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Flashcards · A Level Business · AS Topic 1
What is business? (AS Level) flashcards
22 cards on AS Topic 1, subtopics 3.1.1.1 to 3.1.1.3. Pick a subtopic or study them all.
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3.1.1.1 The nature and purpose of business
- Motives and characteristics of entrepreneurs
- Motives: financial and non-financial (for example income, wealth, independence, passion, helping others). Characteristics: risk taker, resilient, hard working, creative, passionate, innovative, adaptable.
- Challenges facing an entrepreneur, and how their role changes as the business grows
- Challenges: raising capital, uncertain demand, cash flow, long hours and personal risk. As the firm grows, the entrepreneur moves from doing everything to delegating and leading strategy.
- Common business objectives, and why objectives are valuable
- Objectives: survival, profit, growth, cash flow and social objectives. Value: they give direction, a way to measure success, motivation and a basis for choosing between options.
- SMART objectives (9725 wording)
- Specific, Measurable, Accountable, Realistic, Time specific. To write one: pick a measure, give a target number, add a deadline, name who is responsible and check it is realistic.
- Key elements of a business plan (9725)
- Ownership, objectives, target market and market analysis, competitor analysis, USP and financial analysis.
- Business plans: benefits and limitations
- Benefits: clear thinking, early warning of weaknesses, helps win finance. Limitations: time-consuming, forecasts can be wrong, goes out of date.
- Strategy vs tactics; customer vs consumer
- Strategy: a long-term plan. Tactics: short-term actions. Customer: the one who buys. Consumer: the one who uses.
3.1.1.2 Types of business ownership
- Unlimited vs limited liability
- Unlimited: the owner’s personal assets can be used to pay business debts (sole traders, usually partnerships). Limited: a shareholder’s loss is capped at the amount they put in (Ltd and plc).
- Sole trader, partnership, private limited company (Ltd) and public limited company (plc)
- Sole trader: one owner, full control and profit, limited finance. Partnership: two or more owners, more capital and skills, possible disputes. Ltd: limited liability, shares sold privately. Plc: shares sold to the public; large funds but scrutiny and takeover risk.
- Why is a plc not part of the public sector?
- A plc is owned by private shareholders, not by government, so it is in the private sector. The public sector is owned and run by government.
- Dividend per share, dividend yield and market capitalisation: formulas
- Dividend per share = total dividend ÷ number of shares. Dividend yield (%) = dividend per share ÷ share price × 100. Market capitalisation = share price × number of shares issued.
- 2,000,000 shares, total dividend £120,000, share price £1.50. Find the dividend per share, dividend yield and market capitalisation.
- Dividend per share = 120,000 ÷ 2,000,000 = 6p. Yield = 0.06 ÷ 1.50 × 100 = 4%. Market capitalisation = 1.50 × 2,000,000 = £3,000,000.
- What makes a share price change?
- Profit and forecasts, dividends, the state of the economy, interest rates, rivals’ performance, news, and the demand for and supply of the shares. A fall can bring takeover risk and weaker confidence.
- Internal and external stakeholders (9725)
- Internal: owners and shareholders, employees. External: customers, suppliers, the community, government and creditors. Their interests can conflict, for example dividends against pay.
3.1.1.3 The external environment
- Market size by volume and by value
- Volume: the number of units sold in the market. Value: the sales revenue in the market = volume × average price. A market can grow in volume but shrink in value if prices fall.
- A market sells 250,000 units at 18 cu, then 270,000 units at 17.50 cu. Find the growth in volume and in value.
- Volume growth = 20,000 ÷ 250,000 × 100 = 8.0%. Value: 4.5m cu → 4.725m cu, so growth = 0.225 ÷ 4.5 × 100 = 5.0%. Value grew more slowly because the average price fell.
- Four firm concentration ratio: definition and example (shares 31%, 22%, 17%, 11%)
- The combined market share of the four largest firms. 31 + 22 + 17 + 11 = 81%: a few firms hold most of the market.
- Barriers to entry: examples
- Entry costs, legal requirements (licences), specialist knowledge, customer loyalty to existing businesses, and access to resources or distribution. High barriers protect existing firms; low barriers give customers more choice and keener prices.
- Income elasticity of demand (YED): formula, and normal vs inferior goods
- YED = % change in quantity demanded ÷ % change in income. Normal good: YED positive (demand rises with income). Inferior good: YED negative (demand falls as income rises). “Inferior” is about the response to income, not quality.
- YED is −0.4. Income rises 5% and sales are 25,000 units. Find the new sales figure.
- Change in quantity = −0.4 × 5 = −2%. 25,000 × 0.98 = 24,500 units.
- Saturated market vs dynamic market
- Saturated: most potential buyers already buy, so total sales barely grow and gains come from rivals. Dynamic: changes fast through new products, technology or tastes, rewarding firms that innovate and adapt.
- Effect of a stronger home currency on a business
- Imports become cheaper and exports dearer abroad, so exporters lose competitiveness and importers gain. A weaker currency does the reverse.