’t match product
Opportunities- Emerging market, Big facility.
Threat- New competitors, New legislation.

Question 11

What is a balance sheet and why is it useful for a business?

Answer 11

A balance sheet shows how much a business is worth. It shows short term and long term finances.

It is useful for a business in the short term for assessing their internal strengths and weaknesses. eg. If you see an increase in non current liabilities need to reduce borrowing. In the long term, it helps see different sources of finance.

Question 12

What are income statements and why are they useful?

Answer 12

Income statements show revenue eg. Sales in cash and credit and expenses(Cash flow).
These figures help assess the company’s financial performance eg. If revenue has increased more than the rate of inflation indicates a healthy company. Also good for comparing with year before.

Question 13

What is Gross Profit and the formula?

Answer 13

Gross profit is how much money is actually being made from making and selling products
GP= Sales revenue-Cost of sales

Question 14

What is Operating Profit and what is the formula?

Answer 14

Operating profit shows the money made from normal business operations.
OP=Sales Revenue-Cost of sales-operating expenses. Or Gross profit-Operating expenses.

Question 15

What is retained profit?

Answer 15

This is what’s left from profit after tax, once share dividends have been paid to shareholders.

Question 15

What is Profit for the year?

Answer 15

PFY is what’s left after tax has been paid and if the companies profitable.

Question 16

What are the two main ways a business uses its profits?

Answer 16

Pay dividends to shareholders
Reinvest the money back into the business.

Question 17

What is the benefits and risks of shareholder dividends?

Answer 17

If dividends are high and fast, shareholders will be likely to invest more capital.
However, if dividends are not paid or low, the shareholder may sell their shares.

Question 18

What is the benefit of reinvesting profits into the business?

Answer 18

Allows the business to spend on things that are likely to increase their profits. Eg. investing in a non current asset like machinery enables it to increase production.

Question 19

Why is financial analysis useful for a business?

Answer 19

Financial analysis is useful for comparing a business’s current performance to its competitors performance, and to its previous performances and identify trends.
Can also use it to show investors or lenders.

Question 20

What is the drawbacks of financial analysis?

Answer 20

It focuses on quantitative data not qualitative data which investors will consider. eg. Reputation, quality of products.
Also, it doesn’t address internal factors like quality of staff, future sales targets and customer satisfaction.

Question 21

What are the drawbacks of a balance sheet?

Answer 21

-The balance sheet is a statement about the past, doesn’t take into account the future.
-Doesn’t take into the economy or the market.
- If bad debts are included it may mislead the balance sheet.

Question 22

What are the drawbacks of income statements?

Answer 22

• Doesn’t include external factors such as market demand, which would be useful for future revenue.
• It is not useful when inflation is involved
• Doesn’t take into account internal factors such as staff morale, customer satisfaction.

Question 23

What are corporate objectives and what are factors that influence it?

Answer 23

The goals of the business as a whole.
Ownership- The form of the business whether it is a profit or non-profit business. Sole traders can do what they like but when there are more shareholders it takes more time.
Short termism- Shareholders can demand a quick return on their investment, which leads to short-term objectives to increase profit however may hurt the business in the long term.
Internal environment- The size, culture and resources of the business, as well as views of leaders on CSR.
External environment- Political,legal,technological,economic,social and environmental factors.

Question 24

How does Government policy encourage enterprise?

Answer 24

The government encourages enterprises due to it benefiting the economy. Examples of the government encouraging enterprise is: -Offering low interest rates and private investment -To make it easier for small businesses to succeed, they don't have to pay business rates, and reduce their national insurance by £2000. -The great business website has been launched to advise people who are starting up a new business. - In 1980s under Thatcher, the introduction of privatisation lead to a more efficient economy.

Question 25

Why does the government need to regulate industries and give an example?

Answer 25

- It will stop businesses exploiting their position such as raising prices or cutting quality. - When railways were privatised, the government set regulations to stop them exploiting the industry, as they were the only railway service in the area.

Question 26

Why is good infrastructure vital for businesses?

Answer 26

-A good infrastructure benefits the economy due to them making businesses more productive. eg. By allowing resources to move around quickly and data is received faster. - It also provides more jobs in the short term such as road building.

