CHAPTER 1: Understanding Business

Activity Economy
involves all business activities and
services for
money
exchange ofgoods and

Needs:goods Services essential for

3 ADDED

Mixed
Economy
*
Business can be classified into three sectors:
living. eg:water, food, clothing.
Wants:goods
*

3 services people want VALUE # :

Primary sector Economic l
to have essential.
butaren't
unlimited wants
e Extraction of natural sectors public sector
*
scarcity.People have resources. Eg:fishing,

n otenough
but products. Scarcity is due farming's mining.
Private sector
->
government/state
=selling price -

owned businesses
to a lack of factors of production: #2:
Secondary sector
cost price (product
manufacture goods using ->
Businesses owned by the - don'th ave
goal to
Natural/primary
of
Land. resources Production price).
Theresourcesfromtheprimeinthe government but
by
private profit

abouthumanworkers availaachinery ease

-

..........
individuals.

butOsfunded noticetothe
#3:
value added is the Tertiary sector
-> goal:p rofit
at
Enterprise:Entrepreneurswithskills require difference between services provided in an
economy

mainin
officiency
Eg:Hotels, travel agencies hair saloons.

Opportunity
* cost:a

to acheive
benefit/value
something
areciteinsprites. INDUSTRIALIZATION high of
out
money
Encourage more geteases
given up in order
Industrializationdecrease"insensing manufacturing.
don'tc are

rations
Eg:
i fa
bakery spends money on
competition will be
-.............. -

else.

an oven, the oppurtunity

cost could be
Added value DEINDUSTRIALIZATION encouraged. argut employment
to cakes.
a refridgerator store increase methods: when the
primary sector decreases the secondary Privatization
reduces, and this is de industrialization.
sector also
slowly
* Specialization:Workers/machines -charge higher off public sector local
in some production. Importance of Economic Sector: selling >
national, regional 3
specialise parts of
selling prices authorities
c osts and create organizations to private
specialization can help cut
The sector with mostw orkers is
products.
reduce of
cost sector firms. government agencies
high quality mosti mportantin a
country
making by lower
Growth of Private
<public corporations
sector
-Divisionof atourproductionprocessalied quality materials et
The sector valuable withmost goods/services >reduce taxes because Trade
workers. -attracti nterested
is the mostimportantin
country. government won't have burden body
-
association thata cts to
PROS customers
importance of sectors changes o fpaying salaries
CONS
why the

recreasingled adding
promote the interests of
increasedproductivitime at a brand up > Private sector firms can
primary used
sector resources get
a a sector
industry.
·

name to
generic reduce costs, increase outputs
eie sients in tertiary services
·

moving from one to product. and gain

another work productionmachtreeto higher
revenues.
as they get wealthier.
-

Enterprise and Entrepreneurship.

government
supports new
businesses:
TYPES BUSINESS
OF ORGANIZATIONS
An Entrepreneur is a person who BUSINESS PLAN >new business= -> sole traders -> Private limited company (Ltd.)
deemedandimportances
more jobs available
organize, operates and takes risks >increased comptition smallesttypeofbusiness organization thati s owneda set
one or more owners who can sell the companies

sharesticestinghavenodermyfriendsand fam?" rasetrainere

> business
for a new business venture. may grow
Advantages
large 3 contribute
to
Disadvantages
finance and country. >easy to setu p
The characteristics: owners. >unlimited liability
- full profits

decision. Fullresponsibilityin
some
regular content:
anyindividualorganization general
in the publican
Risk taker products
Governments support >full control

istion
by: making.
creative disadvantages
aretality
nountoweyinterestine
->
Partnership dos

Selfconfident items/capital needed agreementb etween (usually up to 20 people) huge capital

meanangerredeemed
two or more -
train employees
business
to operate eg:machinery people to own and run
jointly? Share profits easy to attractc ustomers
hard Advantages
working piy"Soraniansan" "e"ssnare Disadvantages

easyataneerideais contineau!"he
to
s
independant

Raiseranthingonisthreeentereachatoneerasing
Plan a business, reduce failure.
and ideas
INTERNAL GROWTH
Measuring Businesssize.
internalgrowth is when company expands a
a more capital investments also dies.

