Size of Business (Cambridge (CIE) A Level Business): Flashcards
Exam code: 9609
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Hotels may measure their size by the number of rooms, while restaurants measure the number of ____ they can cater for.
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Cards in this collection (41)
Hotels may measure their size by the number of rooms, while restaurants measure the number of ____ they can cater for.
Hotels may measure their size by the number of rooms, while restaurants measure the number of covers they can cater for.
True or False?
A large capital-intensive business will always employ more workers than a small labour-intensive business.
False.
The method of production affects this measure. Large capital-intensive businesses may employ few workers, while smaller labour-intensive businesses can have many employees.
Define capital employed.
Capital employed is the value of all the capital (money, equipment and buildings) invested in a business at a specific time.
How is the value of business sales calculated?
The value of sales is calculated using this formula:
Sales revenue = Price × Quantity sold
Define value of business output.
The value of business output is the financial worth of the goods produced, even though they may not all be sold.
Define market capitalisation.
Market capitalisation is the value of a company's issued shares.
Market capitalisation = Share price × Number of shares
True or False?
Market capitalisation is a stable way to measure business size.
False.
Share prices fluctuate, so market capitalisation is a relatively unstable measure. A sharp rise in the share price can make a small business appear to have grown very quickly.
Define market share.
Market share is the portion of a market controlled by a particular company, brand or product.
Market share = (Business sales ÷ Market sales) × 100
What are the three main reasons why small firms succeed?
Small firms offer a personalised service, they are agile enough to respond quickly to changing customer needs, and they often operate in niche markets with potential for high profits.
True or False?
Family businesses often take a long-term perspective that prioritises sustainability over profit.
True.
Family businesses tend to have a long-term perspective, which is likely to preserve the business for future generations.
Why might a family business lack professional management?
Family members are often promoted to leadership positions regardless of qualifications or experience. This can result in poor decision-making.
Planning for ________ can be complex and emotional in family businesses, as choosing the next leader and sharing out the shares can cause conflict.
Planning for succession can be complex and emotional in family businesses, as choosing the next leader and sharing out the shares can cause conflict.
How can small businesses lead to lower prices for customers?
Small businesses often have lower wage and administration costs than large businesses. This may allow them to charge customers lower prices.
Why are industries such as power generation dominated by large businesses?
Significant barriers to entry, such as the level of capital investment or technical expertise needed, exclude small businesses. However, small businesses often provide tertiary functions for these large firms, such as accounting and market research.
Define business growth.
Business growth is when a business increases its size, scope or scale.
How do economies of scale encourage a business to grow?
As firms get bigger, they spread fixed costs over more units. This cuts the unit cost and boosts profits.
Define organic growth.
Organic growth is internal growth generated within the business, for example by gaining market share, opening a new store or expanding internationally.
True or False?
Organic growth is usually riskier than external growth because it relies on borrowed money.
False.
Organic growth is less risky because it is usually financed by profits and builds on the business's existing industry expertise.
Define merger.
A merger occurs when two or more companies combine to form a new company, usually on a friendly basis.
Define takeover.
A takeover occurs when one company purchases another by buying a controlling stake (more than 50% of the shares) in it.
A takeover that is made against the target company's will is known as a _____ takeover.
A takeover that is made against the target company's will is known as a hostile takeover.
Define synergies.
Synergies are the benefits that arise when two companies combine, such as higher revenue, lower costs or better products.
Define vertical integration.
Vertical integration is a merger or takeover of another firm in the supply chain, at a different stage of the production process.
A dairy farmer merging with an ice cream manufacturer is an example of _____ vertical integration.
A dairy farmer merging with an ice cream manufacturer is an example of forward vertical integration.
How can vertical integration reduce the cost of production?
Vertical integration eliminates middleman profits. The lower costs make the firm more competitive.
Define horizontal integration.
Horizontal integration is a merger or takeover of a firm at the same stage of the production process.
True or False?
Horizontal integration can give a business a rapid increase in market share.
True.
Joining with a firm at the same stage of production gives a rapid increase in market share and reduces competition.
Define conglomerate integration.
Conglomerate integration is a merger or takeover between firms in entirely different industries.
Why might employees lose out after a merger or takeover?
Businesses often try to cut costs after a merger, which may lead to job losses (especially in duplicated roles). This creates uncertainty and lower morale.
True or False?
Shareholders of a business that is taken over may benefit from the takeover.
True.
Shareholders of the business being taken over may receive a high offer for their shares.
How might a merger or takeover disadvantage suppliers?
The enlarged business may demand lower prices or switch to new suppliers to reduce its costs.
True or False?
Customers always benefit from a merger because the enlarged business becomes more efficient.
False.
Customers may gain lower prices and more choice at first, but less competition might lead to higher prices or fewer choices over time.
Why can a culture clash stop a merger from achieving its objectives?
Employees may clash over ways of working and IT systems may be incompatible. Managers then spend months fixing problems, so expected cost savings and new ideas stall.
How can a heavier debt burden stop a merger from achieving its objectives?
High interest payments use cash that could fund research, marketing or new factories. If profits fall, the business may have to cut dividends, sell assets or issue new shares.
A merger may never go ahead because competition ________ can block the deal entirely if they think it will hurt consumers.
A merger may never go ahead because competition regulators can block the deal entirely if they think it will hurt consumers.
Define joint venture.
A joint venture is when two businesses join together to share their knowledge, resources and skills to form a separate business entity.
Why do businesses form joint ventures?
Businesses form joint ventures to spread risk, enter new markets, acquire brands, secure resources and maintain competitiveness.
True or False?
A minority partner in a joint venture has equal control over its strategy.
False.
A parent company that owns only a small share may have little say in the joint venture's strategy.
What problem arises when joint venture partners have conflicting objectives?
If the parent companies want different things, everyday decisions slow down and the joint venture can lose focus.
Define strategic alliance.
A strategic alliance is a cooperative arrangement in which businesses work together for mutual benefit to achieve a specified goal, without forming a new legal entity.
In a strategic alliance, each participating company _____ its ownership and control and makes its own decisions.
In a strategic alliance, each participating company retains its ownership and control and makes its own decisions.
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