1.1: What is a business? and 1.6:
What is a multinational company (MNC)?
This term describes a company that operates in more than one country.
What is a sole proprietorship?
This is the simplest form of business ownership, with one owner who takes all the profits and risks.
What is profit maximization?
This is the main financial goal of most businesses, often expressed as the difference between revenue and costs.
Which group of stakeholders includes employees, managers, and shareholders?
Internal stakeholders.
Formula of Average Fixed Cost
AFC = TFC/Q
Name two common reasons why multinational companies set up operations in foreign countries.
To access new markets and to take advantage of lower labor or production costs.
What are two potential risks partners face if they enter a partnership without a formal agreement?
Unlimited liability and disputes over profit sharing or decision-making.
Name two non-financial objectives a business might have and explain their importance.
Examples include employee welfare (to improve morale and productivity) and corporate social responsibility (to build a positive reputation and contribute to society).
What is the main objective of customers as stakeholders?
To receive good quality products at a fair price and gain value for money.
What is franchising?
A franchise is a form of business ownership whereby an individual or business buys a license to trade using another company’s products, name, logosbrands and trademarks.
Explain the difference between goods and services, giving one example of each.
Goods are tangible products that can be touched and stored (e.g., a smartphone), while services are intangible activities provided to customers (e.g., hairdressing).
Explain how the legal separation between owners and the business in a limited company can affect the decision-making process.
Since the company is a separate legal entity, owners (shareholders) may have less direct control over day-to-day decisions, which are often managed by appointed directors, leading to potential conflicts between ownership and management.
Explain why a business might prioritize growth over short-term profits.
To increase market share, achieve economies of scale, and ensure long-term sustainability, even if it means lower profits initially.
Why are financiers interested in the financial performance of a business?
Because they want regular repayments and interest on the money they have lent or invested.
Why flexibility is a reason for businesses to stay small?
Small businesses tend to be more flexible and adaptive to change. If a sole trader runs a beauty salon that is unsuccessful, then s/he might change the business to something completely different, such as a children's toy shop.
Explain how businesses add value to resources during the production process.
Businesses transform raw materials and inputs into finished goods or services, increasing their worth to customers through production, branding, quality, or convenience.
How does the ability to raise capital differ between a private limited company and a public limited company?
A public limited company can raise capital by selling shares to the public on the stock market, whereas a private limited company cannot sell shares publicly and raises capital privately.
How can setting clear and measurable business objectives help improve overall company performance?
Clear objectives provide direction, motivate employees, enable performance tracking, and help managers make informed decisions to achieve targets efficiently.
Give two examples of actions taken by pressure groups to influence business behavior.
Boycotting and lobbying. (Also acceptable: direct action, public relations.)
Name external all 5 growth methods according to Paul Haung BM 5th edition
Mergers & Acquisitions
Takeovers
Joint ventures
Strategic Alliance
Franchising
Describe two ways a business can fulfill its primary purpose beyond making a profit.
By providing goods or services that meet customer needs and by creating employment opportunities that contribute to the economy.
Explain one key advantage and one key disadvantage of forming a limited company compared to a sole proprietorship.
Advantage: Owners have limited liability, meaning personal assets are protected.
Disadvantage: More complex to set up and subject to stricter regulations and reporting requirements.
How can conflicting business objectives, such as profit maximization and environmental sustainability, impact decision-making?
Conflicting objectives require businesses to balance short-term financial gains with long-term ethical responsibilities, often leading to compromises or strategic choices that seek to satisfy multiple stakeholders.
Explain how the goals of different stakeholder groups can lead to conflict within a business.
Conflicts arise when groups have opposing interests, e.g., shareholders may want higher profits, while employees demand higher wages or better working conditions.
What is the difference between forward and backward vertical integrations?
Forward vertical integration is the amalgamation or consolidation of businesses that head towards the final stage of production (towards the consumer), such as a coffee manufacturer acquiring a chain of coffee shops. Backward vertical integration means a merger or acquisition of businesses towards an earlier stage of production, such as a coffee manufacturer amalgamating with its supplier of coffee beans