How to -
jointventures
classify business as small
limitedliability. eseosity onaunyounaes
a
its existing operations, by opening a new
agreement between two or more businesses to work
or
big?Use the
following measurements: branch in another country, this is slow growth together on a project. Eg:Google
↳
Earth=google+NASA
joint venture project.
# 1:Number of employees
but
managable then external growth.
m ore
Advantages
Disadvantages Business in public
#2:value of output EXTERNAL GROWTH
business takes over /merges with another
>reducerisks any
both
mistake will reflectthe
parties organizations
3 :value of capital employed when
brings event sector:
the
decision will be ineffective
making
#

business. Itcan also be called

however, these methods have their integration. expertise.

by government, t o profit
classified into: b utto aid
of workers
limitations, eg:hiring a lot
External
growth can be largely sowned not

doesn't necessarilymeanbiggerbusinessee
VERTICAL HORIZONTAL CONGLOMERATE
untranchisessnessfranchisors general public.

grantselebs,anothero
MERGER MERGER MERGER

also produce similiarprofits. join abusinessin sameindustage two business

"pretentwerae restageneairnteriotosearetainretrace
different
at

Business Growth Samactsage of of production.

assured supply
industries.
Franchisee
Advantages disadvantages
of
high motivation
expansion
3 businesses > transfer

costsettingheatsumseeplies
I not
grow because growth helps
want to > reduces of the essential Ideas
reduce their
average costs and helps develop
increased markel
competition components
supplying fort he nocompetitiopularity
waysfor bigger share
- > profits shared
can prevent supplying services.
There are 2 main a business to grow. to others.

DRAWBACKS B USINESS
OF WHY DO BUSINESSES FAIL? Business objectives
STAKEHOLDER GROUPS
> a
person/groupwith a directi nterest in the performance and activities
GROWTH: business works towards of
spoor management a
targetthata a business.
4 difficult staff >over-expansion they important? conflict
constrous
to control -> How are
INTERNAL
* motivator for employees
3 Lack of funds > Failure to plan for change STAKEHOLDER GROUPS

3 lack of
expertise
spoor financial
management
* Helps with desicion

Amanager canseeif ahe

making >Owners
↳
good products from business
enagers want to

3 Discomies of scale
ibusiness build afactoryin
a"menisex
WHY ARE
NEW BUSINESSES AT Objectives
-whena business expandsamehe HIGHER
A
RISK? a survival ↳
>Workers
Objective: aid local community ener
profit maximise profit
paymentfortheirwority noisearee
communityoumentally
>
> Less experience friendly business
WHY BUSINESSES STAY SMALL: > Growth :itmarketshare it

Manage
to market jobs
I new

was businesstohave
> market share :business will be well known
of by
->
Type industry I don'th ave alot of sales yet c return to sharenolders:profits paid as dividends.
Higher salary, security
better status
enough money

Garfingrepai >don't have

money to support business yet PRIVATESECTOR BUSINESS OBJECTIVES
-> market size PUBLIC SECTOR BUSINESS OBJECTIVES
if firm operates in rural area ·
SURVIVAL
d oesn't need to
with low people, it
grow. · GROWTH ·PROVEDSERVICE
-> owners objectives
small to have
·
PROFIT
some business prefer being RETURNS TO
~ INCREASE JOBS

personal contactw ith their customers and

·
TO LOWER UNEMPLOYMENT
SHAREHOLDERS IN THE COUNTRY.

flexibility controlling
in and more
controlling over
INCREASE LIVING
decision SERVICE
making
· ·

PUBLIC
THE
OF
STANDARD

· MARKET SHARE
thismost
of and division
"W
levels
management of responsibilities

i
They charts.
organization
work?
business.
do
can be

Why
within represented
x
a on

people ~ Advantagean
1

of
4 better standard living Financial
awareof which
communication
Worker knows
Their position
a nd
shows link
relationship. Tall chain
·
Be secure channel is used.

we of command.