Question 27

How does the government protect the environment and what is the impact of this on businesses?

Answer 27

-The UK is part of the EU's "Emissions Trading System". This gives greenhouse gas emissions to essential manufacturers. -The government funds the WRAP which ensures a resource is in use for as long as possible to reduce waste. - This means for businesses they are encouraged to operate in a green way as it is costly and also can damage the reputation of the business. They also need to plan around environmental laws.

Question 28

How can political changes positively and negatively effect international trade?

Answer 28

- Tariffs discourage international trade. Tariffs increase the tax on imported goods, a form of protectionism. However, tariffs are decreasing in use as international trade can significantly benefit a country's economy. -Quotas are trade restrictions set by governments that put a cap on imports and exports. Used to protect the country domestically as it may be struggling.

Question 29

What is GDP and what is the formula?

Answer 29

-GDP is gross domestic product. This means the total value of goods and services produced within the country and is used to measure the nations financial performance. -GDP= Total consumer spending+Business investment+ gov spending+value of exports-the value of imports.

Question 30

What is economic growth determined by?

Answer 30

-Amount and quality of economic resources available. eg. Labour and fixed assets.

Question 31

Why is the quality and quantity of labour in a nation important and what problem is the UK facing?

Answer 31

-If there is a high quality of labour in the nation, it means economic growth will be faster. -If there is a high quantity of labour it can be beneficial due to the nation being able to increase output and demand. -However, too high and it can lead to high unemployment levels, hindering economic growth. - The UK is facing an ageing population, meaning there is more people in retirement, therefore firstly there is a less availability for labour and also more government reliance, stunting economic growth.

Question 32

Why is investment key for economic growth?

Answer 32

Increases the amount of productive assets eg. machinery. For the value of assets to grow there needs to be investment has to be greater than the amount of depreciation(The machinery that has been worn out) during the year.

Question 33

What does inflation increase?

Answer 33

Cost of wages, buying and holding stock, so firms need more working capital.

Question 34

What is current ratio and what is the formula?

Answer 34

-Current ratio compares current assets and current liabilities. - CR= Current assets/ Current liabilities

Question 35

What does it mean for a business if its current ratio is below 1.5?

Answer 35

It suggests a liquidity problem as a business either cannot pay off its current liabilities or makes a very small amount.

Question 36

What is Monetary policy?

Answer 36

- It is tweaking the interest rate to control inflation and exchange rates. - The government will increase interest rates, leading to decreasing inflation due to less spending encouraging saving rather than spending. - Foreign investors want to keep their money in UK banks when IR is high.

Question 37

What are the main aims of monetary policy?

Answer 37

1. Control inflation 2. Control the overall rate of economic growth. 3. Manage unemployment levels( If IR are low then people have more money to spend and increased demand leading to an increase in demand for labour. 4. Influence foreign exchange rates.

Question 38

What is fiscal policy?

Answer 38

- It sets tax rates and the amount of government spending. - It is the about the balance between taxation and spending, if one is more than the other it can cause problems.

Question 39

What are the effects of raising taxes and decreasing taxes?

Answer 39

Raising taxes- Reduces spending in the economy. By increasing taxes, it also leads to more employment opportunities if the government invests in it. Cutting taxes- Increases spending in the economy and encourages business activity.

Question 40

What is expansionary fiscal policy? When is it done? How is it done? What is the change in government borrowing? What is the effect?

Answer 40

- It is done when economic slowdown and high unemployment. - Done by cutting taxes and encouraging spending. - Government borrowing increases for more spending - Effect is demand for goods and services increases.

Question 41

What is contractionary fiscal policy? What is it done? How is it done? What is the change in government borrowing? What is the effect?

Answer 41

- Done when production is at 100% capacity and at a high chance of inflation . - Done by raising taxes. - Government borrowing decreases, higher IR rates. - Effect is demand for goods decreases.

Question 42

What is CSR?

Answer 42

This is corporate social responsibility. This is when a business sets projects up to benefit society.

Question 43

What are the negatives of CSR?

Answer 43

- The only social responsibility a business really has is paying dividends to shareholders. -Reduces resources available to the business and leads to them to be restricted. -Stifles innovation.

Question 44

Why is it beneficial for a business to use CSR?

