Grade 10 Business

Summary
 What have you studied this year?
1. Business Activity and Purpose
2. Added Value
3. Classification of Business 9Primary, Secondary and Tertiary)
4. Industry in the UAE
5. Business Growth
6. The Economy
7. Aims and Objectives
8. Stakeholders
9. Government Objectives
10. The Trade Cycle
11. E-Commerce
12. International Trade
13. Exchange Rates
14. Business Ownership – sole traders, partnerships. Limited companies, franchises, joint ventures
15. Multi-National Companies
16. Organisational Charts
17. Communication
18. Sources of Finance
19. Cash Flow
20. Profit and Loss
21. Balance Sheets
22. Ratios
23. Costs, Revenues and Profits
 The purpose of business activity (Chapter 1)
24. Business Activity is needed to satisfy people’s needs and wants.
25. A need is a good or service essential for living. E.g. food and water
26. A want is a good or service which people would like to have but is not essential for living. E.g.
cars, takeaway etc. Wants are unlimited (this means people want lots of different things).
27. The economic problem results from there being unlimited wants but limited resources to
produce the goods and services to satisfy those wants. This creates scarcity.
28. Scarcity is the lack of sufficient resources (factors of production) to fulfill everyone’s wants.
29. The factors of production are the key resources that businesses use to produce goods and
services. There are four factors of production they are land, labour, capital and enterprise.
Examples

1. Individual

Car or Holiday??

2. Business

Machine A or Machine B???

3. Government

New Road or New School???

Specialisation
Division of labour is when the production process is split up into different tasks and each worker
performs these tasks. It is also known as specialisation.

Advantages Disadvantages
Workers are trained to specialize in one area Workers have to do the same thing which can be
making them very good at their job and increasing boring.
output and efficiency. Also if one worker is absent there may be no other
workers who can do the job.

Added Value

Businesses add value. This is the increased worth a business creates for its products. It is the difference
between what it cost the business to have the product made and the price they sell it for. E.g. if we
bought something for 10AED from a supplier and sold it to a customer for 15AED the added value is
worth 5AED.

Source of added value Explanation

Convenience The easier something is to use or if it makes a customer’s life easier the more they
will pay for it. For example people will pay a little bit extra for ready meals because
they reduce the need to cook.

Speed and quality of In today’s world customers expect high quality service. They may therefore be more
service willing to pay a higher price to a business that can deliver a high level of service. For
 example if you go to stay at the Ritz Hotel in London you would expect to pay more
because of the level of service.

Branding This is a named product which customers see as being different from other similar
products. The brand image therefore relates to the idea/image the customer has in
their mind about the brand. For example Kellogg’s have built up a brand image
which helps them sell their cereals.

Design and Having a unique design or a unique recipe or formula means customers will pay
Formulation more. For example because of Apple computers unique design people are willing to
pay a higher price.

Unique selling point This is something that makes a product different to other similar products. This
(USP) could be anything as long as it makes the product unique. For example polo’s are
unique because they are a mint with a hole.

Quality The better quality a product is the more likely people will pay more for it. For
example people are willing to pay more for Duracell batteries.

You need to add value to survive. The most successful businesses are the ones that achieve high levels of
added value.

Aims and Objectives

Aims are the long term goals of the enterprise.

Objectives are the specific, measurable targets to help a business achieve an aim. They are usually short
to medium term. Objectives need to be SMART.

● Specific – a clear statement about what you will do.

● Measurable – how will the achievement be checked?
● Achievable – it needs to be attainable
● Realistic – it should be sensible and have a chance of being achieved
● Time-Constrained – it should include a date/time for achievement or review

Examples of SMART objectives:

To have achieved my target grade in enterprise by the end of year 12. /To increase sales in the business
by 10% by the end of the year. /To reduce waste at the school by 50% by 2014.
 Survival When a business first starts this is likely to be a key objective for the first year.
Also when trading is difficult some businesses may be making little or no profit
and therefore be focused on this aim as well.

Break Even This is a key aim linked to survival as it involves covering all costs. However it also
means the business doesn’t make anything either. They are said to not have made
a profit or a loss. This is often a key aim for new businesses in the first few years
of trading.

Increasing Sales This means trying to sell as much of your product as service as possible. It can
lead to higher profit but not always. For example using 2 for 1 schemes is a good
way to create more profit but doesn’t mean the business will make more money.

Profit Most privately owned businesses have this as a main aim. Making profit is
Maximisation important as it helps the business grow and also means owners and shareholders
are making money. Profit maximisation means making as much profit as possible.

Having the environment as a key aim means a business is trying to ensure that it is
not endangering either the planet or the local community/environment. It could
Environment involve try to cut back on waste or trying to encourage others to take a more
environmental approach. E.g. a school encouraging its pupils to recycle.

Increasing This means getting more customers compared to your competitors. The bigger
Market Share your share of the market the more customers you have.

This means doing the morally right thing. An enterprise that is ethical won’t just
do the minimum that's expected of them they will try to go that step further. For
Being ethical example the Fair-trade Foundation ensures producers get paid more than
minimum wage.

Growth Many businesses want to sell more every year and focus on expanding the
business. They may plan to open more branches or start selling more products.
Stakeholders

Stakeholders are any person or organisation who has an interest in a business and its activities.

● Owners
● Workers
● Managers
● Consumers
● Government
● The community
● Suppliers
● Banks (if they have lent the business money)

Stakeholders can be internal, connected or external.

Internal Connected External

These are stakeholders within These are stakeholders who are These are stakeholders who
the organisation. closely linked. outside.
E.g. workers, owners, managers E.g. customers, suppliers, E.g. banks, local community, the
shareholders government

Conflicting Objectives
Stakeholder conflict occurs when stakeholders have different objectives.

Different stakeholders have different objectives. The interests of different stakeholder groups can
conflict. For example:
● Owners generally seek high profits and so may be reluctant to see the business pay high wages
to staff.
● A business decision to move production overseas may reduce staff costs. It will therefore benefit
owners but work against the interests of existing staff who will lose their jobs. Customers also
suffer if they receive a poorer service.

