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OxfordAQA A-Level Business: The nature and purpose of business and Types of business ownership (9625/9725) – Revision Notes

Condensed OxfordAQA International AS Business notes on 3.1.1.1 and 3.1.1.2: formulas, ownership table, key distinctions and a checked self-test.

Subject
Business
Level
AS LEVEL
Topic
What is business?
Author
Marlbridge Academic Team
Updated
Reviewed by
Salman Ahmad (what this means)

Aligned to OxfordAQA A Level Business (9625, 9725), 9625: first teaching September 2018 (current cohorts). 9725: first teaching September 2026 (AS) / September 2027 (A2), the successor specification.. Official specification .

Syllabus page (what it covers and how it is assessed): OxfordAQA A Level Business.

Found an error? Report a correction.

Need help with this topic? Request a free trial class for A Level Business (9625 / 9725).

Condensed recall for the final weeks. For full explanations and worked examples, use the study guide.

These notes cover sections 3.1.1.1 The nature and purpose of business and 3.1.1.2 Types of business ownership of the OxfordAQA International AS and A-level Business specifications 9625 (AS exams May/June 2019 onwards) and 9725 (AS exams May/June 2027 onwards). Both are Unit 1 content. Points are tagged both, 9625 or 9725, because the wording of the two specifications differs. Revise the tagged points for the one you are following. Examples of motivations, challenges, why start-ups fail, and advantages and disadvantages are Marlbridge’s own wording.

Links: course hub · printable checklist · practice questions · free 10-minute diagnostics · earlier What is business? revision notes

Key terms (9625)

Term One-line meaning
Inputs Land, labour, capital, enterprise
Transformation process What the business does to turn inputs into outputs
Outputs Goods (physical) and services (not physical)
Adding value Output worth more to customers than the input cost
Strategy / tactics Long-term plan / short-term actions
Profit Revenue minus costs
Opportunity cost Next best alternative given up
Efficiency Producing more from unchanged inputs, or the same from less
Competitiveness How well the firm does against rivals
Risk Chance the outcome is worse than planned
KPIs Measures used to track performance against targets
Customers / consumers Those who buy / those who use
Owners / managers Risk-takers who supply capital / people who run the firm day to day
Business functions Marketing, operations, human resources, finance and so on
Ethical influences Views of right and wrong that shape decisions
Selling price 50 splits into materials 20 and added value 30; the 30 then pays wages 12, rent 6, other costs 4 and leaves profit 8. Added value can rise by raising price or cutting material cost.
Added value is selling price minus bought-in materials, and profit is only what remains after other costs.
A budget of 60 buys only one of three items costing 60. The trainers are chosen, so the concert (second choice) is the opportunity cost.
Opportunity cost is the next best alternative given up, not everything given up.
Four narrowing cards from mission to objective to strategy to tactic with a fresh-food shop example: affordable fresh food; 10 percent more sales in 2 years; open shops in a new region; launch week two-for-one offer.
Mission states purpose, objectives set targets, strategy is the long-term plan and tactics are short-term actions.

Entrepreneurs

  • Motives (both): 9725 names financial and non-financial; our examples are income, wealth, independence, passion, flexibility, helping others.
  • Characteristics (both; 9725 names them): risk taker, resilient, hard working, creative, passionate, innovative, adaptable.
  • Challenges (both): capital, uncertain demand, cash flow, long hours, personal risk.
  • Role as the firm grows (9725): from doing everything to delegating and leading strategy.
  • Opportunity (9625): a gap, an unmet need or a better way of doing something.
  • Environment and government (9625): finance, tax, regulation, skills and stability shape success. Governments support start-ups for jobs, competition and tax, through grants, loans, tax breaks and advice.
  • Number and type of start-ups (9625): economic conditions, ease of borrowing, attitudes to risk, skills.
  • Why start-ups fail (9625): poor cash flow, weak research, too little capital, weak management, underestimated costs.
  • Impact on economy and society (9625): jobs, incomes, tax, growth, choice; also pollution or lost local trade.
At the start the entrepreneur does selling, buying and banking. As the firm grows managers run marketing, operations, HR and finance while the entrepreneur leads on strategy.
The entrepreneur moves from doing to leading.
Land, labour and capital feed into the entrepreneur, who organises them into business activity. Below, risks (failure, lost capital, long hours) are set against rewards (profit, control).
The entrepreneur organises the factors of production and bears risk in return for reward.
Example with invented numbers. A new business with $20m capital and an established one with $100m both lose $30m early. The new firm is $10m short and fails; the established one keeps $70m. New firms have less capital, market knowledge, customers and experience.
The same early loss can finish a new business but not an established one.

