Unit 7 Flashcards

Question

What is meant by ratios?

Answer 1

A ratio compared 2 figures and is expressed as a proportion or a %. E.g. 1:2

Answer 2

- Balance sheet - Income statement

Answer 3

A formal financial document that measures a company's financial performance over a specific accounting period (normally over 1 year). - It shows the income and expenditure over this period and the resultant profit (or loss) made.

Answer 4

- Revenue (or turnover) - Costs of goods sold - Gross profit - Expenses - Operating profit - Tax & interest - Net profit (profit for the year)

Answer 5

A report that represents a snapshot of a business' financial position at a given time. - It shows what a business owns (its assets) and what it owes (its liabilities, including shareholders' equity or shareholders' money). - The report gets its name from the fact that the two sides of the equation must balance (the value of the assets in a business will always be equal to the value of the money put into a business).

Answer 6

- Non-current assets - Current assets - Current liabilities - Non-current liabilities - Net assets - Total equity or shareholders' equity

Answer 7

Anything that a business owns, benefits from or has the use of in generating income, e.g. buildings, vehicles, machinery, stock, etc.

Answer 8

What a business owes; the legal debts or obligations that arise during the course of business operations, e.g. bank loans, invoices from suppliers, etc.

Answer 9

The cash available to a business for its day-to-day operations (it allows a business to pay its bills). - It provides a measure of the business' short-term financial health. = current assets - current liabilities

Answer 10

Represents the total amount of money invested into the business. It is calculated as: (total equity) + (non-current liabilities)

Answer 11

Assets owned for less than 1 year, e.g.: - inventories (include any stock, work in progress and finished products not yet sold) - receivables (money owed to the business for goods sold which have yet to be paid for) - cash and cash equivalents

Answer 12

Assets that are usually kept by a business for more than 1 year, e.g.: - vehicles - premises - machinery - buildings - factories - warehouses - shops - IT equipment - land

Answer 13

- Tangible assets: can be physically touched, e.g. buildings, machinery. - A business might have other intangible assets that have real value to the business but do not have a physical presence, such as patents, trademarks, copyright, brand names and goodwill. - On account of the difficulty of valuing such assets, intangible ones are not normally included on a balance sheet unless they have been specifically paid for, such as in a takeover.

Answer 14

Debts of a business that will need to be repaid within 1 year. These include: - payables (money owed to suppliers) - overdrafts (short term source of finance) - any corporation tax or dividends due for payment Businesses use current assets to pay for current liabilities and therefore need sufficient working capital.

Answer 15

Debts of a business that will take longer than 1 year to be repaid, e.g.: - bank loans - mortgages - debentures

Answer 16

Share capital (money from sale of shares) + retained profit (profit not given as dividend)

Answer 17

This figure shows the value or worth of the business. It is calculated by subtracting the liabilities from the assets.

Answer 18

- Managers will use the information to help inform future decisions, such as whether or not to expand the business. - Shareholders will use the information to decide whether to buy more shares or to sell the shares they already own if the profit made is disappointing. - The tax authorities can use the statement to calculate the amount of tax the business should pay.

Answer 19

It is the responsibility of the board of directors to decide how profit is split: - Retained profit is profit kept within the business to fund expansion plans or capital investment. Any retained profit is added to the balance sheet under total equity in the reserve section. - Distributed to shareholders as dividends.

Answer 20

The degree to which profit is likely to continue into the future, i.e. the sustainability of the profit. - E.g. it is important to check that profit has not resulted from one-off items such as the sale of an asset, e.g. sale of some land or buildings, something that will not be repeated in the future.

Answer 21

Most businesses, especially plcs, are under pressure to present their financial performance in the most favourable light. There are a number of methods that can be used; processes are called window dressing: - Inflating the value of a non-current asset, e.g. over inflating the value of a building (suggesting that the assets are worth more than they really are). - Borrowing money for a short-period of time to improve current assets just before the date on which the balance sheet is drawn up. This could enhance the business' working capital (disguising cash flow problems).

Answer 22

Involves the comparison of financial data to gain insights into business performance.

Answer 23

LIQUIDITY - current ratio GEARING - gearing ratio PROFITABILITY - return on capital employed (RoCE) ratio - profit margins EFFICIENCY - inventory turnover ratio - receivables days ratio - payables days ratio

Answer 24

A measure of the extent to which an organisation can meet its immediate short-term financial obligations (day-to-day debts). - E.g. to pay its liabilities such as salaries, suppliers' invoices and taxes.

Answer 25

Assesses whether a business has sufficient cash (money in its bank account) or equivalent to be able to pay its short-term debts. - The liquidity ratio is current ratio.

Answer 26

Comparing current assets with current liabilities. = (current assets) / (current liabilities) E.g. a business has current assets of £200,000 and current liabilities of £160,000. Its current ratio is £200,000 / £160,000 = 1.15 - This would be expressed as 1.25:1 - The business has £1.25 in cash (or equivalent) to pay for ever £1 of debts it has to pay in the short-term.

Answer 27

A result of 2:1 indicates that the business can pay its debts twice over (ideally recommended). - Firms can still operate comfortably on a figure around 1.5:1, although this varies from business to business and industry to industry. - It is clear from the current ratio that a figure less than 1:1 could present problems and a figure greater than 2:1 could indicate an inefficient management of resources.

Answer 28

Shows a business' sources of finance, e.g. non-current liabilities (debt) and total equity (shareholder's money).

Answer 29

The gearing shows the capital structure of the business: where the business borrowed its money from. - In other words, the proportion of finance that is debts (non-current liabilities, e.g. bank loans) relative to the finance provided by shareholders (total equity).

Answer 30

(non-current liabilities) / (capital employed) x 100 = % *capital employed = total equity + non-current liabilities

Answer 31

The gearing assesses whether the business is at risk from having too much debts. Debts represent money that must be repaid with interest regardless of how well the business is doing. - The business may be at risk of an increase in interest rates and at risk of liquidation if it was unable to repay its debts.

Answer 32

Ideally the figure should be below 50%. - If the figure is above 50% the business is considered to be highly geared and could be at risk of not being able to repay its debt and is at risk of rising interest rates. - A high gearing ratio (e.g. 75%) may also mean that banks may be reluctant to lend any more money to the business, reducing funding sources. - A figure below 50% is low gearing and allows a business greater flexibility should profit levels fall or interest rates rise. - The ratio helps analyse the longer-term liquidity position of a business.

Answer 33

Do not always assume a highly geared business is risky. - If a business has high levels of profitability that are sustainable, it may be little affected by high gearing. - Just as low-geared business with unsustainable profits could face problems.

Answer 34

(gross profit) / (revenue) x 100 = % (operating profit) / (revenue) x100 = % (net profit) / (revenue) x 100 = %

Answer 35

- Allows a more useful year-on-year comparison. - Shows a business' profitability rather than just profit. - Can compare the 'efficiency' between competing businesses rather than just size. - Gives an indication of how well a business is controlling its cost of sales and operating expenses.

Answer 36

Assesses the profitability of a business. - The ratio shows the percentage of profit generated from each pound borrowed by the business (money borrowed from shareholders: total equity + money borrowed from banks 'debt': non-current liabilities). (operating profit) / (capital employed) x 100 = % *capital employed = total equity + non-current liabilities

Answer 37

With RoCE, the higher the percentage figure the better. The figure needs to be compared with the figure from previous years to see if there is a trend rising or falling and with similar businesses. - We would expect a figure above the rate at which the business borrows money and typically above 20% might be expected. - The actual figure achieved, however, will vary from industry to industry and business to business according to circumstances.