The purpose of business activity - revision questions

1. List two needs. (2)
2. List two wants (2)
3. Explain what is meant by scarcity (2)
4. List the four factors of production (4)
5. Explain two examples of opportunity cost (4)
6. Explain two benefits to society of business activity (4)
7. What is meant by business objectives? (2)
8. Explain two business objectives a business might have. (4)
9. Define added value(2)
10. Explain 2 ways a business might add value (4)
11. List two examples of stakeholders in a business (2)
12. Using examples, explain two reasons why conflict might occur between the stakeholder groups
you listed in qs 11. (4)

Case Study – Purbeck PLC

Purbeck PLC owns and manages a major leisure complex. The directors of the company are
considering demolishing the new complex and building a shopping Centre, the directors have
different opinions about the plan.

The Human Resources manager says that too many groups of people would suffer from the plan. He
thinks that the plans should be dropped.

The Chief Executive says that his main responsibility is to the owners of the business and that profit
should come first.

1. Explain 2 ways the workers at the leisure Centre would be affected by the decision. (4)
2. Do you agree with the Chief Executive that profits should be the main aim of the business?
Explain your answer (6)
 Types of Business Activity (Chapter 2)
Types of Industry

Primary This stage involves the earth’s natural Farming, fishing, forestry, mining
resources. etc.

Secondary This stage involves taking the Manufacturing and construction

materials and resources from the
primary sector and changing them
into a good.

Tertiary This stage involves providing services Retail, transport, banking,

to both consumers and businesses. It leisure, hotels etc.
is often known as the service sector.

Chain of Production
Business Size

Businesses can vary greatly in size. Business size can be measures in a number of ways.

Method Explanation Problems

Number of Employees This method is easy to understand, This doesn’t always give a true
it just measures a business’s size picture of the size of a business.
on the amount employees they For example many larger
have. businesses use machinery and
have cut back on staff but they are
still large businesses.
By Value of Output and Sales This is a common way of A business like Ferrari may only
comparing businesses in the same sell 1000 cars a year whereas a
industry. It looks at how much a business like Nissan may sell
business has produced or how 10,000. Ferraris though sometimes
much it has sold. The more it has can be millions of dhs and
produced or the more sales it has therefore even they have made
the bigger it is. and sold less Ferrari may have still
made more money.
By Capital Employed This looks at the total capital A company employing lots of
invested into the business. workers may have not spent much
on ‘capital’ this does not mean
though it isn’t a large business.
By Profit Profit looks at how much money a Profit depends on more than just
business has made after it has the size of the business. It also
paid all its costs. depends on the efficiency and
skills of the managers. Some large
businesses make low profits
because they are badly managed.

There is no perfect way of comparing the size of a business. It is quite common for more than one
method to be used.

Business Growth

Businesses can expand by two main ways:

Types of External Growth

 Types of business activity
- revision questions
1. Explain the difference between primary,
secondary and tertiary industry (6)
2. Explain two methods a business might
use to measure its size. (4)
3. What is the difference between a
takeover and a merger? (4)
4. Explain the difference between internal
and external growth (4)
5. Explain what horizontal integration of business means. (2)
6. Explain the difference between forward vertical integration and backward vertical integration.
(4)

Case Study – Hairdressers

The owner of a small hairdressing business asks for your advice. She is planning on expanding the
business. New branches will be opened and many more staff will be employed. She asks you to make
a list of the possible advantages and disadvantages.

1. Explain if this is an example of internal or external growth (2)

2. Explain the advantages and disadvantages of the owners decision (6)
 Forms of Business Organisation (Chapter 3 – pg. 30 to pg. 45)
When setting up as an enterprise there are different structures you can take.

Type of enterprise Advantages Disadvantages Unlimited/

Limited
Liability
Sole Trader Easy to start. You have unlimited liability. Unlimited
This is an enterprise Get to keep all the profit. Lack of specialisation. liability
owned by 1 person. Get to make all the The hours will be long.
decisions.

Partnership Spreads the risk. May be disagreements and Unlimited

This is an enterprise More people with different conflict. liability
owned by 2 to 20 specializations.
people.
Limited Companies Limited liability. Not as easy to set up as a sole Limited
This is an enterprise Easier to raise finance. trader – there are more Liability
owned by shareholders. Tend to be large well regulations.
There are 2 types of recognized enterprises. You have to pay 2 types of tax.
limited company private
(LTD) and public (PLC)
 Franchise 88% of franchises are You have to pay a % of your Limited
This is an enterprise in profitable. profit each year to the Liability
which a sole trader can You get support from the franchisor.
pay an existing business franchisor when you start You cannot choose what you
to use their name and the enterprise. sell.
sell their product for a The enterprise may already The more well known the
fee. be well known. enterprise is the more
expensive the start-up fee will
be.
Co-operatives People working/using the Decision making can be slow. Limited
These are enterprises business will also be the The owners may lack the skills Liability
that are either workers owners as well and needed to run an enterprise.
by the workers or the therefore they may work
customers. harder to make the
enterprise a success.
A joint venture Sharing of costs The profits have to be shared Each
This is when two or Sharing of risk Disagreements may occur business
more businesses agree Local knowledge Different business cultures has their
to start a new project own
together, sharing the liability
capital, the risks and the depending
profits. on their
ownership
structure.
1. Sole trader (Key Words)
● Specialisation – the skills that the sole trader has.

2. Partnership (Key Words)

● Deed of partnership – the document that the partners complete so they know how
much control and what % of the profit each partner is entitled too.

3. Limited Companies (Key Words)

● Private limited company – a company whose shares are not sold on the stock market.
● Public limited company – a company whose shares are sold on the stock market and
anyone can buy them.
● Memorandum and Articles of Association – the two documents that must be completed
before the limited company can start trading.
● Shareholders – these are the owners of the business. They own a ‘share’ of the company.
The bigger their share the more control that they have.
● Dividends – this is the reward given to shareholders if the business makes a profit.