Objectives, SMART and plans

Point Notes
Typical objectives Survival, profit, growth, cash flow, social (both); personal and ethical (9625)
SMART (9725 wording) Specific, Measurable, Accountable, Realistic, Time specific
Value of objectives Direction, measuring success, motivation, basis for choosing
Plan elements (9725) Ownership, objectives, target market and market analysis, competitor analysis, USP, financial analysis
Benefits of a plan Clear thinking, early warning of weakness, helps win finance
Limitations Time-consuming, forecasts can be wrong, goes out of date
Competitiveness (both; 9725 adds meaning and significance) Ability to win customers against rivals

Method: writing a SMART objective. Pick a measure, give a target number, add a deadline, name who is responsible, and check it is realistic.

Five tiles S, M, A, R, T matched to parts of the example objective, with a vague objective crossed out and the SMART one ticked.
An objective is SMART if it can be checked.
Mission informs corporate objectives (profit, growth, market share, survival, cash flow, social and ethical), which inform functional objectives in marketing, operations, finance and HR. Objectives can conflict, such as growth against cash flow.
Objectives flow from mission to corporate to functional level, and can conflict.

Decision trees (9625)

Item Standard form
Expected value Sum of (probability x outcome) for each branch
Net gain Expected value minus cost of that option

Method in steps. (1) Draw squares for decisions and circles for chance events. (2) Check probabilities on each circle add to 1. (3) Work out expected value for each option. (4) Subtract that option’s cost. (5) Compare net gains. (6) Comment on risk, the worst case and how reliable the probabilities are.

Worked reminder. Cost £15,000. 0.4 chance of £50,000 and 0.6 chance of £10,000. EV = 20,000 + 6,000 = £26,000. Net gain = 26,000 - 15,000 = £11,000.

Limitations: estimated probabilities, no non-financial factors, average outcome may never occur.

A decision tree with new workshop (cost 120,000; EV 209,000; net gain 89,000) and refit (cost 40,000; EV 95,000; net gain 55,000). In low demand new makes -30,000 and refit +20,000.
Net gain is expected value minus cost, but the best average is not always the safest.
Decision tree with a decision square and two chance circles: A costs 45,000 (EV 91,500, net gain 46,500), B costs 70,000 (EV 121,500, net gain 51,500) and doing nothing is 0. B has the highest net gain.
Expected value is worked from right to left, then cost is subtracted to give net gain.