Answer 38

Measures how often each year a business sells and replaces its inventory (stock). (cost of sales) / (inventory) = number of times per year (the stock is replenished)

Answer 39

Depends on the type of business: - businesses selling perishable goods will have a higher inventory turnover compared to businesses selling expensive goods such as furniture (it takes longer to sell a sofa than to sell some bread). A high inventory turnover in general indicates efficient operations, but in analysing the figure it needs to be compared to the industry average.

Answer 40

Measures the average length of time taken by customers to pay amounts owed (from trade credit). (trade receivables) / (revenue) x 365 days = number of days (taken by customers to pay the business)

Answer 41

Measures the average length of time taken by a business to pay amounts it owes (to its suppliers). (trade payables) / (cost of sales) x 365 days = number of days (taken by the business to pay its suppliers)

Answer 42

Must be compared with one another. - Ideally a business wants its receivables days ratio to be shorter than its payables days ratio. - In other words, ideally money owed by customer should be paid before the business has to pay money out to its suppliers. - This is to protect the business' cash flow or working capital.

Answer 43

- Having a high figure for receivables days may act as a USP for a business and any attempt to reduce it could result in dissatisfied customers. - A business may also look to improve its own liquidity position by increasing the payables days figure, but this could damage its relationship with suppliers and lead to higher payments.

Answer 44

- Gross profit margin - Operating profit margin - Profit for the year (net profit) margin

Answer 45

- Gearing - Current ratio

Answer 46

- Return on capital employed (RoCE) - Receivable days ratio - Payable days ratio - Inventory turnover ratio

Answer 47

- Construction - Engineering - Art industry

Answer 48

- Supermarket retail - Fast-food - Motor vehicle production

Answer 49

STRENGTH: low gearing OPPORTUNITIES: new store location becomes available - As the business is low geared, they can afford to borrow a mortgage to take advantage of the new store.

Answer 50

Useful for comparisons - a ratio on its own is limited in what it tells us. To be useful the figures need to be: - compared with previous years' results to see if there is an improving or declining trend. - compared with results from other businesses in the same industry. Only by taking such comparisons can we judge how well a business is doing.

Answer 51

Historical nature - Ratios are based on past data and therefore are not necessarily an indicator of future performance. - The figures used could be out of date or inaccurate if window dressing techniques have been used. External environment - Ratios do not take into account external factors such as changes in the economy, actions from competitors or government policies that could have an impact on future performance. Limited focus - Focus on just the financial performance of a business, which makes it limited in scope. - It ignores other functional areas of the business including operations, HR and marketing.

Answer 52

Actions taken by organisations to make their financial results appear better than they are. The can do this by: - One-off events such as the sale of assets to improve the profit figure (but this is 'low quality profit') - Using intangible assets such as brand name and goodwill to create and inflated value for the business. - Artificially improving the liquidity position of a business through short-term borrowing to improve cash position. - Bringing sales forward to improve revenue.

Answer 53

The combination of knowledge & technical capacities that allow a business to differentiate itself from its competitors. - These provide a business with a unique selling point (USP) and a competitive advantage. - They are very similar to the 'strengths' of a business identified in a SWOT analysis. - They are developed over a period of time through learning, experience and skills developed within the business relating to the production of its goods and services.

Answer 54

- Provide significant benefits to customers. A core competency is the reason why customers choose a business' products or services over others. It is also the reason why customers are willing to pay more for a product and are being loyal to the brand. - Are difficult for competitors to replicate or copy & create a barrier to entry. - Provide opportunities for a business to introduce new products and enter new markets enabling a business to achieve economies of scope.

Answer 55

The subcontracting of non-core activities in order to free up cash, time, staff and facilities to allow a business to concentrate on areas where it excels and in which it has a competitive advantage.

Answer 56

Competencies need to be nurtured and protected; unlike physical assets that deteriorate over time, they can be enhanced as they are applied. - The business should focus on core competencies to develop key efficiencies. - Aspects of the business that are not a core competence should be outsourced to another business so that the business can focus on its strengths.

Answer 57

- There may be problems associated with outsourcing. In order to focus on core competencies, a business may lose some control of other areas, which may affect its overall performance. - Trends etc. change over time and a business must be prepared to move with the times. Kodak, HMV and Mothercare are all examples of companies that have not done so.

Answer 58

- Research & development (R&D): investment in this area may help a business develop future successful products or processes. - Profit quality: ensuring that the profit is sustainable (repeated in the future). - Employee engagement: having motivated staff is key for the future performance of the business in all key areas, e.g. marketing, operations, finance, etc.

Answer 59

- Profit maximisation: focusing on increasing the level of profit in the short-term regardless of the quality of the profit made. - Sales growth: prioritising growth and increase in revenue over other measures. - Cost savings: making cuts in all areas regardless of the consequences on quality, customer service, impact on staff, impact on the environment, etc.

Answer 60

Means doing business without negatively impacting the environment, community, or society as a whole. - It focuses on meeting the needs of the present stakeholders without compromising their future or the business' future.

Answer 61

- Businesses assumed to be profit-maximisers. - Traditional measure of business success. - Closely linked with business value (e.g. share price). - Often the basis for financial incentives (e.g. bonuses).

Answer 62

The 'Triple Bottom Line' suggests there is more to business success than profit. - It aims to measure the financial, social and environmental performance of a business over a period of time. - Three perspectives: the 3Ps of profit, people & planet to ensure its sustainability.

Answer 63

Monitoring the financial performance of the business over time. - It is important for business to make profits for their stakeholders, the economy and society as a whole. - This will involve using information from financial accounts and looking at financial ratios, e.g. from income statement. - E.g. economic growth, profit, cost savings, R&D, etc.

Answer 64

The degree to which the business behaves in a socially responsible manner to key stakeholders including employees, suppliers, customers and the community. - This will involve measures such as fair pay, health & safety figures, customer satisfaction or fair trade. - E.g. standard of living, education, jobs, equal opportunity, etc.

Answer 65

- Business ethics - Fair trade - Worker's benefits

Answer 66

The reduction of the impact of the business' activities on the environment. - This will include reducing carbon emissions, wastes and use of renewable sources of energy. - E.g. natural resource use, pollution prevention, bio-diversity, etc.

Answer 67

- Conservation policies - Environmental justice - Global stewardship

Answer 68

- Energy efficiency - Renewable fuels - Subsidies, incentives - Green technology

Answer 69

Sustainability

Answer 70

- Focusing on people and the planet can benefit stakeholders, such as employees and local communities, but these benefits may involve higher costs for the business and thus lower profits. - Decisions made may be good for employees or the environment but not for profits.

Answer 71

- Environmentally aware customers may increase their demand for the business' goods. - Careful management of scarce resources can lead to a reduction in factor inputs and thus unit costs. - Employees may be more cooperative and productive as they feel more recognised.

Answer 72

Nike: - Has changed its employment practices in overseas countries, whereas, Starbucks: - Has perhaps gone a stage further with a sustainability strategy of supporting growers and using environmentally friendly napkins and cups, as well as taking care of its employees.

Answer 73

- Labour laws - Competition laws - Environmental laws

Answer 74

Where businesses act together as a single producer in order to influence the prices, production or marketing of certain goods or services.

Answer 75

Protects customers and businesses against unfair competition practices, e.g. colluding and dominant market position (monopoly) - excessive market power. - A number of laws have been designed to promote healthy competition and prevent anti-competitive practices. - These are designed to prevent businesses taking advantage of a dominant market position (greater than 40% market share) or forming cartels or other trade agreements such as price fixing, which could be used to exploit consumers and trading partners.