RaingeringStates
span of Control
4

Time-rate number of subordinates working directly

-

Highly efficient
Under a
manager. Standardizes

saidaccordingtotimeworkene
-

Chain of command communication

from

"TwerkenonWandmeetDirectat
the
allows instructions to be passed on a senior
-

Supports all
employees

manager lowerlevelsof management

to the

Salary

Socianeedassneedtempmunicatehere midmaimedonarashandrea authorityoverpeopledirectlybelow

end
the

additionamountauto worker
is
Wide Span
*
Security (job' pay secure ensured)
Staff
Managers. -
of control
quicker communication
specialists who provide support, -

managers less remote to

motivation.
information, and assistance to line employees, more

Managers gain more

-

managers. responsibilities.

Management. LEADERSHIP STYLES.

Disco,anM.Odirantorocesses
↳ Maslow's hierarchy 5 rules:
-employeesaremotherit
*
primary Trade Unions.

Plannination
workers who
group of
-managercanidentifywhich joined to ensure that

retraingenerateasemiten
then take action to their interesti s

I coordinating
advance
their level. protected.
However, this doesn't
commanding
-

apply to all workers. Benefits of trade union

controlling
Autocratic:
Theory
to worker:
Two-Factor
↳ Herzberg's job enlargement: i nvolved
improved
working
in employees not
-

extra tasks of similiar work level

is
added to worker job description givingthe Democratic:
are
financial support
-

make work more

interesting. subordinate the authority
managersinvolve employer
in
job enrichment:

adding tasks thatr equire more

to perform some tasks
Disadvantagesofjoining
sillandresponsibilityainingit
ADVANTAGES employees to do what
-costs
money to be a leave they

managerscan'tdoall therese
member. want. Their own decision making.
·

feel
providing training makes work

more valued, increase job satisfation -

may be asked to
a set

oppurtunities for promotion

Provide promotion
work more
to make workers

efficiently.
worogmore teeteringimosbordinates industrial action.

Recruitment training
Effective communication.
transferring of from
Communication
a
message
analysis anitarecorditontois
Job improves worker's skills and
knowledge and verbal
the sender to the reciever.
business be more
help efficienta nd productive.
Job specification: ameetthatastations THREE TYPES OF
Internal Communication.
TRAINING: Communication
enemyenties
outlines are
reau
Job description:It * Induction
members of the
telephone
between two organisations
INTERNAL EXTERNAL introduction for new employees explaining a
same
face-to-face
firms activities, Procedures etc. External
E CRUITMENT
R RECRUITMENT video conference
communication
varancy filledbyexistinganicinsgomneoheyeweartised tennewbiessettleincob time consumiet
a betweenorganization
and other
organization se Written

finexpensivecomingewosine seeinpetitionit risk

off-the-job
costs less than
Communication.
trainer will lose
↓ productivityw hile teaching. Effective Communication Involves: Letters
Curriculum vitae (CV):summary employee's experience, background
academic
textmessages
of
* off-the-job
shortlist: identifying candidates who meet requirements. from workplace by specialists. transmitter
trained
away Reports
SELECTION
* medium of communication
applicants who are shortlisted will be PARTIMEEMPLOYEES, a broad range skills taughtthe
of
* a reciever
Visual
manager.
*
heblework netto costs are high. Communication.
interviewedbyHR(Humanresource less expensive
*

than fill time

cause job is
temporary.
* a feedback

aware legal
controls Diagrams
·er nehaawisestoutbart onREtrm one-way communication.
-

a charts
require
thatdoesn't
-

message videos pictures

recruit.

a ss there are of
alot governmentl aws taste
to
communication
employees equally in the workplace. There a feedback, a command.
Communication
their
gender

tee
should be no discrimation based on age,

warger religion, race, etc.

Two-way communication.
reciever a
Barriers
in many areas: gives response to
Employees are protected the
message recieved.
workforce of employees
planning:number skills a unfair discrimination

workforce downsize:reduce
needed. * health and
safety w ork
at
Downward communication.
no. of workers unfair dismissal
message from managers
a

due to:
wage)
automatedwar
minimum
*
wage protection (legal
product to subordinates
relocation. INDUSTRIAL TRIBUNAL. Upward communication.
TWO WAYS OF DOWNSIZING:
legal meeting which considers workers complaints
messages/ feedbackfrom subordinates
·

dismissal:worker told to leave job due to of unfair discrimination and dismissal at

tomanagers
asastorywararmisone
work. The hears both cases and
meeting may
Redundancy give compensation if dismissal was unfair.
job and are sometimes compensated.
Workers can resign:better jobs (old age.
 MARKETING
3:
CHAPTER
Marketing GLOBALIZATION
products sold all over
.

