cie AS levels Business Studies notes

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Hey guys, i have copied the notes from the CD that came with my AS and A levels Business Studies book, i hope they are useful for the business students. You will not find them all today, but eventually and with God's help i will be able to copy all the notes soon so you guys are able to study from them. I also got a whole sheet of notes from my business teacher and when i am have time i will copy them for u as well probable in a week or 2 hopefully. God bless you all and pray for me.

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UNIT 1 - Business and its environment

Chapter 1 - Enterprise

*Fixed costs are costs that do not vary with the level of output. If fixed costs are relatively high, then output will need to be higher before profit is made.
*By constructing a cash-fl ow forecast, it is possible to identify shortages of cash and thus takes steps to find suitable finance.
*Injecting sufficient capital at the beginning of a business venture reduces the risk of running out of finance.
*Working with the bank makes it more likely that overdraft s and other forms of finance can be negotiated.
*Giving generous credit terms reduces cash inflows and, therefore, may cause liquidity problems (running out of cash).
*Business enterprise creates competition. Entrepreneurs are constantly looking for opportunities within markets.  Reduced competition is generally not considered to be a beneficial economic
outcome.
*A mission statement does not set out specific objectives or even describe marketing strategies. A mission statement simply outlines the overall purpose of the business.

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UNIT 1 - Business and its environment

Chapter 2 - Business structure

*The primary sector includes firms engaged in the extraction of natural resources and farming and fishing.
*The movement of people from the country to towns creates many problems for societies as they industrialize, including: overcrowding, pressure on services in towns, depopulation of rural areas.
*Only incorporated businesses have a separate legal identity. In a sole-trader business there is no legal distinction between the business and the owner.
*A key advantage of forming a limited company is that the owner(s) will benefit from limited liability. Th is means that if the business becomes insolvent with large debts, the owner(s) will lose only the money that has been invested in the business.
* As a limited company has a separate legal identity, the death of an owner will not lead to the company ceasing to exist.
* It is important to remember that a public limited company is not part of the public sector. A plc is owned by shareholders and, because shares are listed on a stock exchange, there is a greater risk of takeover.
* Conversion to a plc is an expensive process due to legal, financial and marketing costs. Businesses undertaking the conversion process are usually motivated by a desire to raise large amounts of capital to fund expansion.
* A Memorandum of Association is one of the documents required to be submitted to the relevant authorities when forming a limited company. It includes details of the maximum share capital for which authorization is being sought.
* The Articles of Association include details of directors and the internal workings of the business.
* Worker cooperatives exist to promote the interests of workers.
* A holding company controls a number of separate businesses without uniting them into a unified company.
* A franchise uses the name, logo and trading systems of an existing business. Th e franchisee will pay a fee to the franchiser to use its logo and trading systems. A franchise is not in itself a legal structure for a business. A franchise may be formed as a sole trader, a partnership or a limited company.
* A public corporation is owned and controlled by the state; it is not in the private sector. It is a plc that sells shares on the Stock Exchange.
* Privatization involves the transfer of state-owned assets to the private sector. The motivation for privatization is usually to raise revenue and to create competition
in markets. Privatization is not, therefore, motivated by a desire to generate cost savings through economies of scale.
* Free trade occurs where trade between countries is not constrained by the imposition of quotas, tariff s or other barriers to trade. It, therefore, increases exposure of an economy to changes in the world economy.
* A multinational corporation (MNC) is more than a business that simply sells its products in more than one country. An MNC such as Coca-Cola will have branches and manufacturing plants in a number of countries.

