AS Business revision guide

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  • Created on: 20-03-13 23:06
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The interest rate is the price charged by a bank per year for lending money or for providing credit.
For firms, the level of interest rates is very important because:
It affects consumer demand, especially for goods bought on credit ­ if interest rates increase households decide to save more and spend less and
vice versa. It affects the amount of disposable income a consumer has.
The interest charges affect the total operating costs, if interest rates fall businesses have to pay less interest on their loans.
Price of one currency expressed in terms of another. E.g. the pound's rate against the US dollar id determined by the supply and demand for the pound
on international currency markets.
Strong Pound
Imports Cheaper Exports
Inflation measures the percentage annual rise in the average price level.
Advantages of inflation to a business:
It makes real assets become worth more. As a result the firm might find it easier to raise long-term finance from banks and shareholders because
the business now looks more secure.
Firms with high borrowings find that the fixed repayments on their long term borrowings become more easily covered by rising income and profits.
Disadvantages of inflation to a business:
Can damage profitability, especially for firms that have fixed-price contracts that take a long time to complete.
Can damage cash flow as it will push up the price of machinery.
Differences in inflationary expectations have the potential to cause costly industrial disputes that may damage a firm's reputation.

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Created when the demand for labour has fallen relative to the available supply of labour.
Theory X managers might use the fear created from unemployment to force through cost saving changes in working practices.
Employees choose to stay where they are creating low rates of labour turnover and saving the firm money on recruitment, selection and training.
Recruitment should become a lot easier ­ there are plenty of applicants!
Creates insecurity which could sap morale within the business.…read more

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Businesses with limited liability
Owners are not liable for the debts of the business; they can lose no more that the sum they invested.
Private limited company
The shares of a private limited company can not be bought and sold without the agreement of the other directors.
Therefore the company can not be listed on the stock market.…read more

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Volume of goods sold X Average selling price
Fixed Costs: any costs that do not vary directly with output ­ they exist even if a business is not producing any goods or services. E.g. electricity.
Variable Costs: costs that vary directly with the level of output e.g. raw materials.
Fixed costs + Variable costs = Total Costs
Total revenue ­ total costs
Profits are important because:
They provide a measure of the success of a business.…read more

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A cash flow forecast will enable a business to do the following things:
Anticipate the timing and amounts of any cash shortages
Arrange financial cover for any anticipated shortages of cash.
Review the timings and amounts of receipts and payments.
Obtain loans (if the problems are long term) or overdrafts (if short term)
However, firms need to remember these are only estimates made from assumptions and therefore need to build in some safety margins.
This shows the sales of a product over time.…read more

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Sales will be low. There will be high costs per unit because sales are low but launch costs are high and overheads are being spread over a few
units. Pricing depends on different strategies e.g. skimming or penetration.
Sales are increasing. There will be falling costs per unit as overheads are spread over more units. Distribution may be increasing and the product
may have been modified given initial customer feedback.
Growth is slowing.…read more

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PROBLEM CHILD: a low share of a fast-growing market. These products usually need a high level of investment to promote and get
them distributed.
DOGS: a low share of a declining market. The product or brand will be killed off once it's sale drop below break even.
RISING STAR: a high share of a growing market. Very successful but still need heavy promotion to ensure maintained sales.
Market Segmentation is the acknowledgement by companies that customers are not all the same.…read more

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Niche Marketing
Niche market businesses sell specialised, differentiated products that are designed to appeal to their very specigic target audience.
Firms selling niche products can exploit the low price sensitivity created by product differentiation by raising prices.
Small niche operators lack the economies of scale required to compete on price with larger, established operators.
Location Factors
QUANTITATIVE FACTORS consider the financial impliacations of different locations.
Cost of Land
Accesibilty to Supplies
Accesibility to Labour
Accesibilty to customers
Government Grants or intervention.
Resources/Raw materials.…read more

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They could be put on a graph, the x axis being interest and y axis influence. Although this is subjective.
Identifies strengths and weaknesses of the business idea.
Highlights financial risks involved.
Helps to obtain finance.
The contents of a good plan:
1. Executive Summary
2. The Idea: details of the product/service
3. The Market: focusing on market trends and an analysis of key competitors.
4. Marketing Plan
5. Organisational Plan: management and personnel
6.…read more

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It can be slackened or tightened according to the economic circumstances. E.g. in a recession rates are decreased to try and encourage increased spending.…read more


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