4. Franchises (Key Words)

● Franchise – a type of enterprise in which a sole trader can pay an existing business to use
their name and sell their product for a fee.
● Franchisee – the sole trader who runs the franchise.
 ● Franchisor – the business who allows the sole trader to use their name and sell their
products/services.

Forms of Business Organisations - revision

questions
1. Which forms of ownership do you think are the most suitable for the following businesses?
Explain your answer. (6)
a. A number of workers have been made redundant (lost their jobs) following a
business failure. They agree to put some of their savings together to buy an old
factory. They plan to make bicycles to export. They want everyone to have equal
rights in running the business.
b. A young student is planning on offering his services to his neighbours as a gardener.
He will purchase cheap tools to start with.
c. The owner of a business fixing cars wants to expand and grow. He wants to protect
his personal assets though before he expands.

2. Explain two disadvantages of a partnership. (4)

3. Explain two benefits to a sole trader of becoming a limited company (4)
4. Explain three possible disadvantages of changing a private limited company into a public
limited company? (2)
5. State two reasons why two businesses might decide to set up as a joint venture? (2)
6. Explain what is meant by a franchise. (2)
 Case Study – Ownership

Tom has just gained a qualification in food catering. He wants to run a small fast food outlet. He is
not sure whether to run it as a sole trader or look for a franchise opportunity.

1. Explain one advantage and one disadvantage for Tom if he decides to run the business as a
sole trader. (4)
2. Recommend whether Tom should run his business as a sole trader or as a partnership. (8)

Economic Environment (Chapter 4 – pg. 51 to 62)

The following table outlines some of the benefits and drawbacks of business activity.

Benefits to society Drawbacks to society

● Production of useful goods and services ● Managers aiming to lower costs might
● Creation of jobs offer very low wages and unsafe working
● Improves living standards conditions
● Pay tax to governments ● Pollution
● Produce goods for exports ● Certain goods produced can be dangerous
● Monopolies
● Advertising may mislead customers
Governments and the economy

The government’s objectives are:

1. Achieve low levels of inflation

2. Achieve low levels of unemployment
3. Gain economic growth
4. Create a surplus on the balance of payments

Objective Definition Why

Inflation This is the increase in the Inflation occurs when prices rise. If prices rise too
average price level of goods quickly this causes problems.
Low inflation and services over time ● Workers’ wages will not buy as many goods
encourages as before.
businesses to ● Prices of goods will be higher than those in
expand and it other countries
makes it easier for
● Businesses will be unlikely to want to expand
a country to sell its
or create jobs.
goods abroad.
● The living standards of the country are likely
to fall.

Unemployment This exists when people who This occurs when people who can work cannot
are able and willing to work find a job.
Low unemployment don’t have a job. ● Unemployed people do not produce goods
helps increase or services meaning the output of the
output and country will fall.
improves workers ● The government will have to pay benefits to
standard of living.
unemployed people meaning money cannot
be spent on other things like schools,
hospitals etc…

Economic Growth This is when the country’s An economy is said to grow when the total level
GDP (Gross Domestic of output of goods and services in the country
This relates to the Product) increases. increases. The value of goods and services is
Trade Cycle. called GDP. If GDP is falling there are problems:
Countries want to ● Fewer workers are needed which leads to
be in a ‘boom’ and unemployment
avoid recession. ● The standard of living in the country will
decrease
 ● Businesses will not expand as people have
less money to spend

Balance of This records the difference If a country has a ‘deficit’ on its balance of
Payments between a country’s imports payments then this can cause problems.
and exports. ● The country may end up in debt if it spends
Countries want a more on imports then it makes from exports.
surplus on their ● Its currency may lose value making foreign
balance of goods more expensive.
payments as this
means they are
making money
from exports.

The Trade Cycle (The Business Cycle)

Everyday people make decisions to buy goods and services. Businesses provide the goods and services
that we want to buy. Economic activity relates to the amount of buying or selling that takes place in a
period of time. Rises in the amount of economic activity is called economic growth and is this is
measured by sales over a period of time. We can also look at this using the ‘Trade Cycle’.
Government Policies

Governments have a great deal of power. They raise taxes and spend this money on a wide range of
services and benefits for the people living in their country. The main way that governments influence the
economy is through ‘economic policies’. The main economic policies are:

1. Fiscal policy
2. Monetary policy
3. Supply side policy
 Government Explanation Other Information
Policy
Fiscal Policy Governments raise money to The main taxes are:
spend on things such as schools, 1. Direct taxes
This is any change hospitals and roads from taxes on ● Income tax
by the individuals and businesses. This is ● Corporation tax
government to known as Fiscal Policy.
taxes or
2. Indirect taxes
government
● VAT
spending.
● Import Duties and Tariffs

Monetary Policy An interest rate is the cost of Increasing interest rates:

borrowing money. Monetary ● Consumers and Business will spend less as
This is changes in policy is used to set the interest their debts will be more expensive
interest rates by rate. Changing the interest rates reducing their disposable income. This
the government can help control spending (and reduces inflation as there is less demand.
and the central this means helping reduce
● Consumers and Businesses will borrow less
bank of a country. inflation if it’s too high or
as borrowing money becomes more
encourage economic growth if it
has slowed down) expensive. This means they will buy less.

Decreasing interest rates:

● Consumers and Businesses will spend
more as their debts will be cheaper
meaning they have more disposable
income. This helps economic growth.
● Consumers and Business will morrow more
as borrowing money becomes cheaper.
This means they have more money to
spend (particularly on large items)
●

Supply Side Policy ● Privitatisation – moving government

industries into the private sector (e.g. In
These are policies the UK electricity and gas services used to
used by be owned by the government, in the
governments to
1990’s the government let private
improve the
businesses (limited companies) run them.
efficient supply of
goods and ● Improve training and Education – The
services in their government can improve the skills of the
countries. workers in its country by changing school
curriculums and offering grants for people
to go on courses to learn new skills.
 ● Increase competition – governments make
it illegal for businesses to run monopolies.
This helps ensure there is competition.

International Trade

The level of development of a country affects its imports and exports.