Answer 76

- Abuse of market power: such as imposing unfair conditions on small suppliers. - Anti-competitive practices: such as anti-competitive mergers and acquisitions. - Cartel activity: businesses working together to manipulate the market and limit competition.

Answer 77

The Competition Act 1998: - This acts to prevents anti-competitive agreements between businesses such as price fixing, where competitors collude to sell a good or commodity at the same price, limiting production and sharing out markets. - It also addresses the potential abuse of a dominant position in a market. The Enterprise Act 2002: - This act further strengthens the Competition Act 1998, particularly in the area of cartels.

Answer 78

A non-ministerial government department responsible for strengthening business competition and preventing & reducing anti-competitive activities. - Responsible for the enforcement of competition & consumer law. - Part of its role is to investigate mergers and takeovers, either when the merged business gains control of 25% or more of the market.

Answer 79

The Financial Conduct Authority (FCA)

Answer 80

Labour laws aim to protect exploitation of employees by businesses, by regulating the relations between workers, employees and trade unions. Labour legislation covers: - Minimum wage & national living wage - Working hours - Maternity & paternity leave - Sickness and holiday - Discrimination in the workplace

Answer 81

- The Equality Act 2010: aiming to prevent discrimination on the grounds of age, race, sex, disability, religion and sexual orientation. It is one of the most important legislation concerning individual workers. - The Minimum Wage Act: introduced in 1998, with hourly rates reviewed annually. The rate varies according to age. - The Employment Rights Act: sets out employees' statutory rights in relation to pay & working conditions. It covers unfair dismissal, redundancy payments, protection of wages, zero hour contracts, Sunday working, suspension from work, flexible working and termination of employment. - The Health & Safety Act at Work Act - The Trade Union Act 1984: legalised trade unions and gives them rights of collective bargaining. The Act also prohibits employers from stopping employees from exercising their rights under the Act

Answer 82

- Closed shops, which meant that in order to work for a business an employee had to belong to a trade union. - Open ballots on strike action - ballots are now secret. - Picketing, where the number of striking workers able to congregate outside a workplace is limited and secondary picketing is banned.

Answer 83

Environmental legislation is designed ti minimise the negative impact of businesses on the environment. - The legislation in this area falls into 2 main categories: pollution and climate change. - Businesses are made to pay for the full cost of production such as the cost of clean up or repair damage caused by pollution.

Answer 84

Pollution is related to air, water and land, and the 2 main acts here are the: - Environmental Protection Act 1991, which prevents pollution from emissions. - Environment Act 1995, which set up the Environment Agency to oversee environmental protection.

Answer 85

A public body established in 1996 to protect and improve the environment and promote sustainable development.

Answer 86

- Climate Change Act 2008, which aims to make the UK a low-carbon economy. - Energy Act 2013, which focuses on setting decarbonisation targets for the UK and reforming the energy market.

Answer 87

- Increases the amount of bureaucracy and red tape (paperwork, e.g. testing certificates). - Likely to increase costs, e.g. as a result of the minimum wage and environmental legislation.

Answer 88

- New legislation may create a demand for new products or processes, e.g. recycling processes or biodegradable products. - May create a level playing field where all businesses have to comply to the same rules and regulations. - Some benefits may develop a competitive advantage by operating above the standards set.

Answer 89

- Regulated markets - Enterprise - Environmental issues - International trade - Infrastructure

Answer 90

Refers to the willingness to take initiative in setting up or taking on a project or business venture.

Answer 91

Represents the basic physical and organisational structures (transport, communication, utilities, etc.) needed for a business to function.

Answer 92

A regulator is an organisation appointed by a government to regulate an industry such as banking or energy.

Answer 93

It is in the government's best interest to encourage enterprise - to encourage individuals and businesses to take initiative and to be innovative in building businesses - as this will lead to a stronger, more vibrant economy.

Answer 94

- Making finance accessible to small businesses through schemes such as Enterprise Allowance and Enterprise Finance Guarantee. - Providing funding for research & development. - Providing advice on running a new business. - Reducing tax (the UK has one of the lowest rates of corporation tax in more developed countries), and schemes such as the Patent Box allow further relief to be gained.

Answer 95

Patent Box is a special tax regime for intellectual property revenues that businesses have been able to elect to enter.

Answer 96

The primary aim of regulators is to protect the public through imposing requirements, restrictions & conditions, setting standards, ensuring compliance and enforcement so that businesses behave in an appropriate way. - They operate within a wide variety of industries & professions. - Business decisions are scrutinised by regulators and businesses can be fined for breaking the law. - Regulators can cap price increases, e.g. Ofgem can set the maximum price rise of 1 unit of gas; rail regulator does the same for train fares.

Answer 97

- Promoting free competition between businesses. - Regulation of specific industries such as the Financial Conduct Authority (FCA). - Regulation of privatised monopolies such as Ofwat (water & sewage), Ofgem (energy), Ofcom (communications such as television, radio and fixed-line telecoms). - Self-regulation where businesses agree to operate according to a code of conduct.

Answer 98

Infrastructure represents a high-cost investment and is yet vital to the economy. - One of the biggest issues facing governments across the world. - Investment in schools, roads, hospitals and communication is essential for both economic development and quality of life. - As a result, the quality & reliability of a country's infrastructure will be a key determinant of inward investment, therefore it is in the government's best interest to maintain and improve the UK's infrastructure.

Answer 99

- High-speed train line HS2. - Heathrow's 3rd runway. - Investment in the next generation of nuclear power reactors.

Answer 100

Can represent an OPPORTUNITY for some businesses: - By speeding up communication. - By making transportation of goods faster & cheaper. - By allowing access to new markets. - By attracting new business to the UK (attracting potential customers & suppliers).

Answer 101

They can be seen as threats as they place restrictions on business activities, as well as increase costs to businesses.

Answer 102

The policies can also be seen as opportunities as they can generate income for firms who offer environmental products and solutions.

Answer 103

Governments like to show a commitment to the protection of the environment: - e.g. such schemes as the establishment of green belt areas around cities and the granting of subsidies (grants) or tax reductions for those installing renewable energy systems (e.g. solar energy systems), and by the introduction of environmental legislation.

Answer 104

Clean Air Act 1993 - gave local authorities the power to control emissions of smoke, grit, dust and fumes from industrial premises and furnaces, and set up smoke control zones.

Answer 105

The exchange of goods and services between countries and is essential to maintaining the standard of living in the UK. - Some goods and materials cannot be produced in the UK and therefore have to be imported.

Answer 106

The UK government implements a number of policies to support UK exporters. Increased exports bring revenue & employment opportunities. International trade initiatives include: - Trade fairs - Financial support for exporters - Terms of trade agreements with other countries, e.g. how the UK has now left the EU.

Answer 107

- Business cycle and GDP - Exchange rates - Trade policy - Fiscal & monetary policy - Inflation & interest rates

Answer 108

- High demand - More sales & revenues

Answer 109

- Lower demand - Fewer sales & revenues

Answer 110

A measure of the value of all goods and services produced within a country over a specific time period, and as such provides a primary indicator of a country's economic health. - It can be used to compare one country with another, such as comparing how different countries are coping with the consequences of the COVID-19 pandemic.

Answer 111

Steady and sustained growth in GDP is desirable but rarely happens. The rate of growth varies and sometimes even becomes negative (recession). - These regular fluctuations in the level of GDP over time are known as the business cycle. - The business cycle within the UK is likely to follow a different pattern from other countries and therefore businesses within the UK will be affected differently according to how much they are exposed to the UK and world markets.

Answer 112

- Boom - Recession - Slump - Recovery

Answer 113

The GDP figure is increasing rapidly showing high rates of economic growth.

