What is Business? - created from Mind Map

Seite 1

External Influences

Types of Ownership

Share Price

Market Capitlisation

Competition: Spare or surplus capacity in the market which reduces industry profits, technology

Real Incomes: Linked to market demand, affected by price inflation, wage growth, employment, interest rates and Govt tax policy

Interest Rates: Reward for saving, cost of borrowing as a %. Used for price stability, possible effects e.g. more spending/less saving if decrease

Demographics: Ageing population means greater demand for health care, residential homes. Continued high next immigration means increase in size of labour force, wage low

Environment: Concern for the impact of raw material usage, energy use, waste+pollution. Results in improved customer goodwill, more trading opportunities with eco friendly suppliers

SOLE TRADER benefits: Own boss, flexible working hours. Drawbacks include long hours, unlimited liability

LTD benefits: Limited liability, no stock exchange

PLC benefits: Stock exchange, limited liability. Drawbacks being publication of accounts and hence profit margins

PARTNERSHIP benefits: More capital, specialisation. Drawbacks include disputed over decision making and sharing profits

A share is an individual part of the total issued share capital of a company, most are ordinary shares which means equal voting rights based on number of shares helf

A share price is determined by supply and demand, if there are more buyers than sellers share price rice

Capital Growth/Gain arises from a increase in the business' value and is reflected in an increase in share price.

Share price of PLC is disclosed, highly transparent and displayed publicly in real time whereas share price of LTD has no active market and is initially set when shareholders subscribe to their shares

Formula: Share price x Number of shares in issue. The share price of a PLC influences expectations of performance, unexpected warnings a "profits warning" that expectations will not be met means fall in share price

Factors that influence share price of PLC

Role of Share Capital in Finance: Equity Finance= returns, part of ownership, long term, can be repaid but unusual. Debt Finance=loans/overdrafts, often secured against assets

Raising finance through share issue. Benefits: Substantial funds if good prospects, broader base of shareholders, equity rather than debt. Drawbacks= flotation costly&time-consuming, equity has a cost of capital higher than debt

Internal: Profit growth, dividend policy, relationship with key investors and management reputation

External: State of the economy, whether the company is a takeover target, alternative investment in sector and general market sentiment