Flashcards · 9609 · AS Topic 1

Business and its environment (AS Level) flashcards

36 cards on AS Topic 1, subtopics 1.1 to 1.5. Pick a subtopic or study them all.

Study mode needs JavaScript. Every card is listed below, so you can still cover the answers and test yourself.

All 36 cards

For a quick read-through or printing. Cover the right-hand side to test yourself.

1.1 Enterprise

The four factors of production: Land (natural resources, including the site), labour (human effort, physical and mental), capital (man-made resources used in production, and the money used to buy them) and enterprise.
Enterprise (syllabus wording): The ability to seek out and successfully develop business opportunities.
Value added: formula, and why it is not profit: Value added = selling price − cost of bought-in materials and services. It is not profit, because wages, rent and other overheads still have to be paid out of it.
A wallet sells for £14.00. Bought-in leather costs £5.50 and packaging £0.50. Find the value added per wallet and for 2,000 wallets.: Bought-in cost = £5.50 + £0.50 = £6.00. Value added = £14.00 − £6.00 = £8.00 per wallet. 2,000 × £8.00 = £16,000.
Opportunity cost: The value of the next best alternative given up. Name only the single best option forgone, not the option chosen and not a list.
International business vs multinational business: International: sells in more than one country. Multinational: owns and runs operations in more than one country. International is about where it sells; multinational is about where it operates.
Entrepreneur vs intrapreneur: Entrepreneur: creates a new business and usually bears the financial risk; rewarded by profit and ownership. Intrapreneur: acts entrepreneurially inside an existing business; the employer bears the financial risk.
Risk vs uncertainty: Risk: outcomes whose likelihood can be estimated, for example from past data (respond with research, insurance, spreading risk). Uncertainty: outcomes that cannot be reliably predicted (respond with flexibility and contingency plans).
Business plan: what it is, and its purposes: A document setting out the intended business and how it will be achieved. It clarifies the idea, guides decisions, sets targets and helps persuade lenders and investors.
Limitations of a business plan: Takes time to write, rests on assumptions that may be unreliable, goes out of date, and does not guarantee success or a loan.

1.2 Business structure

The four economic sectors: Primary: extracting or growing raw materials. Secondary: making and building. Tertiary: services. Quaternary: knowledge and information (research, data, software).
Public sector vs private sector: Public sector: owned and controlled by the state, usually providing services. Private sector: owned by individuals or shareholders, mostly profit-seeking.
Unlimited vs limited liability: Unlimited: the owner’s personal assets can be used to pay the business’s debts (sole traders, partnerships). Limited: owners can lose only what they invested (private and public limited companies).
Private limited company vs public limited company: Both give limited liability. Only a public limited company can sell shares to the general public on a stock exchange, raising large capital but risking takeover and separating control from ownership.
Franchise vs co-operative: Franchise: runs on a brand owner’s proven system, paying fees and following its rules. Co-operative: run for the benefit of its members; benefits are shared but decisions can be slow.
Employment in the tertiary sector rises from 38% to 58%. How should the change be described?: 58 − 38 = 20 percentage points (not 20%). Use “percentage points” when comparing two shares.

1.3 Size of business

Ways to measure business size, and a weakness of each: Employees: misleading if machines do the work. Revenue: ignores profit and assets. Capital employed: depends on asset values. Market share: depends on how the market is defined.
Market share: formula and example (revenue £6m in a £40m market): Market share = firm’s sales ÷ total market sales × 100. 6 ÷ 40 × 100 = 15%.
Organic vs external growth: Organic: growth from the business’s own resources (new products, markets, outlets); slower but keeps control. External: joining with, or buying, another firm (merger or takeover).
Merger vs takeover: Merger: two firms agree to combine. Takeover: one firm buys control of another; it may be friendly or hostile (the target’s board opposes and the bidder appeals to shareholders).
Horizontal, vertical backward, vertical forward and conglomerate integration: Horizontal: same industry, same stage. Vertical backward: towards a supplier. Vertical forward: towards customers. Conglomerate: an unrelated industry.
Joint venture vs strategic alliance: Joint venture: creates a shared project or business. Strategic alliance: cooperation while the firms stay separate. Both are cheaper and less committing than a merger, but risk disputes and sharing know-how.
Why do some mergers and takeovers fail?: Overpaying, culture clash, loss of key staff and diseconomies of scale. Success depends on fit, price and how well the firms are integrated.
Small businesses: advantages and disadvantages: Advantages: personal service, flexibility, quick decisions, low overheads. Disadvantages: limited finance, few economies of scale, vulnerable to large rivals, owner overload.

1.4 Business objectives

Put in order from broadest to narrowest: objective, tactics, mission statement, strategy, aim: Mission statement → aims → objectives → strategy → tactics.
Mission statement vs objective; aim vs objective: A mission statement states purpose and values, with no number or deadline; an objective has a measure. An aim is broad and long term; an objective is specific and measurable.
SMART objectives: Specific, Measurable, Achievable, Realistic, Time-limited. “Improve customer service” fails: it has no figure and no deadline.
Sales revenue is 250,000 and the objective is a 10% rise. Find the target, and a promotion budget set at 3% of it.: Target = 250,000 × 1.10 = 275,000. Budget = 0.03 × 275,000 = 8,250. (A target is a goal figure; a budget is the money plan to reach it.)
Triple bottom line, and CSR: Triple bottom line: economic (financial), social and environmental objectives together. CSR (corporate social responsibility): accepting responsibilities to society beyond profit.
Why might a business change its objectives?: Its stage of development (survival, then growth), boom or recession, competitors, technology or law, new owners or managers, and stakeholder pressure.

1.5 Stakeholders in a business

Stakeholder; and how it differs from a shareholder: An individual or group with an interest in a business. A shareholder (an owner) is just one kind of stakeholder.
Internal and external stakeholders: examples: Internal: owners and shareholders, managers, employees. External: customers, suppliers, lenders, government, the local community, pressure groups.
Accountability (to stakeholders): Explaining and justifying the business’s actions to those affected by them. It protects trust, even among groups who lose out from a decision.
Examples of stakeholder conflict: Pay against profit (employees vs shareholders), price against margin (customers vs owners), growth against the local environment (managers vs community).
What decides how much influence a stakeholder group has?: Its power to affect the outcome, not its size. A small local group can have high influence if it can generate publicity or block a plan.
CSR: possible benefits and costs: Benefits: reputation and loyalty, easier recruitment and retention, fewer disputes with community or government. Costs: higher costs, lower short-term profit, slow and hard-to-measure benefits, risk of accusations of empty claims.