Answer 44

- Is an ethical thing to do and improves the reputation. - Attracts stakeholders into the business. - Necessary in order to avoid regulation.

Question 45

How can a business demonstrate CSR?

Answer 45

-Sustainable resourcing - Responsible marketing - Investing in education - Safe working conditions and fair pay

Question 46

What is the purpose of Porter’s Five forces?

Answer 46

-Analyses the state of the market and helps managers figure out the best strategy to gain a competitive advantage.

Question 47

What are Porter’s Five forces?

Answer 47

1. Barriers to entry 2. Buyer power 3. Supplier power 4. Threat of substitutes 5. Rivalry within the industry

Question 48

What are barriers to entry and what are factors that influence it?

Answer 48

-Barriers to entry- Is how easy it is for new firms to enter the market. -Businesses want barriers to entry to be high due to less competition. - Factors such as high start up costs like expensive equipment deter other businesses. - To increase barriers to entry, a businesses can use patents or trademarks. - Take control of distribution channels, means competition does not have access, makes it less attractive and harder for new entrants.

Question 49

What is buyer power and what factors influence it?

Answer 49

- Buyer power is buyers want product prices as low as possible. - Buyers have high power when there are few buyers and lots of sellers, products are standardised eg. Toilet paper. - To lower buyer power a business may buy the supplier out or similar businesses could come together.

Question 50

What is supplier power and how do you influence it?

Answer 50

- Supplier power is suppliers want to get as high a price as possible. If it costs businesses to switch supplier then it will be high. - To decrease supplier power, businesses can tie the suppliers into long term contracts to make it harder to switch the price. - To increase supplier power, suppliers can develop new products and protect them with patents, therefore there the only one supplying the products therefore charge a premium price.

Question 51

What is threat of substitutes and what influences it?

Answer 51

- Threat of substitutes is how likely consumers are willing to buy an alternative. - Especially at threat in undifferentiated products like washing powder, toilet paper. Unique products less so. - For business to reduce the threat, they can make it difficult or expensive for consumers to switch. Eg. Amazon kindle, you usually buy amazon products to read. - Differentiate there products and create a USP, such as a low price ,high quality it can create brand loyalty. - Can identify a group of customers who’s needs aren’t being met.

Question 52

What is rivalry in an industry and what influences it?

Answer 52

- Rivalry in an industry is how much competition there is. - High competition when fixed costs are high. Eg. Delivery services need to deliver lots of parcels to make up for the vehicles they have invested in. - To reduce competition, a business can make it easy to switch between standardised goods. - Businesses with bigger promotional budget can be more successful.

Question 53

What is inventory turnover ratio and what is the formula?

Answer 53

- It compares the cost of all the sales a business makes over the year to the cost of the average stock held. - Can be improved by holding less stock or increasing sales. - IT= cost of sales/ cost of average stock held

Question 54

What does inventory turnover tell you about stock?

Answer 54

- Tells you how many times a business has sold all its stock. - A business with JIT production will have a very high ratio.

Question 55

What is the payables days ratio formula and what does it tell you?

Answer 55

- Payables days= Payables/ Cost of sales X100 - Number of days it takes for a business to pay for its goods it buys on credit from suppliers. Can use it to maximise cash flow.

Question 56

Currency changes Ex range is €1.41 to £1 - Convert €320 into pounds - Convert £47 into euros

Answer 56

- €320/1.41=£226.95 - £47 X 1.41=€66.27

Question 57

What are exchange rate and what does it mean if the exchange rate is high and low?

Answer 57

- Exchange rate is the value of one currency compared to another. - When ER is high, it indicates a strong pound therefore imports are cheaper and exports are more expensive. - When ER is low, it indicates a weak pound therefore imports are more expensive and exports are cheaper. Benefits exports and increases demand when the pound is weaker.

Question 58

What does receivable days show and what is the formula?

Answer 58

- Receivable days shows the amount of days a business has to wait to get all receivables. Want low receivable days. - RD= Receivables/Sales revenue X 365.

Question 59

What are Porters 3 strategic positioning?

Answer 59

- Differentiation - Focus - Cost leadership

Question 60

What is the inventory turnover formula?

Answer 60

Cost of sales/Average inventory held