What Is A Business?

Freya Coombes
Flashcards by Freya Coombes, updated more than 1 year ago
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AS - Level Business Flashcards on What Is A Business?, created by Freya Coombes on 03/01/2016.
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Why Does A Business Exist? - Creates employment (increases GDP) - Creates wealth (taxes) - Creates new products -Enhances the country's reputation
Business Categories According To Economic Sectors - Primary- agriculture, mining, farming - Secondary- manufacturing, construction -Tertiary- hotels, transport, health care Can operate in more than one sector
Define Mission Statement A qualitative statement of an organisation's aims which describe the general purpose of the company.
SMART Mission objectives should be: Smart Measurable Achievable Realistic Time
Common Objectives - Profits and profit maximization (smaller family owned businesses, achieve other targets, satisfy shareholders-dividends) - Growth (can exploit market position for higher profits, higher dividends, better salaries and job security) - Survival (important in recessions, intense competition and times of crisis e.g. hostile takeover)
Benefits Of Setting Objectives - Know what you are doing - Organisation - Motivates employees - Measures progress - Review success of the business plan
Profit Equation Total revenue - Total costs
Total Costs Fixed costs- Variable costs - Can help decide on product price
Revenue Quantity sold x Average selling price - Reduction of price usually equals more sales
Total Variable Costs Equation Variable costs per unit x No. units sold
Define Profitability Being able to make a product.
Private Sector Busiensses - Owned by shareholders/ private individuals - Not owned by the government, local authorities or state organisations - E.g. soletraders
Sole Traders An individual establishes and operates their own business e.g. plumber.
Benefits Of Being A Sole Trader - Easy to set up (don't have to register with government agencys if all profits are declared to HMRC) - Freedom- be your own boss, make your own decisions, self motivated - You decide what happens to the profit
Drawbacks Of Being A Sole Trader - Unlimited liability - No shared responsibilities - Difficult holidays and sick days - Hard to raise finances
Define Unlimited Liability If you can't pay the businesses debts then you use your personal belongings to pay it off e.g. house.
Public Limited Companies (PLC) Legal Status - Incorporated - Accounts are public
Benefits Of Being A PLC - Limited liability - Easy to raise large sums of capital - Publicity is low cost- in papers - Takeover-can buy other companies by offering shares to other company's shareholders - Increase capital by selling shares on the stock exchange
Drawbacks Of Being A PLC - Shareholders own the company - Chance of a take over - Difficult to pursue objectives
Define Market Capitalisation - The value of the company based on share prices and the number of outstanding stocks. - Measures the size of a PLC Current share price x No. outstanding shares
Define Limited Liability In the event of financial difficulties personal belongings are safe.
Private Limited Companies (LTD) Legal Status Incorporated
Benefits Of Being A LTD - Limited liability - Quick set up - Separate legal identity - Only taxed on profits
Drawbacks Of Being A LTD - Publish accounts - Expensive set up - Less power
Benefits Of Profit - More customers - More likely to gain investors, cheaper to raise finance - May be bought by a larger rival - Have confidence of suppliers so could make delayed payments
Define Aims Long term plans which a businesses objective are derived - Set by senior employees - Relate to the whole business - From this they set quantifiable objectives
Define Objectives Medium to long term goals to coordinate the business.
Companies - Owned by shareholders - Limited liability - Shareholders benefit from dividends and company value - Businesses pay auditors to check accounts annually - E.g. Private or Public limited - Must have a memorandum of association and a article of association
Role of Shareholders - Influence decision making - Buy shares - Shares are worth voting rights, more shares is more voting rights which means more company influence
Influences On Share Prices - Company performance (perform well and share prices are anticipated to rise) - Businesses environment in which they trade (good economic conditions means investors are more confident, more finance)
Significance Of Share Price It doesn't have a direct impact on the companies immediate financial position. - Falling- poor performance, hard to raise capital, vulnerable to takeover. - Rising- reflects well on the management team, good job, receive bonuses, easier to raise capital, potential shareholders are more willing to buy assets and banks are more willing to offer loans
Positive Effects Of The External Environment - Change in taste means a rise in demand - Competition leaves the market - Consumer numbers increase - Interest falls so it's cheaper to borrow money - Steadily rising income- higher demands for products as people can afford more
Negative Effects Of The External Environment - Consumers want environmentally friendly product which costs more - New businesses enter the market so more competition - Over supplied market so prices are lowered to compete- unemployment, lower consumer income, less spending
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