Business Studies unit 1

Define a mission statement
A qualitative statement of an organisations overall mission or purpose. It provides clear goals, purpose and sense of direction. Also to communicate to stakeholders and create a sense of identity and a USP.
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Define aim
Long term goals for the business to achieve that will enable them to achieve their mission.
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Define objectives
SMART (specific, measurable, agreed, realistic and time) targets that provide very clear goals and enable the achievement of businesses aims
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Define revenue
The income received from an organisations activities.
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Revenue equation
Price per unit X Quantity sold
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Define costs
Money spent on production
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Define variable costs
Costs that change directly in proportion to output
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Variable costs equation
Variable costs per unit X output
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Examples of variable costs
raw materials, wages and packaging
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Define fixed costs
Costs that remain constant in the short run regardless of output.
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Example of fixed costs
Machinery, rent, salaries and heating/lighting
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Define profit
The difference between total revenue and total costs
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Profit equation
Total Revenue - Total Costs
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Why is profit important?
A business can't survive without profit, its a motivator, measure of success and a guide for future investment.
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Define legal structure
Refers to the ownership of the business. It determines: legal identity, source of finance available, taxes and NI payment, and legal requirements for record keeping and publishing accounts.
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Define sole trader
An individual who owns and runs a business
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Benefits and drawbacks of a sole trader
Benefits= cheap and easy to set up, financial records remain private and all profits go to owner. Drawbacks= unlimited liability, limited capital for investment and difficult to find cover when busy.
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Define limited companies
The owner and the company are separate legal entities, have limited liability, and shareholders are the owners of limited companies.
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Define unincorporated business
There is no distinct in law between the individual owner and the business itself. The identity of the business and the owner is the same. Examples- Sole trader and partnership
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Define incorporated business
This has a legal identity that is separate from the individual owners. As a result, these organisations can own assets, owe money and enter into contracts in their own right. Examples - Ltd and Plc.
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Define private limited company (Ltd)
Can only sell shares to other shareholders, therefore cannot sell shares on the Stock Exchange.
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Define a public limited company (plc)
Sells shares on the stock exchange.
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Advantages and drawbacks of private limited company
Owners don't receive public scrutiny and it has limited liability. But share capital must be less than 50000 pounds, more complex to set up, limited in size and cannot sell shares on the stock market.
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Advantages and drawbacks of public limited company
Can sell shares on the stock market, limited liability, no limit to the number of shareholders they are allowed to have. But involves loss of control, records are made public so exposed to scrutiny and can distract business from aims.
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Define private sector organisations
owned, financed and run by private individuals.
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Define public sector organisations
State-owned or government organisations, to provide essential services such as education, health etc. Normally free but financed through taxation.
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Define non profit organisations
In the private sector, and do not have a defined structure and can take many different forms including voluntary and community organisations etc.
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The impact of ownership has on aims, decisions and performance?
Determines type of goals, speed of decision making, consultation process, judgement of performance and the ability to employe specialist staff, access finance, ability to maintain a competitive advantage and embrace new technology.
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Define shareholders
Someone that invests in a business in return for a share of the profits and to say how a company is run.
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Why shareholders invest?
To provide expertise and financial support, to gain a share in a company's profit and to make capital gain (eg- sell the shares for a higher price).
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Define equity capital
Amount of money invested by shareholders
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Define dividend
Annual payment of a companies profits to shareholders.
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Define ordinary share capital
A permanent investment into a company that can be traded on a stock market and they are paid an annual dividend.
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Define market capitalisation
Measure of businesses performance that reflects its perceived value on the stock market.
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Market capitalisation equation
Number of shares issued X Market Price
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Influences on the share price
state of the economy, performance of the company, competition in the market, proposed takeovers, and investors expectations and their responses to rumours.
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Why are changes in the share prices significant?
Measure of management performance, influences the perception of the company to stakeholders, and impacts on the firms ability to raise finance.
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