Business Revision

What is a mission statement
The purpose of a business
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What does a mission statement NOT do
sets goals or objectives
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What does a mission statement do
allows measurable goals and objectives to be identified
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Who sees a mission statement (4)
employees, customers, investors, society
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One criticism of a mission statement
often too vague and general
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Give 4 influences on the mission of a business
1. the size of the business 2. a businesses social responsibility 3. external factors (competition) 4. businesses strengths and opportunities
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What are the benefits of setting objectives
acts as a focus for decision making and encourages a sense of common purpose - sense of direction
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What does PESTLE stand for
Political, Economical, Social, Technological, Legal, Environmental
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A corporate objective...
relates to the business as a whole
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What does a businesses strategy show
it shows what the organisation want to achieve and HOW it will achieve it
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What is 'MOST'
Mission, Objectives, Strategy, Tactics
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What is an Objective
goals in the foreseeable future - should be SMART
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What are Tactics
short term plans for implementing strategies
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What are 2 main differences between a strategy and tactics
STRATEGY - long term, difficult to reverse TACTICS - short term, easy to reverse
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What is the main factor to consider when deciding a strategy
the risks involved
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Give 2 reasons why a strategy might fail
unrealistic, poor planning or execution of plan
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What is 'short termism'
objective which primarily focuses on the short term profit objectives and ignores the long term performance objectives
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Why do businesses sometimes have a pressure for 'short termism'
due to pressure from investors to gain profit quickly
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What is a SWOT analysis
a method of analysing a business - Strengths, Weaknesses, Opportunities, Threats
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What is an 'Audit'
This is a check of something e.g. financial accounts
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Give an example of an External Audit
PESTLE analysis, because it looks outside of the business itself
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Would you do a SWOT analysis first or Audits first
AUDITS first, because it allow a business to check their internal and external situation and therefore can then move onto analysing their strengths and weaknesses etc as a business
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What is a balance sheet
a snapshot of the businesses assets and liabilities
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What is a NON-CURRENT debt
This is a dept that needs to be paid AFTER a year - long term loan or mortgage
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Who are the PAYABLES
SUPPLIERS - amount owed to suppliers
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Who are the RECEIVABLES
YOU - amount you are owed
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What are the two parts of Equity found on a balance sheet
Share Capital, Retained Earnings
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What is Share Capital
cash raised by the business from the sale of shares
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What are Retained Earnings
Net profits which has not been distributed to shareholders and will most likely be distributed into the business as investments
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What is Revenue Expenditure
the spending on a day to day basis
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Give 2 examples of Revenue Expenditure
raw materials, wages
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What is Capital Expenditure
this is money spend on long term 'investments' - things you can use time and time again
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Give 3 examples of Capital Expenditure
Property, Machinery, Vehicles
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What is an income statement
measures the businesses performance over a certain time period, it shows the profit or loss made by a business (the difference between the businesses total income and total cost outputs)
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What does profit quality assess
whether or not the reported profit can be repeated and sustained over a long period of time
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What is high quality profit
this is profit that can be repeated and sustained
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What is low quality profit
difficult to repeat - one off's
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What does the Net Profit Margin tell a business
how effectively they can turn its sales into profit
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What does Operating Profit show
it shows what is left after all of the costs of a business have been taken away from its sales revenue
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What is the FORMULA for Operating Profit Margin
Operating Profit / Sales Revenue X100
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What does the Return On Capital Employed measure
the profitability of the business
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Give 3 examples of how Capital can be employed into a business
1. money from investors 2. retained profits 3. long term loans
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What is the FORMULA for Return On Capital Employed
Operating Profit / Capital Employed X100
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Is a higher or lower percentage better for Return On Capital Employed