Types of business

Type Owner and liability Key point Spec
Sole trader One owner, unlimited Full control and profit; limited finance both
Partnership Two or more, usually unlimited More capital and skills; disputes 9725
Ltd Limited, shares not public Can raise capital privately both
plc Limited, shares public Large funds; scrutiny and takeover risk both
Social enterprise / charity / non-profit Social aim; surplus reinvested Lower profit both
Co-operative Owned by members Profit shared among members 9625
  • Unlimited liability: personal assets can pay business debts. Limited liability: the shareholder’s loss is capped at the sum put in.
  • Compare using: objectives, sources of finance, distribution of profits, liability (both); control (9725).
  • Influences on the business population (9625, our wording): economy, ease of finance, regulation, attitudes to risk, skills.
  • Change of form: a sole trader may become a Ltd for limited liability and investors; a Ltd may become a plc to raise large sums, accepting more regulation and loss of control.
  • Private sector: in the hands of individuals or shareholders. Public sector: government owns and runs it. A plc is private sector.
  • Sectors: primary (extract), secondary (make), tertiary (serve).
  • Family business: loyalty and long-term view against conflict and succession problems.
  • Small business: flexible, personal service against limited finance and buying power. SMEs versus large (9625): large firms gain economies of scale and finance but can be slower and less personal.
A sole trader keeps all profit; a 12-member co-operative shares it among members (illustrative £5,000 each).
In a co-operative the members share the profit.
An entrepreneur takes the financial risk of starting a business and writes a business plan. The plan sets out the idea and objectives, target market, financing and forecast costs, revenue and profit. It tests the idea, persuades lenders and gives a benchmark. Governments support start-ups with grants, training schemes, low-interest loans and advice.
An entrepreneur writes a business plan, and governments often support start-ups.
A business plan with five parts: the idea, target market, marketing, objectives and financial forecasts covering start-up costs, sales and cash flow. Arrows lead to its two readers. Lenders and investors judge viability and risk; the entrepreneur spots costly mistakes before spending money.
A plan helps secure finance and reduces the entrepreneur’s own risk of costly mistakes.
Four columns compare sole trader, partnership, private Ltd and public plc: number of owners, liability (unlimited for the first two, limited for the last two) and a rising staircase of reporting duties. Reporting grows from minimal to the most extensive disclosure and audit for a plc.
As a business becomes more formal, liability becomes limited and reporting duties grow.
Six forms of ownership with liability: sole trader unlimited, partnership usually unlimited, Ltd and plc limited, non-profit and social enterprise varies. Limited liability caps the loss at the amount invested.
Liability is the key difference between forms of ownership.
Business debts of 50 with 10 invested. A sole trader can lose 50 including their house; a limited company owner loses only the 10 invested and the house is protected.
Unlimited liability puts personal assets at risk; limited liability caps the loss at the amount invested.
A loaf of bread followed through primary (farm grows wheat), secondary (mill and bakery) and tertiary (shop) sectors with the lesson examples.
Primary extracts, secondary makes, tertiary provides services.
A grid shows which of seven named sources each ownership type can use: owner's capital for sole traders, partners' capital for partnerships, shares and debentures for limited companies (mainly large-scale for plcs), and overdraft, loan and mortgage for all. A Cambridge-only box names instalments, leasing, trade credit and secured/unsecured loans.
Match each source of finance to the ownership types that can realistically use it.

Shareholders

Dividend per share = total dividend / number of shares
Dividend yield (%) = dividend per share / share price x 100
Market capitalisation = share price x number of shares issued

These are the standard forms (9725 asks for all three calculations; 9625 names yield calculation and market capitalisation). Worked reminder: 5,000,000 shares and a total dividend of £400,000 give 8p per share; at a price of £2.00 the yield is 4%. Why invest: dividends, rise in share price, a say in decisions, backing the firm’s aims. Share capital (equity) is money raised by selling shares. Share price moves with profit and forecasts, dividends, the economy, interest rates, rivals, news, and demand for and supply of the shares. A fall can bring takeover risk and weaker confidence.

Six influences on share price, then Oakreach at £3.00 and £3.60: yield 5.0% falls to 4.2% while market capitalisation rises from £24.0m to £28.8m.
A higher share price lowers the yield and raises market capitalisation.
Market capitalisation 48 million x 3.25 = 156 million pounds; dividend per share 7.2m / 48m = 15p; yield 15p / 3.25 x 100 = 4.62 percent. If the price falls to 3.00 the yield is 5.00 percent and market capitalisation 144 million pounds.
A falling share price raises dividend yield but lowers market capitalisation, so a higher yield can signal lost confidence.

Stakeholders

Internal External
Owners/shareholders, employees Customers, suppliers, community, government, creditors (9725)

For any change, name the stakeholder, state the effect and say whether it helps or harms. Interests often conflict, for example shareholders want dividends while employees want pay.