↑
STRATE.*
understand
increase
marketing mix helps
Marketing: the world ->

what
your product/service can
market competition
Getpeople interested in product offer to your customers.

3 TRANSPORTATION How does

and increase sales profit.
marketing mix influence
better transport consumer behavior?
Identify
·
·
customer needs OPPORTUNITIES
itis
systems means * Sales promotions AND PROBLEMS

Satisfy customer
distribute ↳ discounts
needs to E NTERING NEW
OF
easier 3 cheaper
·

worldwide. location FOREIGN MARKETS

and sell products
-
Physical of store
↑
-
·
maintain customer loyalty HOW BUSINESS SHOULD RESPOND
* publicity

identfindcustomer emergingmakeit
->

building customer relation ships

·
TO INCREASED
COMPETETION
* social media
-

growing population
IMPORTANCE CHANGING
OF keep improving existing products.
***e
prices.
teconvenience
ofst o r e
CUSTOMER NEEDS: introduce new products thatare unique
costs low maintain profits
Es customer needs can change overtime
keep ↳
Language barriers
↳ Cultural differences..
due to technological advances or
changes Customer spending W
currency exchange rates
in knowledge. Patterns depend on: ↳ protectc ustomers from being OVERCOME
P ROBLEMS BY:

changes in price misled,falseavertising,selling

waterunesmMegae
*
A
* business mustbe able to adapt
to * incomes
expectedqualitby e sued/Fire
continue be
its
marketing mix to

needs. A tastes. in
effective at
meeting customer to help each other

#MASS I
MARKETING RESEARC MARKETING

4p's MI?
marketing... marketing... ⑤marketorientated business Combination of factors
at
aimed at
productaimed
product identifying company's
⑧ that
m ake a
business thatprioritizes customer
·

special needs, subset general population needs and desires and creates products that
Productunique:

of the main market

eg:toothpaste
based feedbacks. PRODUCT
satisfy them
B improve on

E productwith appealing
E, primary
> create

colgater
new

eg: Sensodyne
for
forgeneral researcher
Packaging
high cost
Sensitive teeth.
-
gain experience but

for
you conduct/hire
-
research someone - a

ADVANTAGES
=
-
ADVANTAGES

E Large
-
·
BENEFITS

>Customized to >
LIMITATIONS

Expensive
nature
raine"stanz
E lower outreach scale production
scale
own needs
PRICE sell high initial
more economies of >Time -
consumive slowly reduce to

COSTS i
reliability inningce
Straightforward 3
> Cost Plus, penetration,

&
Promotional 3 introduce with low prices
-Less competition
equally targetted research
loyal customers volume of sales
Secondary >priceelastic
nasticdemanddemand one

>more
Large -

research already compiled/gathered on 2

internet PLACES percentage change
in

LIMITATIONS
> is
Product the
at
rightplace the
at

BENEFITS
DISADVANTAGES DISADVANTAGES -
righttime.
distribution channels:Pate nete
false
-----,
,
mightcontain to end consumer

cost
PROMOTIONS
&
Low
-

>
information

& High possibility of failure

Lots of competition
> short time needed "can be outdated - increase brand awareness, create

of audience,
information interestgeneratesales,createandloyalene
> Diversity online promotion.

very small size unable to responses

track
3. Accuracy of marketresearch
> not flexible to demand ⑧ .8

*outdated
-COMMERCE
>Higher c osts:
unit *
Budget sample size
* sources S OPPORTUNITIES

changes
ease med
no economies of BIAS!!
* companies
* Time individuals that availability

rofGMENTATION
* DATA TYPE unreliable 6
by and sell
a
*
Audience sources goods/services
offers
THREATS
*
Setting goals through the -

&
internet · economic
...

Presentation of marketresearch eg:

uncertainity

16 E 1 2 ⑧ amazoncanseenget
TECHNIQUES RRESENTATION OF DATA
socio-economic LOCATION GENDER
in- Promoting 3 driving trafic
e
--
AGE is
grouping Consider the
Product
website.
Survey to an ecommerce

intersmanner
differentages

preferdifferent customerone ofresoldae

productb ased on
>graphs:line, bar, pictograph generate brand 3 awareness

interious, charts
diagrams i n products/services
interest
 4:OPERATIONS MANAGEMENT
& HR
rec
PRODUCTION OF
METHODS PRODUCTION

marriemair nrural circawerebewanis

the
making manufacturing goods
of

from raw materials 3 components.