HIGHER, because it means that the investors get a better profit result form the amount they have employed into the business
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What is it important to look out for when it comes to financial ratios?
THE TREND OVER TIME
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What type of profit could boost the ROCE
Low Quality Profit
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What would it mean if a business was insolvent
they couldn't pay their debts - they don't have enough money to fund their day to day expenses or debts
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What is the FORMULA for Current Ratio
Current Assets / Current Liabilities
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What is the ideal figure for Current Ratio
1.5-2
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What would a low ratio for Current Ratio indicate
the business is in danger of running out of cash
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What would a high ratio for Current Ratio indicate
that they have too much working capital and they should try to invest some back into the business
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What is the FORMULA for Acid Test Ratio
Current Assets - Stock / Current Liabilities
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Is an Acid Test Ratio or Current Ratio more realistic in terms of looking at available cash
ACID TEST RATIO, because it takes into account for stock which a business could struggle to sell in the short term and therefore won't have the available cash if needed immediately
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What does Gearing look at
it looks at the capital structure of a business - how it is financed
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What does Gearing measure in terms of the capital within the business
the percentage of capital employed that is financed from loans (borrowing money from the bank) compared to (internal sources) retained profits or share capital
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What is the FORMULA for Gearing
long term liabilities / capital employed X100
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What percentage would be considered a LOW capital gearing
under 25%
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What percentage would be considered a HIGH capital gearing
over 50%
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What would the main issue be with a business having a high gearing
there would be potential problems in how the business choses to be financed - loans, as they have interest on repayments, which means the business could be in financial trouble in the long run
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What is a positive way to look at a high capital gearing
debt is cheaper than going into equity
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Sum up what high capital gearing means
the business has borrowed a lot of money compared to its total capital
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Sum up what low capital gearing means
the business has raised most of its money from shareholders from share capital or retained profits
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Give 3 ways a business would reduce its gearing
repay its long term loans, focus on minimising costs so they have a higher retained profit, retain profits rather than paying dividends
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Give 1 way a business would increase its gearing
take out a long-term loan rather than using retained profit or share capital
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Give 2 benefits of having High Capital Gearing
1. Few shareholders so the owner has more control of the business 2. Businesses can benefit from cheap finance when interest rates are low
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Give 2 benefits of having Low Capital Gearing
1. less pressure to repay borrowings 2. little to no interest needed to be paid
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What are RECEIVABLE DAYS also known as
DEBTOR DAYS
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What is the FORMULA for Debtor (Receivables) Days
Trade Receivables / Sales Revenue X365
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What do Receivable Days show
the average time customers take to pay their debt
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Why is it good to compare with competitors your Receivable Days
to see if you are giving customers too much time to pay or too little in comparison with the industry norm
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What is the FORMULA for Creditor (Payables) Days
Trade Payables / Cost Of Sales X365
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Why is gaining a high figure for Payable Days good and bad
GOOD - you get a longer period to time to gain the finance needed to pay the debt BAD - the fact the business needs a longer time to pay their debt could suggest liquidity problems
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Should Receivable Days or Payable Days be higher ideally
Payable Days should ideally be higher because it means the business has more time to pay off debt owed to e.g. suppliers
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What other Financial Ratio could tell if a business is having problems paying its short term debts
current ratio or acid test ratio
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What is the FORMULA for Stock Turnover
Cost Of Sales / Average Stock Held
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In general is a high number better or worse
better, because the quicker a business turns over its stocks, the better
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Whats important to realise about the figure (industry)
their are industry norms - for example a fast food restaurant would turn over its stock several times a week, but a clothing store would turn it over maybe 10 times
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Why can stock vary over the course of a year and give an example of how that can effect stock turnover
because the business could be seasonal and therefore in Winter a business might not turn over its stock but in summer it might turn it over 4 times, but this is not reflected in the formula
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Give 1 way a business could improve its stock turnover