Answer 114

- Demand is very strong. - Businesses are hiring staff to meet demand. There is high level of employment. Wages & disposable income are increasing. - Prices are increasing rapidly due to strong demand and profit margins are at their highest. - Businesses are investing to expand their capacity or to be able to satisfy more customers (opening new branches, building new warehouses or factories, launching new products). Business growth is at its highest.

Answer 115

The GDP figure is reducing. Growth is slowing down. If it falls for 2 successive quarters (6 months) the decline is called a recession.

Answer 116

- Demand falls sharply & for a prolonged period of time (6 months or more). - Initially prices remain stable but may begin to fall. If this phase lasts for a long period of time, profits will stagnate and may start falling too. - Businesses freeze recruitment & wages. If this period lasts for a long period of time, businesses may start making staff redundant. Unemployment is starting to increase. Disposable income stagnates. - Businesses stop investing & reduce or postpone the R&D of new products. If this phase lasts for a long period of time, businesses may reduce their product range or look to produce cheaper products. - Cash flow & liquidity problems.

Answer 117

The GDP is at its lowest and can be a negative figure meaning that fewer goods & services are being produced.

Answer 118

- Prices fall and profit margins are at their lowest. - More and more businesses are getting into debts and are making a loss. The number of bankruptcies are increasing. - Demand is at its lowest - meaning businesses may no longer be able to breakeven and decide to retrench (closing down factories, shops, branches, reduce the number of products offered, etc.). High level of unemployment. Disposable income is decreasing.

Answer 119

Following a period of decline, the GDP figure is increasing again.

Answer 120

- Demand starts increasing again. - Prices slowly start rising again. Businesses may see their margin of safety increase and profits recover. - As demand is picking up again, businesses will start rebuilding & investing again. After a period of time, businesses may start to grow again. - Businesses are starting to hire again. Wages & disposable income stop falling. After a period of time, both may start increasing again.

Answer 121

2% growth per year

Answer 122

The impact on businesses depends on how sharp the changes in GDP are. - Following the changes in GDP helps businesses predict what will happen to demand & to make the right decisions.

Answer 123

The impact of changes in the economy may affect some businesses more than others or may have the opposite effect. - E.g. one type of business may experience a fall in sales during a recession while another type of business may experience an increase in demand. - It depends on the type of products or services they sell: luxury goods, necessity goods, or inferior products.

Answer 124

- Firms may see and increase in demand for inferior goods (negative income elasticity of demand - e.g. Tesco Value Bread). - There is no need to cut prices because demand is rising or at least constant.

Answer 125

- Firms will see a significant fall in demand. - During a recession, it is big priced items like furniture & TVs, that consumers can easily delay purchasing. - These firms will see the greatest pressure on demand & profitability. - It is likely firms will respond by having big price cuts to try and maintain cash flow and sell any unsold stock.

Answer 126

Demand may become more price elastic - due to greater price sensitivity. - HOWEVER, individual firms may still see inelastic demand because they are in competitive markets. - In a recession, demand for TVs in general will become more price sensitive.

Answer 127

If one firm starts a price war, it is likely to cause all firms to cut prices too. - Therefore even if a firm cuts prices for a particular brand of TV, the increase in demand may be relatively low because they are in a cut-price competitive market. - This is good for consumers who see falling prices, but individual firms may get lower prices but only a very limited increase in demand. - This may encourage firms to try and avoid price wars if they can.

Answer 128

Inertia in changing prices. Firms may just keep prices fairly stable. There are costs & uncertainties involved in changing price. - Rather than risk a price war, the firm may seek forms of non-price competition, e.g. offering loyalty cards, better after-sales service, etc.

Answer 129

The rate at which the general level of prices for goods & services is rising within an economy, which consequently results in the purchasing power of a currency falling.

Answer 130

Measured by the annual percentage change in the level of prices. - E.g. if one product costs £100 one year and £102 the following year then inflation is 2%.

Answer 131

Consumer price index (CPI). - Each month it measures the change in price of a basket of goods and services regularly purchased by households.

Answer 132

Low inflation at 2% - known as price stability.

Answer 133

- Cost-push inflation - Demand-pull inflation - Government printing money

Answer 134

Occurs when the cost of production increases, forcing businesses to pass these increases onto consumers by raising prices. Several factors contribute to rising production costs: - Increased raw material prices (especially oil), often due to increased global demand. - Higher labour costs due to successful wage negotiations or shortages of skilled workers. - Increased land rents resulting from insufficient factory & office space, often linked to political issues surrounding building permits.

Answer 135

Occurs when there's an increase in demand for goods and services that outpaces the available supply. Key drivers include: - Increased consumer wealth and spending power. - Government policies like tax cuts that boost disposable income, leading to higher demand. - Lower interest rates encouraging borrowing & spending.

Answer 136

Increasing the money supply, whether through printing more currency, increasing government debt, or easing lending regulations, can lead to inflation. - With more money circulating but the same amount of goods available, prices are driven upward.

Answer 137

Suppliers increase their prices. - Variable costs increase. Businesses increase their prices. - To maintain their profit margin, businesses pass the increase in costs onto their customers by increasing prices. Standard of living is decreasing - Staff ask for pay rises, increasing costs. - Demand decreases as inflation increases. Businesses see profits fall. - Costs increases. - Revenues decreases. Businesses reduce their activity. - Businesses make redundancies. - Unemployment increases.

Answer 138

- As prices of food, petrol, clothing, etc. increase they can afford less. - They may be able to buy less & may need to cut their spending. - They may ask for a pay rise to compensate.

Answer 139

- As prices increase, savings lose their value. - Savers are able to buy less with what they have saved, e.g. £18,000 may no longer be enough to buy the new BMW mini she wanted.

Answer 140

- Suppliers' prices will increase, wages will increase & costs will go up. - The business can increase its prices to maintain its profit margin, but if PED is elastic, demand & revenue will be reduced. - The business can keep its prices but its profit margin will be reduced.

Answer 141

- Increase in prices should lead to increase in revenue & profit (if costs do not increase as much). - Long-term funding using debt (bank loan) becomes cheaper.

Answer 142

- Cost of materials & labour - Productivity levels - Tax rates - Fluctuations in exchange rates - Domestic & international economic growth - Interest rates - Government monetary policies (bond purchases, money printing)

Answer 143

A decrease in the general level of prices of goods within an economy.

Answer 144

- Fiscal policy - Monetary policy

Answer 145

The way the government adjusts its spending & tax rates to control the economy.

Answer 146

Refers to the actions taken by the government to stimulate or slow down the level of economic activity within a country. - Ideally, the government would like the GDP to be growing steadily at 2% and inflation to stay at 2%.

Answer 147

In order to fund government expenditure or spending, it is necessary to impose taxes on individuals & businesses. - Changes in taxation can affect the level of spending within the economy and can be used to stimulate growth in the economy or to curtail it.

Answer 148

Taxes taken directly from a person's income or a firm's profit, e.g. National Insurance, income tax, corporation tax.

Answer 149

Taxes on purchases (products or services), e.g. VAT (value added tax), road tax, stamp duty, fuel tax.

Answer 150

The government uses the revenue from taxes to pay for public services, welfare, education, security, health, infrastructure projects, etc.

Answer 151

Government spending benefits businesses directly & indirectly. - All businesses benefit from the government spending on infrastructure (new roads, faster broadband, etc.), on education (creating a pool of skilled workers), etc. - Some businesses will benefit directly from government spending as the government places contracts with them, meaning the government becomes one of their customers.

Answer 152

- Increases in indirect taxes such as VAT result in higher prices, cutting consumer demand. - Producers may pay the increase in indirect taxes to avoid raising prices. This will cut profits and may reduce investment levels by businesses. - Increases in income tax leave consumers with less disposable income, again reducing demand.