● Imports – what a country buys from abroad

● Exports – what a country sells abroad

Average incomes in high income countries are tens of times higher than low income countries. This helps
explain why high income countries (UK, USA etc.) spend more on imports. E.g. in the UK they buy clothes
made in China, toys made in India, take holidays abroad, buy foreign cars etc. ….

For the UK, European and American businesses this also means that they are more likely to sell goods to
developed countries with higher incomes.

Wages and Prices – UK, European and American businesses and consumers can take advantage of low
wages paid to workers in developing countries. Companies like Primark and Topshop can then offer very
low prices. Therefore developing countries are a source of cheap imports.

Quality and Technology - Price is one factor that influences a consumer’s decision to buy. The quality and
level of technology of the product is important too. Many products made in developing countries are
poor quality and have little technology. This means that often consumers in richer countries choose not
to buy them. In comparison developing countries tend to buy high quality, high technology products
from developed countries.

Import Protection and Export Subsidy – Nearly every country in the world operates protectionist policies.
These are measures designed to reduce the amount of imports coming into a country.

4. Import Protection – These are measures designed to reduce imports. They are usually taxes that
which are put on goods that are imported into a country which will make them more expensive for
buyers to discourage them from buying abroad. The main types are:
a. Tariffs – a tax on an imported good.
b. Custom Duties – a physical limit to the amount of a product that can be brought into the
country

5. Export Subsidies - These are measures that reduce the price of goods sold abroad. This will then
hopefully make a country’s exports more price competitive. Export subsidies can include: reduction
in tax, grants and subsidies.
E-commerce

E-commerce is short for ‘electronic commerce’. Using E-commerce gives businesses access to customers
all over the word. This is known as ‘The global market’ which is reached by means of a website.

Advantages of E-Commerce to Businesses Advantages of E-Commerce to Consumers

● Access to the global market means the ● Customers have a huge range of goods to
business will be better known choose from
● They can ‘shop around’ the ‘web’ for the best
● A business using e-commerce can get ahead of bargain
its rivals
● Internet prices are often lower than in shops
● Increased sales, leading to increased profit
● Customers can shop from the comfort of their
● Savings on expensive showrooms
● Reduced advertising costs own home ’24/7’
● Increased sales leads to ‘economies of scale’
● Business is open 24/7

Disadvantages of E-Commerce to Businesses Disadvantages of E-Commerce to Consumers

● Being part of the global market means the ● Customers need to own or have access to a
business is in competition with lots of others computer and be on-line and know how to use
● Designing and keeping the website up-to-date the Internet.
is expensive and requires specialists ● It is not easy to assess the quality and
● Market research needs to be very detailed to suitability of many products on the screen.
meet the needs of customers in such a wide ● Inconvenience of returning unwanted goods.
market ● Customers usually have to have a credit card to
● Packing and distribution of products can be make Internet purchases
very costly and involve long distances ● Security risks of buying on-line
● Not all the businesses target customers have
access to the internet.
 Economic Environment – revision questions
1. Explain three government objectives (6)
2. Explain two disadvantages to a country’s economy arising from rapid inflation (4)
3. Define economic growth (2)
4. Define GDP (2)
5. Draw a labeled diagram of the trade cycle (6)
6. Explain the difference between a boom and a recession (4)
7. What does a ‘deficit’ on the balance of payments mean? (2)
8. Explain the difference between indirect and direct taxes (4)
9. How would the government’s decision to lower interest rates affect the demand for luxury foreign
holidays? (2)

Case Study – Ownership

Two managers are comparing details about their businesses.

Firm A produces DVD players. Many of these are exported. The business has expanded recently has
borrowed large sums of money from banks.

Firm B produces flour for bakeries. It buys it wheat from other countries.

Both managers are discussing the following recent changes in government policy:

● Increased interest rates

● Higher tariffs on imports
● Raised income taxes
 1. Which business do you think will be more affected by these changes? Explain your answer
(12)

Business Costs and Revenue (Chapter 6 – pg. 89)

Costs, Revenues and Profit

Sales Revenues (sometimes called sales turnover) The amount of money made from selling goods
before costs.
Costs The bills and debts the business has to pay.

Profit The money the business makes from selling goods

after all the costs have

i. Total Revenue – This is calculated using the following formula:

Price x Quantity

ii. Costs – there are 3 types of costs:

 a. Fixed Costs – These are the costs that stay the same no matter how much you make or sell. E.g.
rent, salaries, business rates. They still have to be paid even if the business makes no money

b. Variable Costs – These are the costs that change according to how much you make/sell. E.g.
materials, production costs. Variable costs are calculated using the following formula:

Total Variable Costs = Variable Cost x Quantity

c. Total Costs – this is the fixed and variable costs added together. You can’t work this out until you
know both the fixed and variable costs. It is calculated by using the following formula.

Total Costs = Fixed Costs + Variable Costs (Variable Cost x Quantity)

iii. Profit - Profit is the difference between your revenue and your costs, whatever
you have left is your profit. It is calculated using the following formal:

Profit = Total revenue – Total costs

Costs, Revenues and Profits – revision questions

Case Study

Ben the Barber’ has decided to set up in a small shop in a mobile unit on a empty piece of land near the
Sheik Zayed Road as barber. He plans to offer barber services to people on their way to work. Having
been a hairdresser in a conventional shop he found the costs were getting larger and larger and he was
struggling to cope. He therefore decided to run a mobile shop to reduce his costs and increase his
revenue and hopefully his profit.

Ben has worked out that he will have a number of costs. The costs that he will have to pay each month
include: heating and lighting, business insurance and the wages of one member of staff. He estimates
that these costs will equal 50,000dhs a year. He will also have costs that related to the amount of
customers he sees. These include shampoo and material costs. He estimates that these will be about
5dhs per customer.

Ben has worked out that over the year he will see 4,000 customers a year working 5 days a week. He also
estimates that on average each customer will pay around 20dhs .

