Edexcel Business A Level Revision

Investment Appraisal - The use of numerical techniques to predict the financial outcomes of potential capital investments. Payback - The length of time (payback period) required to recover the cost of an investment in a project. FORMULA  - PAYBACK NET CASH FLOW IN YEAR THE INITIAL INVESTMENT IS REPAID / 12 MONTHS = £?  REMAINING CASH TO BE PAID IN FINAL YEAR TO REACH THE REPAYMENT TOTAL / £? = DECIMAL = MONTHS A BUSINESS WANTS THE LOWEST PAYBACK TIME IN ORDER TO BECOME PROFITABLE QUICKER. Interpretarion of payback gives a prediction of when the investment will be paid back and more importantly the point at which it will start to  make a profit for the business. Businesses can use payback to consider a number of potential options and then choose the investment with the fastest payback. Alternatively, businesses may allow investment only if payback is within a maximum period of time, for example 24 months. Advantages Disadvantages ...

Business Objectives - is a goal set by a business, usually in the medium to long term. They can be set at any level of the business and can cover financial and non-financial issues important to the business's success Corporate objectives - Measurable, clearly defined targets for how to achieve business aims. Effective objectives should be SMART (specific, measurable, achievable, realistic and time specific) Mission statement - is a short term statement of the company's vision and values which helps to set aims and objectives. This enables employees, managers and customers and possible some suppliers to understand the conduct of the business. It is a statement of purpose, such as 'grow our market share in the UK'. Nike's mission statement is; "To bring inspiration and innovation to every world athlete". Aim - is a generalised statement of what the business plans to achieve in the longer term. A goal or purpose of the business for the future, to inspir...

Stock control - stock is a current asset held by business to help meet the demand of customers Stock can be held in 3 forms: Raw materials Work in progress Finished products Stock can be used to fill differences between production output and demand The amount of stock held will depend upon: the business' attitude to risk (Hate risk = large buffer stock) (Love risk = small buffer stock) the importance of speed of response as an operational objective speed of change within the market nature of the product e.g. perishable or long lasting STOCK CONTROL DIAGRAM - A managment tool used to control and monitor the flow of stock LEAD TIME - The time it takes between placing an order and receiving delivery. The GREATER the lead time, the HIGHER the minimum stock level. RE-ORDER LEVEL - The level of stock which triggers and order, this may be done automatically by a computerised system. The re-order level will be determined by both the lead time and the minimum sto...

Whilst budgets are widely used to in business, you should appreciate that they have some important limitations. In particular: Budgets are only as good as the data being used to create them . Inaccurate or unreasonable assumptions can quickly make a budget unrealistic Budgets can lead to inflexibility in decision-making Budgets need to be changed as circumstances change , for example sales figures can be affected by many variables in demand such as changes in tastes, the actions of a competitor and so on. Budgeting is a time consuming process – in large businesses, whole departments are sometimes dedicated to budget setting and control. This has an associated OPPORTUNITY COST Budgets can result in short term decisions to keep within the budget rather than the right long term decision which exceeds the budget Managers can become too preoccupied with setting and reviewing budgets and forgetting to focus on the real issues of winning customers Costs covere...

Zero based budgeting - means no budget is set and no money is allocated to cover costs. Managers must be prepared to bid for and justify spending on their departments. This forces them to examine all their costs. Advantages of Zero based budgets Disadvantages of Zero based budgeting Resources should be allocated more efficiently Can be more expensive Easier to adapt as circumstances change Can be more time consuming Gives more flexibility in response to changes in the market or economy Forceful managers may be more successful in attracting funds than others who may have more worthwhile projects Forces managers to think and plan more carefully Because of the expense, some businesses use zero-based budgeting every few years, or use a mixture of zero and historical e.g. departments receive a base budget and have to negotiate the rest.