50 B B ATCH FLOW -

G standard
S Productivity
the measure of liability thath its profit
models with
products

usually assembly lines.

&Quality & productivity & cost
output
per eg:car using machinery expensive
Quality
worker or
will
outputp er worker per hour. differentfeatures for eg:cars with standard
each model. design be standard increases productivity electricity
and

Baeffancy anality'sstandardizedwhenMachinery asisadone

PROS
more value added
Labourcostsdowner machinery
automated as
>time management it
>
specialized workers ↳ Kaizentreeradiatoret CONS
Production.

I
3 BREAK-EVENANALYSIS.
ECONOMI
IDENTIFY
CLASSIFY
COSTS
- -

Financial calculation thatweighs the

of a
cost new business, service/product

fixed costs Economies of scale: against the unitselling price to

determine the pointyou will break-

costS that dont
vary a fall in the of
with Output.
average cost
even.

producing each unitdue to an

increase in scale of production.

B
y Profit
~
average cost &
EG:marketing, technical,
E ~
aridele
of
cost producing Financial, External
*

Le Breaeven
output
.
pointe
each unitof
↳ Loss Fixed
Diseconomies of scale: coSt

total cost business 31

rising costs due to being Units sold
total
fixed variable: big
too to operate efficiently.
+

variable costs
EG:weak coordination, unclear
goals, break-even analysis assumes all
Poor Communication stock will have been sold,
vary with output
costs that
Reduce sometimes unrealistic calculations,
average cost, Price of product same: y
Price unpredictable
margins on each unit INCREASED. =

changes in trends.

LOCATION DECISIONS
- WHY GOOD QUALITY IS IMPORTANT ......

I AND HOW IT IS ACHIEVED

& 3 relocation
main factors
influencing location

availability
· of r aw materials

proximity
Quality needs
·
to market
is expectations
about
meeting customer's
Availability
& of manpower

(QC) procedure intended to ensure that competition

Quality control
adheres to
product a standard quality criteria.
Factors' thatbusiness consider when choosing

⑮testing products,
creating benchmarks, reviewing the foreign
·
countries
true costs

manufacturing process. ·

·
customers with
safe
interest

innovative for thatp lace

quality Unique &
·

prevention of
Quality Assurance (QA) is

issueslists, Governments influence location decisions

on

process standards, process documentation.

· Setu p in high-unemployment areas

in areas
· of under development
Grants those
·
3 Subsidies given to areas

-
CHAPTERS:Financial information and decisions
0

short term cash flow

forecasting
need finance?
why messes Cash flow
-> To start up the business Problem solving
and
Expanding the business
Cash:liquid assetavailable for
to use
->
business ↳
apply for bank loan
money required for day to day expenses (Working Capital)
->

spend. 4
Delay or cancel plansto buy
eg:money for rent, wages, etc. 4 needed for: new equipment

#1:Short-term finance -employee supplier wages/payment x purchase

supplies on credit

Production costs sell in cash notc redit

↳only
-

for
working capital day to day expenses/operations -Liquidation to not happen
expenditure pay debts).
woraaaor
↳ Revenue (business stops 3 sells everything to
.Yiae"airname "Burning.
-
Cash flow -

money going in and out of business over

2: finance period of time.

business
pay
to for day to
Long term a
#

day operations
Finance that is available for over a
year example sales of Products
& services
↳
Capital expenditure Cash inflow recieved from bank loans and sales Working capital-
money
-

spenton purchasing fixed assets that lastover current assets liabilities

-money assets
-

a
year. of
eg:office buildings, transportvehicles and salaries.
-

Cash
outflow
The main
Employee wages importantb ecause:
sources of Capital short-term finance sources
pay employees
-

Internal sources of finance: ↳overdraft,withdraw

more cash for
day 2 day
-

from bank to
-

Retained profit money than owned operations

Pay later
back with interest.
doesn'tneed to be repaid credit -pay debts
↳
Buying on
+

pay suppliers on later date by buying

-
Profits
may be
too little for desired action
supplies on a credit.
↳
selling existing assets debt
factoring
-