Questions

1. Explain what a fixed cost is. (2)

2. List Ben’s fixed costs. (3)
3. Explain what a variable cost is. (2)
4. List Ben’s variable costs. (2)
5. How many customers does Ben think he will see in a year? (1)
 6. What is the average price that will be paid by customers? (1)
7. What will be Ben’s total revenue for the year? Show your working. (3)
8. Ben has worked out that his fixed costs will be around 50,000dhs a year and that his variable
costs will be 5dhs per customer. Work out Ben’s total costs. Show your working. (3)
9. How much profit will Ben make over the year serving 4,000 customers a year? Show your
working (3)
10. Would Ben still make a profit if he only served 2,000 customers in a year? Show your working
(12)

Finance (Chapter 7 and 9)

Sources of Finance

Leasing External If a business needs equipment but can’t afford to buy it outright they can
rent it. The good thing about this source is that if the item breaks then the
Short term rental company pays for it not the business.

Governmen External Some new businesses can get start up grants from organisations. These are
t Grants often available in areas with high unemployment rates.
Long term

Mortgage External This is a long term loan that is used to buy property. It is paid back with
interest. If is not paid the property will be repossessed.
Long term

Loan External This is money that is borrowed from a bank or other financial organisation to
start a business or buy an expensive item. It is paid back with interest.
Long term

Venture External This is an individual or a company that invests in a small to medium sized
Capital business that is growing fast in the hope that they will eventually be able to
Long term sell their part in the business and make a profit. The dragons in the Dragons
Den could be described as ‘venture capitalists’.

Share External This is when investors can buy a % of the company. This means they take
capital part ownership of the company. The higher % you have the more ownership
Long term rights you have. If the business makes a profit the ‘shareholders’ get
 rewarded with a dividend. This method can only be used by limited
companies.

Retained Internal This is money that the business saves from profit they have made. It is the
Profit cheapest source of finance to use as it belongs to them and they don’t have
to pay it back.

Factoring External This is a source of finance where a business is able to receive cash
immediately for invoices it is waiting for customers to pay. There is a charge
Short term for this and the business will have to pay the amount back in 30 days. It is
not suitable for all businesses.

Overdraft External This involves borrowing money from a bank by taking more money than is
actually in the bank account. Interest is charged on the amount and this can
Short term be extremely high.

Trade Credit External When ordering supplies a business may be able to delay payment to the
supplier. Normally 30 days is given to pay the bill. This is good for businesses
Short term that need supplies to complete the job but don’t get paid till the job is
completed. For example a builder or a plumber.

Sale of Internal This is when a business sells assets and equipment it owns that it doesn’t
Assets need or want anymore.
Short term

When deciding on which source of finance to use an enterprise should consider the following factors:

Cost – borrowing money means the business is in debt. It also means they will not only have to pay the
amount they have borrowed back but usually the interest as well. Interest is the extra charged when you
borrow money. Interest increases the costs and some sources of finance have more interest than others.
For example overdrafts usually charge interest on a daily basis making them very expensive if you use
them for a long time.

Risk – the more money you borrow the higher the risk. For example if you take out a mortgage and can’t
pay it back the company that lent you the money will reposes (take away) the property.

Availability – not only sources of finance are available to all types of business. For example only limited
companies can sell shares and use factoring. Smaller businesses like sole traders and partnerships usually
find it much harder to raise finance.

Time (short –long) – the amount of time you need the money will also affect the source of finance you
need. For example if you only need money for a short period of time to buy some stock then you might
use trade credit, whereas if your require a large sum of money to buy an expensive piece of machinery
you may need to take out a loan which you can pay back over a longer period of time.

Key finance words

Credit The ability to obtain goods or services before payment, based on the trust that
payment will be made in the future.

Creditor A person or company to whom money is owed.

Debt Money that is owed.

Debtors A person or institution that owes a sum of money.

Investment vs. Saving

In finance, investment is putting money into something with the expectation of gaining more back. Most
or all forms of investment involve some form of risk. Saving is income not spent. Methods of saving
include putting money aside for example in a bank account. It is low risk compared to investment.

Saving Investment
Advantages Don’t owe any one any money. Could make a lot of money.
Less risk. Could lead to greater success.
Money will be available for other
projects.

Disadvantage No gain – your savings stay the same. High risk.

s You can’t run an enterprise if you don’t Could lose investment and more
invest. (especially if there is unlimited liability).
You won’t be able to use the money for
anything else.

Budgets

A budget is a plan to show how much money a business will earn and how much they will need or be
able to spend.

● As budgets also set limits for the business, it could set new goals and targets for the
business department.
 ● As it is a limit, it could also be used to limit business activity which would increase your
control of the business and make it easier for you to control the business.
● Making budgets and making the future plans will include all employees and managers
which means that the employees would feel more confident to be involved in such a
process which involves the future of a business, and therefore it increases their motivation
making them more productive.
● As budgets are a limit, and a business tries its best to gain profit as it is its main aim, the
business will try to not waste money and use it as efficiently as possible, and so we have
achieved a more efficient business.

The key words used in a budget are:

Income/Revenue This is how much money comes into the enterprise.

Expenditure/Spending This is how much money the enterprise has to spend.

Direct Costs Direct cost is the cost that used to produce a good. E.g. material and
labour costs.

Indirect Costs Indirect costs are the cost that not directly related in production of the
good. E.g. sales and marketing costs.

Overheads In business, overheads refer to an ongoing expense of operating a

business; it is also known as an "operating expense". Examples include
rent, gas, electricity, and wages.

Fixed Costs These are costs that the business has to pay each month/year that will
never change depending on how much they make or sell.

Profit The money a business has after it has paid all its costs.

Surplus The amount left over.

Loss If a business spends more than it makes then it will make a loss.

Deficit When the business doesn’t have enough money to pay all its expenses
and costs.
Cash Flow

Cash is vital to success. In business cash is – money in the business and money in the bank. A
business needs cash to survive on a day-2-day basis. This is because cash is needed to pay bills. If
all the cash is tied up in ‘assets’ then it will struggle to pay its expenses.

Cash flow = money coming in and out of the business.