sell or dispose of slow-moving stock
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What is Labour (Staff) Turnover
it is the percentage of staff who leave during a time frame
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Give 3 reasons as to why staff might leave a business
maternity leave, retirement, death
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What is the FORMULA for Labour Turnover
Number Of Employees Who Leave During A Time Frame / Average Number Of Employees Who Were Employed During The Same Time Frame X100
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Give 3 problems of having a high labour turnover
1. costs the business more, as they have to spend money and time on recruitment and training 2. they have a pressure to retain staff 3. there would be a disruption to the quality of products every time an experience employee left
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Give 1 reason as to why some businesses might have a high labour turnover
because if they are SEASONAL businesses then it means they have only employed temporary staff that they no longer need when the season is over
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Give 2 ways a business can improve their Labour Turnover
1. recruit the right staff 2. use motivation tools, monetary or non monetary benefits
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What is Employee Retention
the ability of a business to convince its employees to remain working for the business
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What is Absenteeism
it is the percentage of staff who are absent from work
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What is the FORMULA for Absenteeism
Number Of Staff Absent During A Time Frame / Number Of Employees Who Were Employed During The Same Time Frame X100
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What is Labour Productivity
the output of products per employees
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What is the FORMULA for Labour Productivity
Output Per Period (Units) / Number Of Employees At Work
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How is the answer for Labour Productivity usually expressed
in terms of OUTPUT PER EMPLOYEE, e.g. 1,000 units per employee
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What is a Core Competence
the unique ability of a business which enables it to have a competitive advantage
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WHO outlined 3 ways of assessing whether something is a core competency
Prahalad and Hamel
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What were their 3 ways
1. does it make a significant contribution to the benefits of the product 2. is it difficult for competitors to replicate 3. does it open up a wide variety of markets
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Give 1 example of a Core Competence
INNOVATION, for example, Google, with 'google maps' and 'google glass'
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What is a Balanced Scorecard
helps firms to measure their business performance using both financial and non-financial data
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Why is it called a Balanced Scorecard
because it provides a balanced picture of a businesses overall performance and shows areas that need to be improved
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The Scorecard looks at 4 different perspectives of the business, what are they
1. Financial 2. Customer 3. Internal Processes 4. Organisational Capacity
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What is 1 main benefit of using a Balanced Scorecard
it helps the business focus on what has to be improved
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What is particularly beneficial about a Balanced Scorecard
it is unbiased and looks at all areas of performance
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What is 1 main drawback of using a Balanced Scorecard
if the business gives an excessive amount of targets for them to work on, it can cause confusion - especially if the targets are poorly implemented in the first place
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Give a Perspective, Focus and an example of a KPI within a Balanced Scorecard
Customer - Customer Satisfaction Rate - look at feedback forms to check for positive or negative comments
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Who created the Triple Bottom Line
Elkinson
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What 3 things are included in the Triple Bottom Line
Planet, People, Profit
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What is beneficial about using this method within a business
it allow the business to be able to look at their financial performance while comparing this to how they treat the people within and outside of the organisation and have an awareness of their impact on the environment
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What can a Triple Bottom Line help a business to understand and be aware of (2 points)
it can help make them aware of improvements they need to make e.g. in terms of their packaging being more environmentally friendly and it can help to make the business aware of the areas (e.g. stakeholders) that they are not taking into consideration
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Give 2 examples of companies who use the Triple Bottom Line
LUSH and Innocent
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What does PLANET consider in the Triple Bottom Line
it considers the impact a business has on the environment and the ecological footprint they leave behind
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What does PLANET strive for
it strives for sustainability and the business to recognise how they might be damaging the environment and how they can go about being more economically friendly
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In PLANET, why does it push for sustainability in businesses
because PLANET recognises that 'going green' may be more profitable in the long run
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What do Triple Bottom Line companies look at in terms of PLANET
it looks at the business as a whole and their actions to try and determine the true cost of what they're doing in regards to the environment
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What does PEOPLE consider in the Triple Bottom Line