Answer 153

- Cutting indirect taxes reduces prices, which may boost consumer spending, especially for price elastic products. - Reductions in income tax result in consumers having higher incomes. This increases demand, particularly for luxury products. - Falling corporate taxation promotes investment and output for business, increasing economic activity. - Reductions in corporate taxation may attract investment by foreign individuals and businesses. - Generally, businesses prefer when taxation is kept at a low level.

Answer 154

Reduced government spending or increased taxation.

Answer 155

Increased unemployment, declining spending and production.

Answer 156

- Falling sales & downward pressure on prices. - Rising numbers of bankruptcies, especially among small firms. - Increased levels of inventories.

Answer 157

Increased government spending or lower rates of taxation.

Answer 158

Inflation may appear while unemployment falls as imports increase.

Answer 159

- Rising wages & possible skill shortages. - Sales rise & possibility of increasing prices. - Increasing costs of raw materials & components.

Answer 160

The cost of borrowing money & the return for lending (or reward for saving). - Expressed as a %.

Answer 161

The adjustment of interest rate to control the level of inflation. - The process by which the monetary authority controls the money supply and interest rates in order to achieve healthy economic growth.

Answer 162

The base rate is the rate of interest set by the Bank of England. This rate is used as a benchmark by commercial banks to set their own rates of interest. - Each month, the Monetary Policy Committee of the Bank of England decide what the base rate should be.

Answer 163

The group of economists in the Bank of England who meet once a month to set the base interest rate.

Answer 164

- During a period of expansion in the business cycle where inflationary pressures are growing, interest rates are likely to be increased to reduce consumer spending and ease inflationary pressures. - When growth in the economy is falling and inflationary pressures are easing, the MPC may need to lower interest rates to stimulate demand.

Answer 165

- Credit becomes more expensive and saving money becomes more attractive, meaning customers are likely to spend less (especially on expensive items requiring a loan or bought on credit cards). - Customers are also more likely to save due to high interest (reward for saving). - Therefore some businesses are likely to experience a fall in demand for their products or services -> decreased revenue.

Answer 166

- Credit for businesses also becomes more expensive. - Therefore an increase in interest rates can lead to an increase in financial costs if businesses have loans or use overdrafts. *Lower revenue & higher financial costs = lower profits.

Answer 167

Banks set their own interest rates against the Bank of England's base rate. - If the base rate is raised, banks are likely to increase their rates making borrowing more expensive & vice versa if the base rate is reduced. - The Bank of England will do this as part of initiating the government's monetary policy in order to ensure price stability (keep inflation at 2%).

Answer 168

The exchange rate is the price at which the currency of a country can be exchanged for another country's currency. - As with changes in interest rates, changes in exchange rates can cause uncertainty for business and affect competitiveness. - E.g. £1 = $1.57

Answer 169

Supply and demand

Answer 170

- When a currency appreciates, it means it increases in value (getting stronger) against another. - When a currency depreciates, it means it decreases in value (getting weaker) against another.

Answer 171

£ --> € use multiplication Example: Exchange rate: £1 = €1.17 - If you want £150 worth in euros, you do £150 x 1.17 = €175.50

Answer 172

€ --> £ use division Example: Exchange rate: £1 = €1.17 - If you want to convert €150 into pounds, you do €150 / 1.17 = £128.20

Answer 173

- Exchange rates can increase or lower the price of a product sold abroad affecting the revenue that the business exporting receives from foreign sales. - The price of imported raw materials may change affecting the costs of a business importing. - The price of foreign competitors' products may change in the home market affecting the level of competition & the revenue that the business receives from its domestic market.

Answer 174

Strong Pound Imports Cheaper Exports Dearer

Answer 175

- Prefer the pound to be strong. - May switch international suppliers when the exchange rate is less favourable (when the pound is weak). - May stockpile raw materials or components when the pound is strong. - May agree with suppliers a set exchange rate on the day the order is placed.

Answer 176

- Prefer the pound to be weak. - May lower their prices in foreign markets to limit the impact of a strong pound. - May increase promotion in foreign markets when the pound is weak. - May set up operations in countries where their markets are to avoid exchange rate fluctuations.

Answer 177

- Exports from UK more expensive. - UK exporters potentially less competitive, depending where raw materials sourced. - Imports to UK less expensive.

Answer 178

- Exports cheaper. - UK exporters potentially more competitive, depending where raw materials sourced. - Imports more expensive.

Answer 179

- Businesses importing & exporting. - Businesses affected by foreign competition at home & abroad. - Businesses in the tourism industry.

Answer 180

- Domestic businesses, e.g. hairdresser. - Businesses selling products with an inelastic PED, e.g. petrol or luxury products. - Businesses in a monopoly market.

Answer 181

The exchange of goods and services between countries.

Answer 182

The unrestricted purchase and sale of goods & services between countries without the imposition of constraints, e.g. within the EU. - Some countries have 'agreements' to have 'free trade' or reduced barriers to trade.

Answer 183

An organisation setting the rules of international trade.

Answer 184

Refers to the policies and actions imposed by governments to restrict free movement of goods & services between countries. - Involves protecting domestic businesses & home industries against foreign competition & limiting the number of imports in a country.

Answer 185

Financial support, grants/incentives provided by governments given to support exporting businesses (domestic industries) so that they can lower their prices in order to compete internationally by being more affordable. - This can distort international trade by favouring domestic production over imports.

Answer 186

- Tariffs - Quotas - Technical barriers

Answer 187

Taxes or duties imposed on imported goods & services. - They increase the price of foreign products (the ones being imported), making them less competitive compared to domestically produced products.

Answer 188

Physical limits set on the number of units that can be imported into a country.

Answer 189

Rules & regulations or standards & specifications applied to products entering a country.

Answer 190

To avoid protectionism measures, e.g. 'red tape' (paperwork), regulations, tariffs or quotas: - Businesses can set up operations in the countries where their markets are. - This also reduces the cost of transportation.

Answer 191

PROS: - Allows 'infant' industries to develop cost advantages. - Protecting strategic industries. - Protection from predatory pricing from overseas firms. CONS: - Higher prices for consumers. - Retaliation & trade wars. - Limits of globalisation.

Answer 192

The increased interdependence of economies, industries and markets around the world.

Answer 193

Paid on all income earned over the personal allowance (£12,500 in England in 2020-21), this includes income from employment, investments and pensions. - Changes in the level of personal allowance and rates of income tax can affect consumer disposable income and as a result, the level of spending within the economy.

Answer 194

This is a tax levied on business profit and the rate at which it is charged can affect the attractiveness of the UK as a business location. - It currently stands at 25%. - The UK also offers incentives for innovation through the Patent Box system, leading to a lower level of corporation tax on the resulting profit from innovations.

Answer 195

National insurance payments were initially introduced to cover the cost of the welfare state. This is a tax paid jointly by both employees & employers. - Changes in these rates paid can affect the disposable income of both businesses & consumers.

Answer 196

This is a consumption or spending tax. - In the UK the rate is 20%, although some goods have lower rates and most food items are zero-rated. - Changes in rates can affect spending as VAT has a direct impact on the price of goods.

Answer 197

This is a tax on the sale of specific goods such as alcohol, tobacco and fuel.

Answer 198

These are paid by consumers for products or services that are not considered environmentally friendly. - E.g. air transport tax. - They also cover measures like levies on consumer energy bills, which have been used to encourage the expansion of low-carbon power such as solar power.

Answer 199

Relate to the changing demands of society for different goods & services. It also includes the way society spends money (such as increased spending on luxury products) and accesses products & services (such as subscription services). All businesses must keep up with the changing demands of society if they are to remain competitive.