A cash flow forecast/statement has the following information:

● Net cash flow = Receipts (INFLOWS) – Outgoings (OUTFLOWS)

● Closing bank balance = Net cash flow + Opening bank balance
 ● Opening balance = is always the previous months closing balance

Example of a cash flow forecast/statement (as part of your revision can you fill in the blanks?):

A Negative net cash flow means the business has lost money and a negative bank balance means
the business is in debt.

Profit and Loss

£ £

Sales Revenue 830000

Less Cost of sales 417000

GROSS PROFIT 413000

Less Expenses

Wages and salaries 145000

Rent and Rates 50000

Heat and Lighting 25000

Telephone and Post 12000

Advertising 15000

Insurance 23000

Other Bills 35000

305000

NET PROFIT 108000

Government 30000
 Dividends 50000

Retained Profit 28000

108000

1. Keeping Records

What is a profit and loss account? It summarises:

a. All the sales revenue for the financial year.

b. All the payments and expenses for the same year.

It also shows whether the business has made a profit or a loss in that year.

The profit and loss account is made up of three parts:

● Trading account – this is the direct costs of making the product and the money made from
selling the product.

● Profit and loss – this looks at all the costs the business has and if they have made a P/L.

● Appropriation Account – this shows what the business will do with any profit it has made

Part 1 – The Trading Account

● The first part of the profit and loss account is the trading account.

● This is record of sales turnover and the cost of sales.

● It looks at the businesses gross profit

Part 2 – The Profit and Loss Account

Part 3 – The Appropriation Account

 Corporation Tax Public and private limited
companies have to pay
corporation tax on their net
profit.

Income Tax Sole traders and partnerships

have to pay income tax on their
net profit.

Balance Sheets
Ratios

Performance Ratios – these ratios are used to measure how well a business has performed during a
financial year.

1. Return on Capital Employed (%) - This ratio is used to prove the value the business gains from its
assets and liabilities. The higher the % the more successful the business is.

= Operating profit
Capital Employed

2. Gross Profit Margin (%) – A measure of how well a company controls its costs. The higher the %
the more the business has made (before costs). This could be because it has low costs or it is
charging customers more.
 = Gross profit
Sales turnover

3. Net Profit Margin – This shows how profitable the business has been. The higher the % the more
successful the business is.

= Net Profit before tax

Sales turnover

Liquidly Ratios – these ratios tell s

1. Current Ratio – The current ratio is a financial ratio that measures whether or not a firm has
enough resources to pay its debts. It looks at the ratio of assets to liabilities. If the ratio shows
they have more liabilities it means they would struggle to pay their debts. A figure below one
means the business does not have enough current assets to pay off its debt. A figure between 1
and 1.5 means they have just enough current assets to pay off their debts and a figure above 1.5
means the business has enough current assets to pay off its debts.

= Current assets
Current liabilities

2. Acid Test Ratio – This ratio works the same as ‘current ratio’ except it looks at the businesses
‘cash’ only.

= Current assets – stocks

Current liabilities

Keeping Financial Records Record keeping:

● Good for your business

Keeping records makes sound business sense. It may seem like a challenge, particularly when
you're starting out, but keeping good records will bring real advantages to your business.
Keeping good records

a. helps you avoid paying too much tax

b. avoids interest and penalties by making it easier to pay the right tax at the right time
c. gives you the information you need to manage your business and help it grow
d. makes it easier to get a loan
e. helps you budget for tax payments
● Record keeping in three simple steps

There are three steps to remember:

1. Set up a system It doesn't matter whether you use a special account book or a
software package as long as you set up some kind of system to keep the information
together.

2. Keep records throughout the year Keeping only some of your records is almost as bad
as keeping none at all. Update your records regularly, rather than letting the paperwork
pile up.

3. Keep your records for as long as required There are minimum periods for which you
must keep records, e.g. six years for VAT or five years from the latest date for filing your

● Why do you have to keep records?

The law says that everyone who pays tax must keep the records they need to fill in a tax return. If
you don't keep records, how can you show what you've earned and what you've spent?

The tax man might decide to look into your tax returns or claims. If they do, they may want to
look at your records. It will save you time if you can show that the records you have kept are full
and accurate. It can also save you money – we can issue fines if records are not kept properly.

● What happens if I don't keep proper records?

You don’t want to pay too tax. However, if you can't show sufficient evidence of your income and
outgoings, you could end up paying more tax than you should.

Finance – revision questions

1. State two reasons why managers need financial information about their business. (2)
2. Explain the difference between gross and net profit. (4)
3. What does an appropriation account on the profit and loss account show? (2)
4. Explain what a balance sheet tells a business. (2)
5. Distinguish between business assets and business liabilities. (4)
6. What is meant by capital employed? (2)
7. What does return on capital employed of 20% mean? (2)
8. Why would a current ratio of 0.75 be considered too low? (2)

Case Study
 Use performance rations to analyse these accounting results for P&K Ltd which is a building firm. (All
in $000’s). Has their financial position improved from 2011 to 2012? (12)

2011 ($000’s) 2012 ($000’s)

Gross Profit 15 16

Expenses 6 9

Capital Employed 70 80

Sales Turnover 100 120

Calculate the acid test ratio for both 2011 and 2012. (All in $000’s). (6)

2011 ($000’s) 2012 ($000’s)

Current liabilities 15 18

Stocks 3 4

Debtors 12 8

Cash 5 4

Organisational Structure (Chapter 10)

Hierarchy – This is when businesses are organised according to authority. The person with the most
authority is at the top of the organisation.
Chain of command – this is the order in which information is passed down the organisation. Usually it is
from top to bottom.

a. Long chain of command – this means there is lots of layers/people that information has to pass
through (this means messages may get lost)
b. Short chain of command – this means there is only a few layers/people that the information has
to get passed through.