Cash flow forecast:

debtdoes not increase from this
Long-term finance sources
+

entimateof especiesare
sold
-

takes time until asset

gets ↳ Bank loans

selling inventory insimiliar cashflow:i nflow Outflow

-

Net
why?
-

costs (smaller warehouse) renting

openinganactasgay.
+ lowers storage to

opportunity of
cost
selling to a
it customer (business pay
Use assets).
monthly fee to
Staysans
for high price. -manage cash flows.
Hire purchase
asset and pay
External sources of finance Business
manufacturer
can buy
over time.
Profit Income statements
shares to shareholders
selling shares
-

Capital raised doesn'tn eed to be repaid

↳
selling sales revenue costs financial document thats hows companies revenue and expenses over a period
-

shareholders will expect profits to be shared Profiti ncrease by: of time.

VentUrgecapitalart-ups
-

with the reducing costs tells aboutp rofit/loss, compare the statementthrough years
managers
-

Bank loans
-

-increasing sales revenue

+ Fasts ource of finance to see difference and compare to other business.
Profitimportantbecause:
-

Have to be repaid with interest Microfinance:

statementc ontains:
Re rEnrepreneurs
Government
grants Financial servicestolow inoneelse
-

Revenue Quantity sold

give business a sum of money that arent served by banks. Cash I Profit.
-
selling price x

inexchangeofbenefitting,thecountry in profitGross profit Sales revenue of sales

Cost
- -

madearestarBarermmaroneener
business can have
employment butno cash to spend. cost of sales costo f product
selling
- a
-
Debt
factoring Net profit ->
gross profit expenses
-

recieve
money quickly
+

-business wont be complete until

can offer as agaisnt
security a loan
Retained Profit -> profitkept by business for its own

gearing ratio:proportion of total uses, reinvest into business to grow.

all debts are paid. capital invested in assets thatare debt

statement off inancial

RATIOS
Profitability
concept
->
data in financial
statements
useful observations about
the performance
are used to make
and
one

financial strenghtofabusinessthis isananalysis

measure of organizations profit
position relative to it's expenses
employed.

FASTER
-> Importance RATIO ANALYSIS.
BALANCESHEETS.
Primary goal of all business ventures Profitability Ratio

hevalue
showstits
of a business'assets i n
time.
business needs profitt o
in the
survive
asice to general revenues.
particular long run.
excess of its expenses.
When the currentassests subtotal is
ASSETS.
·

compared to the currentliabilities subtotal, Liquidity. * RETURN ON CAPITAL EMPLOYED (ROCE)

netprof"Yed det
tems of owned business.
value by a
firmres

estimatetheterm
Fixednafaetet'ssensory,TraversanosteomyenkranmoreinYogurucan
->
concept Gross Profit
·

the ease of an asset or revenue -

Cost of goods
GROSS
* PROFIT production

security to be converted into MARGIN

grossprofit
ready cash withoutmarketp rice. on
· one can compare the total debt to the
importance
LIABILITIES profit margin
-> ·
one

listed balance MARGIN.

of
total amount equity on the
indicator of financial health of a *NET PROFIT
revenue
debts owed by the business to its creditors. if the debt -equity business and ability to
sheet,to see
resulting pay debts.
-NetprofitO
to be paid in a yearratio level of
Long term liabilities:they don't dangerously high
-
h ave indicates a

information is useful for the USES AND USERS OF ACCOUNTS:

- Short term liabilities:have to be repaid within a year borrowing. This if the firm will be
Liquidity Ratios.
lenders (banks) to know GOVERNMENT:
MANAGERS help abilityofthe companyasthe
*

WORKING CAPITAL. able to its debts. looka t

repay back them
government
CURRENT ASSESTS-CURRENT LIABILITIES WPR
=

· investors like to examine the amount of cash keepcontrol overperforman on

acaresignalwithCURRENTRATIOS:
liquid t o see if there is decisions
company will be
take better
liquid held by a the on the balance sheet
operating and pay thehigherthecurrent
·

cash a sses the

current
continue
available to them a dividend.
less the short-term debts they have enough pay ratios can compared
·

assets own
they for worker's jobs,
Favorably, a value - 1. l iabilities
Current
to
pay. SHAREHORemto
managers mayexaminetheseaandare
·
*WORKERS AND TRADE LIQUIDRATIO/ACIDTEST RATIO:

SHAREHOLDERS EQUITY. to see have access to financial documents

iterbornessentance
this ratio doesi t
they can see:
is a ssets inventories
potentially be sold off harming the
without consider inventory as
current -

SHAREHOLDERS EQUITY:TOTALASSESTS-TOTAL LIABILITIES

underlying business. whethertheyshouldinvest t akes time to be sold
it
and made into cash.
currentliabilities

Shareholders
CAPITAL EMPLOYED: equity non current
+

example:sell off inventory to

electtothepositions companyisin stained
excess
liabilities For LIMITATIONS USING ACCOUNTS
OF
3
a
RATIO ANALYSIS
raise the finance available.
total amounto f money invested in the company by debts of the
business. * based on
accounting I
past h elp indicate
won't future

ifthereareliquidityproblems are stowINESS:

business
shareholders. This will include both the share capital * external users mightnotget full picture about
.

affected inflation.
sinvested directly by shareholders) and reserves. by

-anBantonalremainmomentgreenscomes
* data can be

Shareholders can see if their stake in the business

and outdatedin
has risen or fallen by looking att he total equity
Data can be
misleading
figure on the balance sheet.
* accounting
different companies have different
methods, hard to compare.
 External influences business
CHAPTER 6 . on
activity
Main
governmentobjectives. Main GovernmentEconomic policies PRIVATISATION:
· Low inflation ·
Balance of payments
⑧Fiscal?Ol? government
to private
selling governmentfirms
difference between country's exports will increase efficiency
inflation is general increase
a
a in the
individuals this -

and imports is balance of payments. s pending and taxation

price level of goods and services. for balance and productivity i ncrease
that supply as
influence the aims
economy, government
to a
Balance of payments surplus:export well as increase competition.
problems with
high inflation: budgetand tries to achieve it using fiscal policy.
-

is hyper than import

irGreensagentoomreeorsaleinaracineneregmGement IMPROVETRAININGEDUCATI
↳
Reduce value of wages
↳ Reduced International competition
Balance of payments deficit:export
governments can spend more on schools
is
standards lower than imports
↳ Reduced
living skilled
people in the
more
to economy are
Business cycle
have more money spend.
Low
unemployment
· People will
and knowledgable.
Unemployment occurs when people Monetary policy
·

who are
willing to work can'tfind
governmentpolicy that adjuststheinterestrate andtheINCREASEDCOMPETITIONTies (first
a job. conducted Iti s to enter the
supply of
money in the
economy. usually restrictcompetitors
that
-

Problems with high unemployment by the country central bank and used to maintain
dominance in the
stability unemploymentand economic growth industry/having full
of output(goods, services)
4 Loss Price low
rules
Reducing
will
interest i nvestment,
boost consumption market and reducing government
↳ Increased costs for
government
lots of
employment, thus also
increasing GDP. and regulations (deregulation),the
Growth:GDP4, high living, environmentc an be
growth (GDPR)
·
Economic
more competitive
side policies
Gross domestic product (GDP) value all
of
BOOM:
goods and services.
·

Supply policeis
improved and thus become more productive.

100mayspending, pricesrise
monetary
-

both the fiscal and

goods and services in a
country in one
year. TARIFFS
affectdemand, butt he policies
directly by
Problems with no economic growth businesses.
very different. Contemposee goods
-

i nfluence
that supply
are
↳ t
spending levelslow,
unemployment
and servicesimportthe
GD
recession:
These can include: -

↳ Lower
living standards to influence ito r
protect competitive
↳ Low
recession, high
business expansion
Slump:Major fail.
advantages.
unemployment 3 businesses

Business' impacton Environment. Externalities Environmental pressures

effecton
The significant its stake holders are called
of people who change
SOCIAL RESPONSIBILITY. Pressure groupa re organizations/group
of externalities:
When a business decision benefits stake externalities. There are 6 categories business (and government) decision. If a business is known
behave in irresponsible way they can conduct
shareholders i.e. Workers,
to a
socially
holders other than PRIVATE COSTS: costs paid for business for
by the take other actions.
They are ofthe
activity consumerboycottsaublic
nd
an
bank b etc. and media
community suppliers, support coverage also well-

PRIVATEBENEFITS: gains for a business resulting from financed.