it considers the impact a business has on all the people involved with them > This can include even the farmers who supply them raw materials
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What does PEOPLE aim to ensure
that everyones wellbeing is taken into consideration and everyone is treated fairly
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Give an example of how the people in the business can be taken into consideration through PEOPLE
they can be give good working hours with a fair and equal wage, offering health care
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What is the benefit of PROFIT in a Triple Bottom Line view
profits will help to sustain and keep the business running and it empowers the shareholders of the company because they gain some of the profits
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What do policies and legislations regarding environment help to ensure (3 points)
1. there is a more predictable environment that is fair for everyone 2. products meet health and safety requirements 3. businesses are aware of the environment and their own impacts
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What does the Race Relations Act mean for businesses
it means that businesses are not allowed to discriminate in the workplace against any person because of their colour, ethnicity, national origin, race.
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What does the Equal Pay Act mean for businesses
it means that when women and men should get equal pay when doing the same job and are of the same age and experience. A business can NOT pay a women or a man any less than their co worker for the same job
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What does the Sex Discriminations Act mean for businesses
it makes it unlawful for discrimination to occur in the workplace with regards to gender, whether this be in terms of promotion, advertising or the interviewing selection process
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What does the Disability Discrimination Act mean for businesses
it prevents a workplace from discriminating or treating disabled people less favourably, while this act also means that businesses should make reasonable adjustments to the workplace in order to accommodate for them e.g. ramps, automatic doors
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Any buses that sells goods to consumers must ensure that the products are...
1. of satisfactory quality 2. a good fit to what has been described 3. fit for the purpose they should be
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Give 2 ways that customers are protected in terms fo legislation
1. businesses are not allowed to use misleading advertising 2. customers have a right to return and have a full refund if goods/services are not fit for purpose
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Give 3 Environmental Legislations
1. The Waste Emissions Trading Act 2003 2. Climate Change Act 2008 3. Energy Act 2013
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What does the Energy Act 2013 involve
it involves encouraging businesses to use LOW CARBON ELECTRICITY and energy
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What does the Climate Change Act 2008 involve
it involves improving carbon management and reduce global emissions
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What does the Waste Emissions Trading Act 2003 involve
it involved ensuring that businesses who do not comply with disposing of their waste in an ethical manner, that they are given a penalty
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What are 2 aims of Competition Policy
1. customers have freedom of choice in markets for goods and services 2. prices stay competitive between businesses
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If a business has a market share of over 50% what can it mean
it can mean that they have a strong dominant position in the market and as long as they DONT abuse their position of power, they wont break any competition laws
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What is GDP stand for
Gross Domestic Product
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What is GDP a measure of
economic activity
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Having a GDP growth is associated with what
higher levels of living
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What is the 'economic cycle' (list sequence of 4)
slump, recovery, boom and recession
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What would it mean to be in a 'slump' of economic growth
customers are spending little to none, no business investments, rising unemployment
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What would it mean to be in a 'recovery' period of economic growth
the economy is starting ot pick up, customers are beginning to spend and businesses feel more secure and confident so investments start to occur but it takes time for unemployment rates to start decreasing
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What would it mean to be in a 'boom' of economic growth
high levels of customer spending, businesses have confidence and a lot of investments are mad. Prices are able to rise and more profits made, unemployment rates tend to be low now.
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What would it mean to be in a 'recession' period of economic growth
consumer spending slows and investments are held back as there is an uncertainty within the economy.
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Give an example of one Functional and Strategic objective that a business would have when in a slump
Functional - reduce price to help customers feel like the product is in their spending budget and to maintain a steady revenue. Strategic - offer high quality products so the reputation rises and it can positively impact the business in the future
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Market capitalisation is the total value of a company’s
shares, based on the current share price
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Other cards in this set

Card 2

Front

What does a mission statement NOT do

Back

sets goals or objectives

Card 3

Front

What does a mission statement do

Back

Preview of the front of card 3

Card 4

Front

Who sees a mission statement (4)

Back

Preview of the front of card 4

Card 5

Front

One criticism of a mission statement

Back

Preview of the front of card 5
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