Problems of a long chain of command Benefits of a short chain of command

Chain of Disagreements may occur The opposite of the problems of having a
Command Information get altered/lost long chain
Information misunderstood
Information slow to be passed down
Hard to take information back once it’s
in the organisation

Span of control – this is the number of people an employee is responsible for.

a. Wide span of control – this means you are responsible for managing a lot of people.
b. Narrow span of control – this means you are responsible for managing only a small group of
people

Problems of a wide span of control Benefits of a small span of control

Span of Control People might not understand what they The opposite of the problems of having a
have to do wide span of control
People may feel that the boss doesn’t
value them or know who they are
It can be difficult to manage and be
responsible for lots of people

Types of Structure
 Organisational Structure – revision questions
1. What is meant by organisational structure? (2)
2. What is the chain of command(2)
3. Explain what is meant by the term span of control. (2)
4. Explain two disadvantages of a wide span of control (4)
5. Explain what is meant by organisation by function. (2)
6. What is the difference between a decentralised and a centralized organisation? (4)
7. Explain two advantages of using a decentralised structure. (4)

Case Study

Within an organisation there are many different roles that staff will undertake. These include

a. The Managing director - The Managing Director is the figurehead of the organisation.
Managers have the job of organising and controlling resources. Their work is often described
as 'getting things done with or through people'. They are likely to have overall control over
everyone working at the organisation.
b. Senior managers - Senior Managers make top level decisions concerning where an
organisation operates and what it makes or does. These decisions require detailed analysis
and skilled judgment. They are managed by the directors but they manage all the other staff
like the middle and junior managers and the supervisors and operatives.
c. Middle managers - Middle Managers organise and control the resource of an organisation
within established guidelines. They are often managed by senior managers who pass on
information to them from the directors. They will in turn manage a team made up of the
junior managers, supervisors and operatives.
d. Supervisors - Supervisors are quite often the backbone of the organisation. They are people
who know how things should be done at 'ground level'. They work with managers to put
plans into action at operational level. They manage day-to-day resources including the
supervision of staff. They will be given instructions from the managers in the organisation.
e. Operatives - Operatives are at the ground level but their work is still very important. It needs
to be carried out with care and precision. In a supermarket the operatives will include the
shelf stackers, and checkout operatives. They will be told about their role from supervisors
and managers. It is likely that they will not be responsible for anyone in the
organisation.

Choose three of the roles listed above and answer the following questions: (12)

1. What are the main jobs associated with this role?

2. Who is in charge of them?

3. How important is their role in the organisation.

 Communication (Chapter 12)
The Message

Communication is the passing on of ideas and information. In business we need good, clear
communication. The contact may be between people, organisations or places and can be in a number of
forms such as speech, writing, actions and gestures. Organisations need to be structured in such a way as
to maximise the benefits of communication processes. This is why team structures are so useful because
they open up a multi-flow channel of communications.

Noise = This is anything that would stop the message being received. For example: a broken phone, a lost
letter, a bad internet connection etc. These are sometimes referred to as ‘barriers to communication’.

● Barriers to communication can include:

● Poor explanation
● Receiver not understanding the message
● Messages getting distorted
● Equipment breaking
● Not enough information
● Too much information
Types of Communication

Verbal Non-Verbal

This is spoken communication. This involves things like body language or sign
language.

Written Visual

This is written communication like a letter. This can include graphs, drawings charts, signs and
symbols.

Advantages Disadvantages
Verbal communication Information is given quickly How do you know if people are listening
Feedback may be given quickly There may be no record of what is said
Body language and tone can
reinforce the message.

Written There will be a record Direct feedback is not always possible

communication Lots of detail can be listed and There can be misunderstandings with
revisited language
It can be copied and sent to many There is no opportunity for things body
people language.
It can be cheap – e.g. emails are
cheap to send.
Visual communication Appealing and attractive and can No feedback unless use written or verbal
persuade people to act as well

It can help make written Graphs and charts sometimes people

communications more interesting don’t understand them

● Internal communication – communication between people within the business (e.g. a

manager and their team).
● External communication – communication by the business with someone outside the
business (e.g. the finance department and a supplier).
● Formal communication – communication that is professional and through channels that are
recognised by the organisation.
● Informal communication – this involves other forms of interactions between organisational
members that are not recognised by the organisation.
Methods of Communication

The Direction of Communication

a. Horizontal communication – this is communication between employees who work at the same
level in an organisation. E.g. two members of the same department talking about their work.

b. Vertical communication – this is communication between employees at different levels in an

organisation. E.g. a manager outlining what he wants his team to do.
 c. Communication on the grape-vine – communication on the grapevine is ‘gossip’. This
is usually not related to work. Organisations try to discourage this type of
communication.

The importance of good communication

Good communication is essential to any enterprise. Below are some reasons why it is so important:

a. Customers – poor communication leads to problems with the quality of products provided to
customers. Customers who are left dissatisfied may not use the organisation again, therefore
communication between the enterprise and the customers has to be carefully planned and
correct.

b. Suppliers – poor communication will suppliers can lead to the wrong goods being brought and
delivered. This is wasteful and can lead to problems with production.

c. Staff – poor internal communication leads to misunderstandings amongst staff. This leads to
problems with the quality of work and also can lead to mistakes being made. Workers therefore
become less efficient.

d. Motivation – poor communication often leads to demotivated staff. For example workers
become frustrated and demotivated if they do not understand what they have to do. They
become demotivated if they know the quality of their work is poor. I there were better
communications workers would be likely to feel more motivated.
 Communication – revision questions
1. Outline the four features necessary for communication to be effective (4)
2. Explain the difference between internal and external communication (4)
3. List two methods that can be used for written communication (2)
4. Which method of communication would you use if you wanted to: (4)
i. Give an instruction to a large number of people.
ii. Explain a detailed plan to a few other people.
iii. Obtain a very quick reply to your message to another member of staff.
iv. Inform all staff about health and safety regulations.
5. In each of the cases in question 4, briefly explain the reasons for your choice (8)

Case Study

Internal communications in your organisation are very poor. Messages are either not being received or
not being acted upon. As manager of communications you have been asked to write a report to the Chief
Executive. He wants you in your report to answer some key questions.