ENVIRONMENTAL ISSUES an activity
laws thatr estrictbusiness
air by releasing smoke
governmentcan
also pass
business can pollute the
EXTERNAL COSTS: costp aid for the rest of the society (other locate in natural
and poisonous gases, pollute
water bodies around by decisions such as not
permitting
factories to

and chemicals into them, and than the business) t he business

as a result activity places.
by releasing waste
it beauty limit
gainsenjoyedbytheestate,the
natural beauty of a place and so on. EXTERNAL BENEFITS: society Pollution Permits are licenses to pollute up to a certain
damage the to
acquire, so firms will try to
avoid
These are very expensive
External benefits buying the pollution permits 3 will reducepollution to do so.
SOCIAL COSTS: Private costs -

benefits
SOCIAL BENEFITS:Private benefits External
Ethical decisions.
-

with ethical decisions based

on a
Sustainable development A
business mightbe faced
a child work, bribes or
moral code, for example:letting taking
puta trisk the living
standards
developmentthatdoes not
associating with people thath ave bad reputation.
of future growth thatd oesn'te ffect
generations. Economic of need to take a decision
sustainable development:
example
In these cases, even if they are
legal they
future generations. Few that feel right.
they is

*
using renewable energy ethical business's products popular
Taking decisions can make a

waste among customers and allow the governmentt o favour them in

any
*
recycle
future disputes and avoid pressure group threats.
develop
A evironmentally friendly problems.
Though the business mightm iss on
out cheaper unethical options.

I
MULTINATIONAL COMPANIES. GLOBALIZATION. PROTECTIONISM.
trade and movement
the increases in worldwide government protectdomestic firms from foreign
(MNC'S) between countries.
when
trade barriers such as tariffs and
of people and capital competition using
Firmswithoperationsproductionsservicesinmore has occured ori n quotas
some reasons now globalization goods c an be imported
IMPORT QUOTA:
restrict
quantity of that
· increase in Free trade agreements into a country.

I
ADVANTAGES. DISADVANTAGES cheaper transport
TARIFF: taxes on imports.
improved and
will have unskilled
* lower cost of the *
jobs reduce the number of
imposing these trade barriers will
materials and labour for tasks. More skilled jobs ·

developing emerging countries

foreign goods in the domestic market and make them
workers that
Production in other countrywill be done
by expensive to
buy, this reduces competitiveness of foreign goods

I
firms home ADVANTAGES.
come from the DISADVANTAGES and make it
easy for domestic firms to produce
E xtract
* r aw materials
increased sales
3 sell their
country. ·
3 ·
domestic products can'tg oods.
from foreign country. profits
firms forced out
competewithforesee
* local
·
cheaper materials
and EXCHANGE
RATES.
*
produce goods nearer of business. labour will be available
the price of one
country in terms of
the desired markets
↓

will use up the in other countries. high quality.

costs *MNC's another
currency.
to avoid transport factories. to the
non-renewable
·
can open Adds competition The demand and supply of the
currency
scarce
firms.
Firmsadifferentcountry
avoid trade barriers determine their
domestic exchange rate.
*

market
on imports. escape
resources in foreign country. A
currency appreciates when its value
·
employees may leave rises, exports become expensive and
import
quotas. * Since MNC's are
large importcheap products imports become cheaper when a currency
the their work d omestic
at
appreciates.
enter
* new markets
they can influence and customers
sell to when its
deappreciates
work at
of when a
spread risks. economy in domestic market firms to currency inexpensive 3
and governmentand
-

value falls. Exports become

a
foreign firms
to
can more profits. get imports expensive.
country, they
become
the new
* remain competitive the domestic
for importers, bad for exporters
to
threaten government import materials from better pay so an appreciation is good
importers
rival firms
with even
depreciation is good for exporters and bad for
shut down and unemploy increase an

in other countries.
foreign countries a
at firms will have to
workers if financial grants their to attract employees.
cheaper rate pays
are not given.