Answer 200

Refer to changes in the UK population: - size - structure - composition - make-up There are a number of demographic trends that businesses are having to adapt to. - These create changes & opportunities for businesses.

Answer 201

The movement of people between countries.

Answer 202

- Urbanisation & migration - Changes in consumer lifestyle & buying behaviour - The growth of online business

Answer 203

- Age: the general population is getting older as people live longer. - Growth: the population is growing at a considerable rate. - Migration: UK net migration (the difference between the numbers of people leaving & the numbers of people arriving in the UK) is positive. - Urbanisation: people moving to towns & cities.

Answer 204

- Health & well-being - Drive towards ethical, vegan & sustainable produce - Holidays - On-demand culture - Ready meals & eating out - Luxury - Single occupancy

Answer 205

There is a growing awareness of issues surrounding health, ranging from the dangers of smoking, alcohol, salt & sugar consumption to the benefits of a healthy diet & exercise.

Answer 206

Consumers are better informed, more discerning & want to know where their food comes from, how it was made, and the subsequent impact on the environment.

Answer 207

With more leisure time & rising incomes, people take more holidays, expect to travel overseas & go further afield with long-haul flights & cruises.

Answer 208

The growth in the number & variety of restaurants & fast-food outlets & delivery businesses illustrates the greater demand for eating out. - The variety of ready meals on supermarket shelves indicates that when customers do eat in, it is often the easy option they take.

Answer 209

More people are living on their own ever than before, meaning growing demand for housing.

Answer 210

- Opportunities for small business start-ups - Access to global market - Reducing business overheads - Cutting out retail - Growth of direct delivery

Answer 211

OPPORTUNITIES: - Growth of the 'grey market' (demand for products & services for older people). - Employees able to work longer enabling businesses to retain their experience & skills. THREATS: - Increase demand on NHS leading to an increase in some taxes such as National Insurance.

Answer 212

OPPORTUNITIES: - Larger market within the UK & increase in demand for products & services. - Larger pool of potential employees. THREATS: X

Answer 213

OPPORTUNITIES: - Availability of skills from migrant workers. - New markets for ethnic products. - Keeping wages low. THREATS: - Increased competition of niche market small size businesses targeting ethnic products (e.g. takeaway food).

Answer 214

OPPORTUNITIES: - Concentration of potential customers. - More cost efficient deliveries. THREATS: - Congestion can lead to less efficient deliveries.

Answer 215

OPPORTUNITIES: - Growth in health related products & services (e.g. gyms). THREATS: - Staff may ask for better 'work-life' balance or flexible hours, better working conditions, etc.

Answer 216

OPPORTUNITIES: - Growth in ethical, vegan & sustainable produce markets. THREATS: - Small niche markets taking reducing large companies' market shares. - Small niche markets may not be profitable. - Business costs can increase as these materials are more expensive.

Answer 217

OPPORTUNITIES: - Growth in demand for transportation. - Growth of the 'cruising' market. - Opportunities for segmentation & creation of new market niches. THREATS: - Regulations relating to air pollution.

Answer 218

OPPORTUNTIES: - Growth in new ways of getting the product or service to the customer: a change in the 'process' part of the marketing mix can provide a business with a USP (e.g. being able to deliver or for customer to access at any time). THREATS: - On-demand often requires the use of technology. - Technology may be expensive. - Low profit margin: although demand may increase, the cost of delivery may reduce profits. - Competition regarding shipping times such as with Amazon Prime (next day/same day)

Answer 219

OPPORTUNITIES: - Growth in demand for ready meals, new fast-food outlets & for new ethnic restaurants. THREATS: - Low barriers to entry leading to high level of competition & low profit margins.

Answer 220

OPPORTUNITIES: - Growth of the luxury segment. THREATS: - Increased competition in luxury markets. - Luxury markets usually require significant initial investments.

Answer 221

OPPORTUNITIES: - Low set up costs. - Low running costs (e.g. no 'business rate' tax). - Access to wider domestic market. - Access to international markets using the internet. - Longer trading hours (24hrs, 7 days a week) - More effective marketing using 'cookies'. THREATS: - Increased costs: website, warehousing, postage or delivery costs. - Cost of managing returns. - Increase level of competition due to low barrier of entry. - Competition from international competitors. - Emergence of the C2C (customer to customer market). - Risk of hacking (website, data protection, blackmail, etc.)

Answer 222

OPPORTUNITIES: - Potential for more sales, revenue & growth. - Potential to achieve economies of scale. THREATS: - More administration costs (export paperwork) - Exposure to exchange rate fluctuation.

Answer 223

The belief that a business should act responsibly & protect the interests of all its stakeholders. - Going beyond following rules & regulations, CSR dictates that a business should operate in a way that actually benefits society & the environment for the long-term sustainability & prosperity of the business. - CSR shapes the ethics that guide most modern-day businesses.

Answer 224

Stakeholders are any individual or organisation affected by business actions, e.g: - employees - customers - suppliers - shareholders - local community - environment, etc.

Answer 225

- Fair prices - Reliable after-sales service - Safe products - Honesty in the product or service description

Answer 226

- Job security - Employment opportunities - Fair pay - Good working conditions

Answer 227

- Fair payment terms - Frequent & regular orders

Answer 228

- Respect for the local environment - Investment on local issues

Answer 229

The belief that a business' prime function should be to satisfy its shareholders. - This means maximising profitability. - Profits will support the long-term success of the business & economy prosperity.

Answer 230

The belief that a business can't thrive on its own. It needs the support of all its stakeholders (customers, employees, suppliers, etc) not just its shareholders. - In doing so, businesses create long-term prosperity & avoid unsustainable business practices. - Awareness of CSR has encouraged businesses to take the interests of all stakeholders into consideration during the decision-making process rather than just those of shareholders.

Answer 231

- Treating employees properly means they are more likely to be more engaged. - Providing higher-quality products means consumers are more likely to buy. - Having a socially responsible image again means consumers may be more likely to buy.

Answer 232

Represents a compromising approach between shareholder & stakeholder concepts. - It involves focusing on shareholder value with a long-term perspective, not just for short-term profitability gains. - As businesses adopt a long-term perspective, consideration of other stakeholders becomes more agreeable such as the investment in training to improve the skills of the workforce.

Answer 233

The business model sets out 4 responsibilities that all businesses should meet in order to be socially responsible (the 4 layers of corporate social responsibility). - The responsibilities are hierarchical, with economic responsibility at the base. - Without first meeting this responsibility a business will fail & will therefore be unable to meet its other responsibilities.

Answer 234

1) Economic responsibility (bottom of hierarchy - essential for business) 2) Legal responsibility 3) Ethical responsibility 4) Philanthropic responsibility (top of the hierarchy

Answer 235

BE PROFITABLE - To provide a return to shareholders. - To create jobs. - To contribute useful products & services to society. (the foundation responsibility upon which all others rest) - Only way to survive & benefit society in long term.

Answer 236

OBEY THE LAW - To ensure that business practices are legal. - Obeying laws & regulations relating to employees, consumers & the environment, e.g. employment, competition, health & safety. - Law is society's codification of right & wrong.

Answer 237

BE ETHICAL - Extends beyond the narrow requirements of the law to do what is 'right' in terms of, e.g. waste, recycling and the working environment. - Acting morally. - In other words, looking after stakeholders. - E.g. treatment of suppliers & employees.

Answer 238

BE A GOOD CORPORATE CITIZEN - Improve the lives of others in society. - Responsibility to give back to society. - Discretionary but still important. (top of the hierarchy - not essential) - E.g. charitable donations.

