Edexcel Business A Level Revision

Growth - A common corporate objective which means expanding the sales revenue of a business, probably in the hope that profits will increase too. Overtrading - occurs when a business expands top quickly without having the financial resources to support such as quick expansion. Overtrading is where a business suffers financial difficulties from growing too quickly. This particularly relates to a business' s cash flow as if a business expands too quickly it may not have enough money to be able to purchase raw materials to meet the demands of higher sales. Overtrading is, therefore, essentially a problem of growth. It is particularly associated with retail businesses who attempt to grow too fast. When is Overtrading Most Likely to Happen? Overtrading is most likely to occur if: Growth is achieved by making significant capital investment in production or operations capacity before revenues are generated Sales are made on credit and customers take too long to settle...

Growth - A common corporate objective which means expanding the sales revenue of a business, probably in the hope that profits will increase too. Diseconomies of scale - occurs when a business grows so large that the costs per unit increase. As output rises, it is not inevitable that unit costs will fall. (UNIT COSTS RISING AS WELL OUTPUT RISING) When a business expands, they expect economies of scale, but are often shocked to find that they are outweighed by diseconomies. Diseconomies of scale can occur due to: POOR INTERNAL COMMUNICATION BETWEEN DIFFERENT DEPARTMENTS AND ALONG THE CHAIN OF COMMAND - the more layers there are in the business hierarchy and the wider the spans of control for managers, the greater the risks of workers receiving unclear instructions about what they are supposed to do. POOR EMPLOYEE MOTIVATION - which is where workers can feel more isolated or alienated and less appreciated in a larger business so their loyalty and productivity may red...

Working capital - is the cash needed to pay for the day to day trading of the business. Working capital "oils the wheels" of business. Businesses use cash to finance stocks through the production process It facilitates the smooth flow of production and the supply of goods to customers. In financing debtors, it enables the business to offer credit to customers. The amount of working capital needed depends on... The planned production volumes Forecast cost per unit The length of the production cycle Credit terms allowed to customers Credit terms received from suppliers. A lack of working capital means... Harder to buy in bulk and benefit from discounts Difficulties in offering credit to customer with the danger of losing sales Loss of reputation with suppliers if there are difficulties in settling debts Harder to respond to opportunities Increased danger of overtrading Dealing with working capital shortages... Discount prices Reduce purchases Negotiat...

Main causes of cash flow problems are... Low profits or losses Over-investment in capacity Too much stock Allowing customers too much credit Over-trading Unexpected changes Seasonality 1) PROFITS The profit a business makes from trading is the most important source of cash. There is a direct link between low profits or losses and cash flow problems. Most loss-making businesses eventually run out of cash, this is due to the closing balance on the cash forecast continually decreasing over the months due to an imbalance is cash flow. 2) OVER-INVESTMENT IN CAPACITY For example, spending too much on fixed assets. This is made worse if short-term finance is used (e.g. bank overdraft). Fixed assets are hard to turn back into cash. 3) TOO MUCH STOCK Excess stock ties up cash that the business could be using to pay off debts or use as working capital. This increases the risk of stock becoming obsolete and therefore the money too. If the stock becomes obsolete then there...