1. Define barriers to communication (2)

2. Outline 2 barriers to communication that could exist in an organisation (4)
3. Give advice on how you could remove barriers to communication for the business. (6)
 Exchange Rates and Multi-National Organisations
(Chapter 25 – pg. 372 – 375, pg. 380 – 381)
Exchange Rates

An exchange rate is the price of buying a foreign currency. It tells you how much of the foreign currency
you will get for every dh you spend or how many dh you will get if you use a foreign currency.

What are imports and exports?

● Imports = this is the purchase of a good or service from a foreign business.

● Exports = this is the sale of a good or service to a foreign business or customer.

How do we calculate exchange rates?

What is the impact of exchange rates on businesses?

2. A fall (depreciation) in the value of the dh - The positives

● A fall in the value of the dirham is good news for some UAE Businesses.
● A firm exporting goods will get more foreign customers as their goods will become cheaper.
● Foreign goods become more expensive as well which means that businesses in the UAE who are
competing against foreign businesses will see their goods become cheaper and more
competitive.

3. A fall (depreciation) in the value of the dh - the negatives

● A fall in the value of the dirham can be bad news for some UAE Businesses though.
● Businesses that use or sell foreign goods will see the cost of them increase. This may means
they have to increase the cost of their products or get less profit.

4. An increase (appreciation) in the value of the dh - the positives

● An increase in the value of the dirham can be good news for some UAE Businesses.
● Businesses that buy goods from other countries will find them cheaper as they will get more
foreign currency for their dirhams.
5. An increase (appreciation) in the value of the dh - the negatives
● An increase in the value of the dirham can be bad news for some UAE Businesses though.
● If they sell goods to other countries then they may find that their goods become more
expensive and foreign customers don’t want to buy them. This could mean that they lose
profit and customers.

Growth of multi-nationals

Advantages Disadvantages
✔ Jobs will be created which reduces 🗶 Often the jobs created are unskilled jobs
unemployment 🗶 Local firms may be forced out of business
✔ New investment in buildings and 🗶 Profits are often sent back to the
machinery multi-nationals home country
✔ Increases output in the country 🗶 They use up scarce resources and
✔ Can increase exports as some of the goods non-renewable resources
made by the multi-national may be sold in
other countries
 ✔ They pay taxes to the government

Exchange Rates and Multi-National Businesses –

revision questions
1. What is meant by the term exchange rate? (2)
2. Explain the difference between currency appreciation and currency depreciation. (4)
3. How will a currency appreciating affect a firm exporting its goods to other countries? (2)
4. How will a currency depreciating affect a firm importing goods from other countries (2)
5. Explain two reasons why a businesses want to become multi-nationals? (4)
6. Discuss three possible effects on a country of a multinational fast food company setting up in its
country. (6)

Case Study

Should we allow the XYZ Corporation to set up a factory in an overseas country?

About the business – The XYZ Corporation is applying for planning permission to build a factory in an
overseas country. The factory is expected to be very profitable. One thousand new unskilled jobs will be
created for factory workers. Many of the goods made could be sold abroad. Some of the supplies for the
factory will come from your country.

About your country – In the overseas country unemployment is high, especially amongst skilled workers.
The government cannot afford any new building projects. There are several local competitors producing
goods similar to XYZ. Import levels are very high. Land for new buildings is very limited. New
developments would have to be built in beautiful countryside.

1. List three groups in the overseas country who would benefit from allowing the XYZ Corporation
to build the factory. Explain your answers. (6)

2. List three groups in the overseas country who may lose from the building of the factory. Explain
your answers. (6)

3. Would you advise the government of the overseas country to allow a new factory to be built?
Explain your answer by using your knowledge and evaluating all of the evidence. (8)
 Facts about Paper 1 Facts about Paper 2
Remember there are 2 papers that you will need to ● Time: 1 hour 45 minutes
complete: ● Based on an unseen case study – this means all the
● Time: 1hr 45minutes questions will relate back to the business in the
● Short answer questions and structured/data case study.
response questions based on short questions ● The paper in total is worth 100 marks – this is split
● The paper is worth 100 marks and this is split over 5 questions with each question being worth 20
over 5 questions with each question being marks in total.
worth 20 marks in total. ● Each question has two parts – part a is worth 8
● Each question will have x2 2mark qs, x1 4mark marks and part b is worth 12 marks.
qs, x2 6mark 1qs ● You should spend around 20 minutes on each
question (a and b) – this leaves 5 minutes reading
time if the case study at the start (though make
sure you do go back to it throughout the exam.

Grade Descriptions
A grade candidate C grade candidate F grade candidate
Knowledge and understanding Knowledge and understanding Knowledge and understanding
● An excellent ability to identify ● A sound ability to identify ● some ability to identify specific
detailed facts, conventions and detailed facts, conventions and facts, conventions or techniques
techniques in relation to the techniques in relation to the in relation to the content of the
content of the syllabus; content of the syllabus; syllabus;
● A thorough ability to define the ● A sound ability to define the ● Some familiarity with
concepts and ideas of the concepts and ideas of the definitions of the central
syllabus. syllabus. concepts and ideas of the
syllabus.
Application Application
● A thorough ability to apply ● An ability to apply knowledge
knowledge and understanding, and understanding, using terms, Application
using terms, concepts, theories concepts, theories and methods ● A rudimentary ability to apply
and methods effectively to appropriately to address knowledge and understanding,
address business problems and problems and issues; using terms, concepts, theories
issues; ● An ability to draw conclusions, and methods appropriately to
● A sound ability to form and to present these in a clear address problems and issues.
conclusions from this manner.
information and to demonstrate Analysis
Analysis ● Some ability to classify and
these conclusions clearly and
logically. ● A good ability to use and present data in a simple way
comment on information and some ability to select
Analysis presented in various forms; relevant information from a set
of data;
● An excellent ability to classify ● A sound ability to distinguish ● Some ability to distinguish
and comment on information between evidence and opinion. between evidence and opinion.
presented in various forms;
● An excellent ability to Evaluation
distinguish between evidence Evaluation ● A limited ability to understand
● An ability to evaluate and make implications and make
and opinion.
reasoned judgments. recommendations.
Evaluation
● A sound ability to make clear,
reasoned judgments and
communicate them in an
accurate and logical manner.