Answer 239

- Cost savings - Brand differentiation - Customer & employee engagement - The 'right thing to do' - Prevent government intervention - Sustainability - Suppliers & employee 'goodwill'

Answer 240

Socially responsible policies may lead to a reduction in costs. - These might arise from using less packaging or less energy. - E.g. the installation of energy-monitoring metres can help save energy. - Economies of scope?

Answer 241

Although more difficult now, CSR reporting could lead to a competitive advantage for a company that took it seriously. - USP - core competency

Answer 242

Customers & employees may be attracted by businesses taking CSR seriously. - Customers may be willing to pay a high price for fair trade & ethical products. - It may be easier for a business to attract & retain employees with ethical values when they are aware of an organisation's position on social reporting.

Answer 243

By taking action, businesses can remove the need for government intervention & regulation.

Answer 244

CSR policies should support the long-term success of a business.

Answer 245

Business is responsible for some of society's problems, such as pollution & poor working conditions. - therefore it should take responsibility for them.

Answer 246

Suppliers are more likely to be flexible & cooperative with businesses that treat them well. - Equally, employees are more likely to be motivated & loyal to an employer who takes care of them.

Answer 247

- Profit - Stakeholders' views - Customer perception - State of the economy - The market

Answer 248

Socially responsible policies have a cost, e.g. fair trade supplies are usually more expensive, paying staff above the living wage increases labour costs, etc. - It makes it more difficult for businesses to achieve maximum profitability & more difficult to be competitive. - Some would argue that businesses should focus on profit and let governments deal with social & environmental issues.

Answer 249

Different stakeholders have different views, making it difficult to achieve agreement on socially responsible behaviour.

Answer 250

Although some customers may be willing to pay more for products that are produced by environmentally & ethically aware businesses, others are more focused on finding a bargain price. - E.g. consumers of SHEIN are aware they are not ethical/environmental aware but they still choose to purchase their clothing online due to bargain prices.

Answer 251

In periods of high growth & profit, it may be possible to take a more socially aware approach, but during periods of low growth/recession & lower profit this may be difficult.

Answer 252

Milton Friedman argued that the market should decide what is best rather than businesses. - In some ways, we can see this happening in that CSR is just an extension of a business' market orientation. - E.g. the move to hybrid & electric cars has been undertaken because of the potential profit available.

Answer 253

- New ideas - Reduced costs - Good public relations - Employee retention - More productive working - Better staff - Easier to comply with the law - Good reputation

Answer 254

- Pressure groups - State regulation - Drive toward self-regulation - The media - Consumer perception

Answer 255

Relate to innovation in services provided, products manufactured or processes of production.

Answer 256

Replacing labour with technology in the manufacturing process.

Answer 257

The way products are designed & made. - E.g. computer aided design (CAD) and computer aided manufacturing (CAM).

Answer 258

Using computer generated images to design & test new products, or alter existing products. - Generate computer files that can be printed as 2D blueprints, shared with clients & teams for review, or used as input for CAM processes. - Sometimes referred to as 'industrial art'. - E.g. industries including: automotive, shipbuilding, kitchen designs.

Answer 259

- Speeds up design process compared to traditional methods. - Increases efficiency through easy design alterations. - Serves as a valuable marketing tool for visualising product concepts. - Relatively cheap compared to CAM. - Has shortened lead times.

Answer 260

- Effective use of CAD requires specialised skills & training, which can be costly.

Answer 261

Using computer technology to plan & control the manufacturing process. - Employs computer-controlled machinery, such as robotic arms (automation), to manufacture products based on instructions from a digital design file (often generated by CAD). - Produces either finished products or components that contribute to the final assembly. - Multiple CAM processes may be involved in creating complex products.

Answer 262

- 24/7 operation - Faster production speeds vs human - Higher productivity - Increased precision & accuracy - Improved consistency - Higher quality output - Reduced errors - Minimised waste - Lower overall production costs in long term

Answer 263

- Involves substantial upfront investment in machinery (very high initial costs) - Requires specialised personnel, e.g. CNC engineers, to operate and maintain them (increases costs - wages) - Requires significant physical space, impacting overhead costs.

Answer 264

The way products are sold to consumers. - Increasing trend of e-commerce & m-commerce, leading to more online marketing & data analysis. - Large volumes of data collection which can be used by marketing departments to analyse & predict future sales trends, categorised into customer, financial and operational data.

Answer 265

Refers to extremely large, diverse and complex data that cannot be easily managed or analysed by traditional data management systems. - It continues to grow exponentially over time.

Answer 266

- Customer: includes information such as customer names, email addresses and other demographic details. - Financial: sales data, including revenue, cost of goods sold, and potentially competitor pricing information. - Operational: involves data related to shipping, logistics, and other operational aspects, which can be analysed to improve efficiency & reduce costs.

Answer 267

The sheer volume & variety of data from different sources, including social media, and various business applications, necessitate the use of Big Data solutions. - These solutions help to consolidate, structure, and analyse the data effectively. - Companies like IBM, SAP, and Microsoft offer Big Data platforms & services.

Answer 268

With the help of structured data, marketing analytics teams can utilise various models to improve decision-making & increase sales: - PED & YED - Conjoint analysis (helps determine consumer preferences & the relative importance they place on different product attributes) - Sensitivity analysis (assess the impact of changes in one variable on other variables) - Correlation - Extrapolation

Answer 269

- Need for skilled operators who can effectively utilise these Big Data solutions & marketing analytics models. - This may require investment in training & development, increasing costs. - Ensuring data accessibility for relevant personnel is crucial, which might involve utilising cloud-based services like Amazon Web Services (AWS) or Microsoft Azure, adding to the overall cost.

Answer 270

Involves the centralised storage of data in remote servers (the 'cloud') and online access by users worldwide on internet-connected devices.

Answer 271

The process of investigating raw data with the intention of drawing conclusions from the information.

Answer 272

The skills required & the working environment. - Speed & efficiency (manufacturing & business communication) - Remote working - Online recruitment & training

Answer 273

Manufacturing: - Automation has increased production quantity & quality by replacing labour with capital. Business communication: - Video calls, shared documents, and other technologies facilitate faster decision-making by enabling collaboration regardless of location.

Answer 274

Manufacturing: - Can lead to reduced worker motivation & morale due to job losses. Business communication: - Excessive communication (e.g. too many emails) can hinder productivity & reduce motivation.

Answer 275

- Wider talent pool - Increased quality & productivity (due to wider talent pool) - Access to new markets (employing workers in different countries facilitates international growth) - Reduced overhead costs (less need for large office spaces, leading to significant cost savings through smaller rents & lower overhead expenses) - Increased use of freelance contracts

Answer 276

Reduced team morale & communication issues: - Over-reliance on remote work can negatively impact team morale & increase the risk of miscommunication due to limited face-to-face interaction. - If the number of remote workers significantly exceeds in-office staff, communication challenges & decreased morale may become more prominent.

Answer 277

- Lower costs: not only of improved efficiency & reduced waste in production, but also of reduced administration expenditure & distribution costs. - Improved communication: more responsive to customer needs. - Increased sales: access to wider markets. - Working environment: cleaner, quieter & safer, especially in manufacturing. - Quality & reliability: CAD & CAM.

Answer 278

- Pace of change: businesses must keep moving forward in order to stay ahead of competition, which can sometimes prove costly. - Competition: lower barriers to entry for smaller businesses + access to markets. - Security: an increasing problem, with hackers able to access confidential material & customer information. This results in the need for higher-security systems, adding further to costs.