A power-interest grid. Planning authority is high power, high interest (manage closely); shareholders high power and moderate interest; residents low power, high interest (keep informed), with an arrow showing their power rising if they campaign.
Stakeholders are placed by power and interest to decide how much attention each needs.
Six stakeholder groups around a business (owners and employees internal; customers, suppliers, government, local community external). Two conflicts: owners cutting costs vs employees wanting higher wages; customers wanting low prices vs owners wanting higher margins.
Stakeholders have differing objectives that often conflict.

Must-know distinctions

  • Strategy (long-term plan) against tactics (short-term actions).
  • Customer (buys) against consumer (uses).
  • Owner (risk and capital) against manager (daily running).
  • Plc (a type of company) against public sector (government-run).
  • Dividend per share (money per share) against dividend yield (percentage of price) against market capitalisation (total value of the shares).
  • Expected value (before cost) against net gain (after cost).

Quick self-test

  1. Define opportunity cost.
  2. List the four inputs.
  3. State four key elements of a business plan (9725).
  4. A project costs £15,000. It has a 0.4 chance of returning £50,000 and a 0.6 chance of returning £10,000. Calculate the net gain.
  5. A company has 2,000,000 shares and pays a total dividend of £120,000. Its share price is £1.50. Calculate the dividend per share, dividend yield and market capitalisation.
  6. A company has 6,000,000 shares priced at 80p. Calculate its market capitalisation.
  7. A dividend per share of 12p on a price of £2.40 gives what yield?
  8. Classify a quarry, a bakery making loaves and a bank by sector.
  9. Which type of business is listed only in 9725, and which only in 9625?
  10. Why is a plc not part of the public sector?

Answers

  1. The value of the best alternative forgone.
  2. Land, labour, capital, enterprise.
  3. Any four of ownership, objectives, target market and market analysis, competitor analysis, USP, financial analysis.
  4. EV = 0.4 x 50,000 + 0.6 x 10,000 = 20,000 + 6,000 = £26,000. Net gain = 26,000 - 15,000 = £11,000.
  5. Dividend per share = 120,000 / 2,000,000 = 6p. Yield = 0.06 / 1.50 x 100 = 4%. Market capitalisation = 1.50 x 2,000,000 = £3,000,000.
  6. 0.80 x 6,000,000 = £4,800,000.
  7. 0.12 / 2.40 x 100 = 5%.
  8. Quarry primary, bakery secondary, bank tertiary.
  9. Partnerships are in 9725 only. Co-operatives are in 9625 only.
  10. A plc is owned by private shareholders, not by government, so it is private sector.

Where marks are usually lost

  • Stopping at expected value and forgetting to subtract the cost to find net gain.
  • Writing “limited liability protects the business” instead of saying the shareholder’s loss is limited to the amount invested.
  • Giving a list of stakeholders without saying how a named decision affects each.
  • Describing a business plan’s benefits with no limitation, or the reverse.
  • Quoting yield as pence rather than a percentage, or mixing pence and pounds in a calculation.
  • Mixing up customers and consumers when the case study separates them.
  • Giving generic advantages of a company form with no tie to the case business.
  • Using partnerships or co-operatives without checking which specification you follow.
  • Making a recommendation with no reason for the choice and no condition on which it depends.

Frequently asked questions

What are the four inputs a business uses? The four inputs are land, labour, capital and enterprise. Businesses transform these inputs into outputs.

What is the difference between unlimited and limited liability? With unlimited liability, the owner’s personal assets can be used to pay business debts. With limited liability, the business still owes the whole debt, but a shareholder’s loss is limited to the amount they invested.

What is the difference between a customer and a consumer? A customer is the person who buys the product, while a consumer is the person who uses it. They are not always the same person.

How do you calculate dividend per share and dividend yield? Dividend per share is the total dividend divided by the number of shares. Dividend yield is dividend per share divided by the share price, multiplied by 100, with both figures in the same units.

Official syllabus

OxfordAQA International AS and A-level Business (9625), Version 3.1, and OxfordAQA International AS and A-level Business (9725), Version 1.1, sections 3.1.1.1 and 3.1.1.2. Publisher: OxfordAQA.

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