Aids to trade that support commerce flashcards

Topic 5: Aids to trade that support commerce

What are the purposes of advertising?

To inform customers about products and prices, persuade them to choose a brand, remind them of existing products, and build a brand image.

Informative vs persuasive vs collective vs competitive advertising

Informative: gives facts. Persuasive: creates a desire to buy. Collective (generic): promotes a whole product type for an industry. Competitive: compares a brand with its rivals.

What is sales promotion? Give three methods

Short-term incentives to raise sales, such as free samples, coupons, special offers, competitions, loss leaders and free gifts.

Standing order vs direct debit

Standing order: a fixed amount paid on set dates, set up and changed by the payer. Direct debit: the receiver collects an amount that can vary, such as a utility bill.

What has been the impact of digital banking?

Closure of bank branches, more digital-only banks and less use of cash, a move towards a cashless society.

What are the five purposes of insurance in the syllabus?

Risk reduction, compensation, financial protection, business confidence and investment.

Name the seven types of insurance risk in the syllabus

Consequential loss, employer’s liability, fire, motor, premises, public liability and theft.

How does pooling of risk work?

Many policyholders pay premiums into a common fund; only a few suffer losses in a year, so the fund can compensate them.

Stock worth $80,000 is insured at $1.50 per $100. What is the premium?

80,000 ÷ 100 × 1.50 = $1,200 a year.

Proposal form vs cover note vs policy

Proposal form: the application, giving full facts about the risk. Cover note: temporary proof of cover until the policy is issued. Policy: the full contract setting out what is covered.

What does an insurance broker do?

An independent adviser who compares insurers to find the most suitable cover at a good price for the client.

Name three short-term and three long-term sources of finance

Short-term: trade credit, debt factoring, overdraft, leasing, hire purchase, sale and leaseback, retained profit. Long-term: ordinary and preference shares, loans, debentures, venture capital, crowdfunding.

Mark-up % vs gross profit margin %

Mark-up = (average selling price − unit cost) ÷ unit cost × 100. Gross profit margin = gross profit ÷ revenue × 100.

Unit cost $40, selling price $50: what is the mark-up?

(50 − 40) ÷ 40 × 100 = 25%.

How do you calculate working capital and net profit?

Working capital = current assets − current liabilities. Net profit (profit for the year) = gross profit − expenses.