Answer 279

- 3D printing - Wearable technology - Smartphone & mobile technology - Renewable energies - Virtual reality (VR) - The 'internet of me' (personalisation) of online experience - Cloud computing - Artificial intelligence (AI)

Answer 280

Laser scanning technology using barcodes linked to a database that is automatically updated at the point of sale when a sale is made. - EPOS will help planning by updating sales records & stock levels.

Answer 281

A substitute is a product or service that can be used instead of another. - E.g. electricity can be used to power an engine instead of petrol. - A substitute to travelling by train could be travelling by bus, by car or flying. - A sweetener is a substitute for sugar.

Answer 282

An analytical tool that provides a framework for analysing the nature of competition within an industry. - It provides a simple yet powerful tool for understanding where power lies in an industry, enabling a business to understand more clearly its own competitive strengths.

Answer 283

- Threat of new entrants (barriers to entry) - Bargaining power of buyers - Threat of substitute products - Bargaining power of suppliers

Answer 284

- Cost of entry: some industries involve a high cost to enter, e.g. aircraft manufacture. - Government barriers: legislation - Patents: these give the holder a competitive advantage, which may make it more difficult for a new entrant to access a market. - Economies of scale: an inability to benefit from economies, or to do so quickly enough, could act as a barrier to entry. - Access to suppliers: lack of easy access to suppliers is a potential barrier. - Brand loyalty - Access to distribution channels - Cumulative experience - Capital requirements

Answer 285

A market is likely to be easier to enter when: - brand loyalty is weak - there is easy access to suppliers - there is common technology available - there is a low threshold to economies of scale, etc.

Answer 286

This relates to the impact the customers have on a business. In general, the fewer the customers and the more numerous the suppliers, the stronger the buyer will be. - Number of customers - Size of each customer order - Differences between competitors - Price sensitivity - Buyer's ability to substitute - Buyer's information availabiity - Switching costs

Answer 287

- Few buyers and/or buys a significant proportion of output. - Buyers have a credible backward integration threat.

Answer 288

- Many buyers. - Producers have a credible forward integration threat. - There are significant switching costs.

Answer 289

Switching costs are the costs that a consumer incurs as a result of changing brands, suppliers, or products.

Answer 290

Consumer's ability to choose an alternative product. - A substitute product is one from another industry that offers similar benefits to the one produced by a particular business. - E.g. bottles provide an alternative to cans.

Answer 291

- Number of substitute products available - Buyer propensity to substitute - Relative price performance of substitute - Perceived level of product differentiation - Switching costs

Answer 292

Any producing business requires supplies, which necessitates relationships with suppliers. - If suppliers are powerful, they are more likely to be able to exert influence on the producing business.

Answer 293

- Number & size of suppliers - Uniqueness of each supplier's product - Focal company's ability to substitute

Answer 294

- A business uses a single supplier. - Credible forward integration threat by suppliers. - Customers are powerful. - High cost to switch suppliers.

Answer 295

- There are many competitive suppliers. - Credible backward integration threat by purchasers. - Customers are weak. - Low cost to switch suppliers.

Answer 296

This refers to rivalry between firms in the same industry. - The intensity if rivalry is described in various ways such as cut-throat, aggressive or weak. - To gain a competitive advantage, a firm may try to improve differentiation or change its pricing policy.

Answer 297

- Number & size of firms: rivalry is more likely to be intense where there is a large number of firms all targeting the same customers & where competitors are of a similar size. - Low levels of product differentiation: customers are more likely to switch between products in this situation, whereas if there is strong brand identification & loyalty, rivalry will be less intense. - Slow market growth: firms fight for market share so increased rivalry. - High exit costs: meaning firms are more likely to stay & compete, as the assets may not be sold easily or transferred to other uses.

Answer 298

- Strong suppliers - Strong customers - Low entry barriers - Many substitutes - Intense rivalry

Answer 299

- Weak suppliers - Weak customers - High entry barriers - Few substitutes - Little rivalry

Answer 300

It helps the business to define its strategy including: - position - value proposition - align employees

Answer 301

Helps the business to decide whether it is worth entering the market.

Answer 302

- Differentiation - Create 'buyer groups' by limiting options - Find new customer segments - Increase marketing or start price wars - Brand loyalty - Better meet customer needs - Cost leadership - Build a 'moat' , e.g. Amazon and their Prime.

Answer 303

- Look at longer contracts - Maximise economies of scale (or use JIC) - Offer to merge as a partner

Answer 304

A series of techniques designed to help businesses assess the desirability of an investment proposal & to compare different investment options. - It can help reduce risk & enable the correct choice to be made.

Answer 305

- Payback - Average rate of return (ARR) - Net present value (NPV)

Answer 306

- Property, e.g. a new factory or warehouse - Machinery or vehicles - New technology or robotics - R&D for a new product or process - Marketing costs associated with launching a new product, etc.

Answer 307

A technique which allows the analysis of changes in assumptions used in forecasts. - A sensitivity analysis looks at what would happen if the assumptions were different. - E.g. what if?... the net inflows, outflows, initial cost or the interest rate of discount factors were wrong?

Answer 308

Calculates the length of time it takes for an investment to recoup its original cost from net income. - It is expressed in the number of years & months it takes to recover the cost. - Considers cash inflows over a number of years.

Answer 309

1) Work out the amount left to repay at the end of each year. 2) Stop when the amount left to repay is less than the cash inflow expected the following year. 3) Calculate the exact number of months using this formula: (amount left to repay) / (cash inflow expected the following year) x 12 months

Answer 310

PROS: - Easy requiring little training. - Focuses on cash flow & liquidity. - Focus on time is useful in dynamic markets, i.e. tech. CONS: - Ignores total return & profitability. - Fails to consider the impact of inflation on the real return. - Encourages short-term safe investments only.

Answer 311

Calculates the annual average return over the life of an investment in order to compare it with other alternatives. - Expresses this as a percentage of the initial outlay.

Answer 312

1) Work out the total profit: add up the cash flows minus the initial investment. 2) Calculate the average annual profit: (total profit) / (number of years) 3) Calculate the average annual profit as a % of the initial investment: (average annual profit) / (initial investment) x 100

Answer 313

PROS: - Enables an easy comparison between investment options. - Takes into account the profitability of an investment. CONS: - Ignores the timings of the return, which could lead to cash flow & liquidity problems.

Answer 314

Calculates the return of the investment in today's value. - It takes into account the timings of cash flows by using a technique called discounting. It converts future cash flows into their present values. - Follows the principle that the value of money depreciates over time, taking into account factors such as inflation or not receiving the returns.

Answer 315

The discount factor will be given to you in the exam, but is worth understanding that the higher the discount factor %, the higher the risk of the project.

Answer 316

1) Multiply each net cash flow with its discount factor. 2) Add up all the new net present values. 3) Subtract the cost of the initial investment.

Answer 317

Positive NPV: - Investment makes a profit - Investment should go ahead Negative NPV: - Investment makes a loss - Investment should be rejected

Answer 318

PROS: - Considers the time value of money. - Gives a precise answer to aid decision making (+ go for it, - reject it) - Considers opportunity cost of the future. CONS: - Choosing the right discount rate for long projects can be hard (good projects could end up being rejected). - Can be difficult to calculate. - The choice of discount rate could be incorrect.

Answer 319

Investment appraisal methods only provide an assessment in financial terms. Other key factors should be considered when making an investment: - State of the economy (business cycle) - Competitors' actions - Corporate objectives - Consequences on different functions of the business - Sources of finance, etc.

Answer 320

- Interest rates - Return on capital employed (RoCE) - Current ratio - Gearing - Initial cost of investment

Unit 7 Flashcards

Analysing the strategic position of a business (347 cards)