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UNIT 1 - Business and its environment

Chapter 3 - Size of Business

* Business size can be measured in many different ways and there is no universally agreed definition of business size. Number of employees is a simple measure of size, although when comparing businesses one needs to bear in mind the capital intensity of the businesses as well ? some businesses use highly automated machinery and, therefore, employ few workers. Capital employed is the total value of all long-term finance and as such is a guide to business size. Sales turnover measures the value of sales of a business and is commonly used for comparing businesses in the same industry; it is also the basis for calculating market share. Market capitalization is the total value of a company’s issued shares, and although it may be subject to change due to the sometimes large variations in listed share prices, it is a useful indication of the size of listed companies.
* Market capitalization is the total value of a company’s issued shares. This is a measure of business size that can be applied to businesses which have shares ‘quoted’ on the Stock Exchange. It is calculated by the formula:

Market capitalization = current share price × total number of shares issued

* Many governments view small firms as being vital to the economy. They provide a significant number of jobs, although in many economies the majority of jobs are provided by a relatively small number of very large organisations. Small firms are oft en dynamic and are responsive to customer needs. Small firms help create a competitive environment, which encourages greater efficiency. However, small firms suffer from a relatively high failure rate in their first few years of operation.
* Many small businesses depend on profits and owner’s capital for long-term finance. A problem faced in securing finance from banks is that small firms may lack suitable security in the form of fixed assets.
* Corporation tax is a direct tax levied on a firm’s profits.
* Due to lower levels of revenue, small firms may be unable to afford to employ specialist professional managers. Specialist managers will command higher salaries beyond the financial constraints of a small business.
* Large businesses have many advantages, including lower unit costs arising from large-scale production, the financial base to diversify into several markets and access to finance from a wider variety of sources, for example share issue. However, a key problem faced by businesses as they grow is that the workforce no longer feels an important part of the business; this sense of alienation may lead to a worsening of industrial relations.

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UNIT 1 - Business and its environment

Chapter 4 - Business Objectives

* A mission statement is a statement of the business’s central purpose. Corporate objectives (aims) are more specific than a mission statement and mission statements do not fulfi l the criteria of being SMART.
* SMART - S stands for Specific.
             - M stands for measurable.
             - A stands for achievable.
             - R stands for realistic and relevant.
             - T stands for time specific.
* Corporate social responsibility may impose short-term costs on a business and could, therefore, threaten the future of the business. Some businesses may be established with environmental goals and for them corporate social responsibility will be important. However, it will be far more common for a business to focus on survival when it is new.
* Management by objectives involves discussion of objectives with each individual and mutually agreeing targets that are consistent with the objectives of the business.
* Profit maximization is usually assumed to be an objective of private-sector
businesses. Profit is the reason for starting a business in the private-sector. There may be examples where a public-sector business is set the objective of maximizing profit, but this is far less likely than providing a quality service, meeting the needs of stakeholders (such as employees, the government and local communities) and providing a public service (a service not primarily motivated by profit).
* External constraints are the constraints that hinder the progress of the business but the business has no control over it. E.g. a change in bank interest rates, the business has to cope with bank interest rates whether it likes it or not.

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UNIT 1 - Business and its environment

Chapter 5 - Stakeholders in a Business

* The shareholder concept of business is that the firm has a duty to put the needs of shareholders first.
* A stakeholder is anyone who has an interest in the success of a business. This includes shareholders, customers, suppliers, local community and employees.
* Shareholders are likely to favour policies that reduce costs and therefore contribute to higher profits. Paying employees above the minimum wage will certainly increase costs in the
short-term and lead to greater cash outflows, thus making the liquidity position weaker. However, if employees are motivated by higher rates of pay, they may become more productive and show greater loyalty to the business. Thus, it is possible that there will be a reduction in the long-term costs of the business, which would benefit shareholders through boosting profit.
* An internal stakeholder is from within the business.
* Suppliers and employees may benefit from higher company profits, their primary concerns will be related to payment for supplies and wages. Shareholders have the greatest direct gain from high profits, as the profits of a business really belong to the shareholders.
* Corporate social responsibility is the view that businesses should take their responsibility to wider society seriously rather than focus solely on the shareholder/owner.
* Financial support for a charity is putting something back into society and thus links to social responsibility. Businesses benefit from this type of behavior as it helps improve their image and provides positive publicity.