Unit 1 - What is a business? Flashcards Preview

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What is a mission statement?

A mission statement is a declaration of a business's core purpose and focus.


What is a business objective?

An objective is a goal to help a business achieve it's mission.


List three reasons why businesses exist.

- To provide goods and services

- To develop a good idea (enterprise)

- To provide help and support to others


Outline how a mission statement differs from objectives.

A mission statement paints the broad picture.
The objectives of a business are more specific (they are targets or goals that will enable a business to achieve its overall mission).


List five business objectives.

- Growth
- Survival
-Customer service
- Corporate social responsibility


Draw up a table to illustrate the likely objectives of the following: a public limited company; a public sector organisation; a charity.

Public limited company Profit, growth

Public sector organisation Service, social and
economic benefits for

Charity Fundraising and support
for charity


Explain briefly why a business would write a mission statement.

The mission statement sets out the vision of the business and its core purpose and focus. Overall corporate and strategic planning can then be set and measured against the core purpose.


Outline why it is necessary for any business objective to be SMART.

S - Specific
M - Measurable
A - Achievable
R - Realistic
T - Time

By having SMART objectives it is possible to evaluate the success in achieving them.


From the figures below, calculate the expected profit of ABC Ltd.
Output: 10,000 units
Price: £5 per unit
Fixed costs: £5,000
Variable costs: £3 per unit

Profit = total revenue - total costs

£50,000 - £5,000 - £30,000

Profit = £15,000


Identify three differences between a corporate business and a non-corporate business.

- Corporate businesses have limited liability, unlike non-corporate businesses.

- Corporate businesses can sell shares and have shareholders.

- Corporate businesses (especially PLCs) are generally much larger


Using examples, define the public sector.

The public sector is that part of the economy owned and controlled by the government or local authorities, e.g. NHS, fire service and rubbish collection.


List and explain three objectives that a not-for-profit business may have.

- To help the local community, possibly by providing essential services.

- To help people to acquire job-related skills to assist them into employment.

- To buy products from overseas under fair-trading schemes offering benefits to producers in less developed countries.


How does a mutual organisation differ from other incorporated business organisations

Mutuals are owned collectively by a business's clients or members, whereas incorporated businesses are owned by their shareholders.


Why are most new businesses set up as sole traders?

Most new businesses are set up as sole traders because they are usually small, mostly local businesses, and a sole trader is the simplest and easiest business to form.


List three reasons for changing the legal form of a business.

- Changing circumstances such as growth of the business.

- Capital - it may be easier to raise capital as a plc.

- Takeover may cause a change of legal structure.


Briefly give two reasons why people invest in shares.

- To earn income resulting from a share of the profit of the business in the form of a dividend.

- For capital growth - if the business does well, the share price is likely to increase, resulting in an increase in an increase in the value of an investment.


List four reasons why share prices may fluctuate.

- Increased profit

- Expectancy of increased profit

- Changes in the market.

- World uncertainty


XYZ plc has a share price of 57p and 2,100 million shares. What is its market capitalisation?

Market capitalisation = Share price x Number of shares issued
= 57p x 2,100m
= £1,197m


Briefly explain why it is important for a business to differentiate its product or service in a competitive market.

If sales are to be achieved in a competitive market, a business less must make its product or service stand out from the rest. It must make it different, i.e. differentiate it from the rest. If it can do this successfully it is likely to gain a competitive advantage and therefore increased sales and potentially profit.


How might a manufacturer of luxury products be affected by a rise in interest rates?

A rise in interest rates is likely to result in lower disposable income for consumers. This is due to the fact that many will be making higher interest payments on loans and overdrafts, whilst others may be inclined to save more. If spending is reduced, manufacturers of luxury products are likely to be the ones that suffer most.


List three reasons why a study of demographics might be important to a business.

A study of demographics is important as:

- Population affects the level of demand.

- The make-up of the population, age, income, occupation etc. affects the nature of goods bought.;

- An understanding of the structure of the working population will have implications for employment.


What do you understand by the term 'fair trade'?

Fair trade is a movement that strives for fair treatment of farmers in less developed countries.


What is Profit?

Profit is the amount of money remaining once all costs have been deducted from the revenue.


What is Revenue?

Revenue is money received from sales.


What is Variable costs?

Variable costs are costs that vary as a direct result of changes in the level of output.


What is Fixed costs?

Fixed costs are costs that do not change as a result of changes in the level of output.


What is the Private Sector?

The private sector is part of the economy made up of private enterprises - businesses that are owned and controlled by individuals or groups of individuals.


What are Corporate businesses?

Corporate businesses are businesses which have a legal identity that is separate from that of their owners.


What is Limited Liability?

Limited liability restricts the financial responsibility of shareholders for a company's debts to the amount they have individually invested.


What is a not-for-profit business?

A not-for-profit business is an organisation that has business objectives other than making a profit.


What is the Public Sector?

The public sector is part of the economy that is owned and controlled by the government or local authorities.


What is Privatisation?

Privatisation is the process of converting government owned and controlled industries/businesses to the private sector.


What are shareholders?

Shareholders are the owners of a limited company and include any person, company or other institution that owns at least one share.


What is a dividend?

A dividend is a share of the after-tax profit of a company distributed to its shareholders according to the number of shares held.


How is Market capitalisation calculated?

Market capitalisation is calculated as follows:
Share price x Number of shares issues