Edexcel Business A Level Revision

Foreign Direct Investment (FDI) - The transfer of funds by a foreign business to purchase and acquire physical capital,  such as factories and machines. TRADE OPPORTUNITIES Opens up new markets which increases wealth in countries such as China who want western brands British provenance (" the place of origin or earliest known history of something. "). For example, fashion, finance, cars, arts, education etc. Additionally, BRICS countries can help with supplying materials and resources to British companies to help their provenance. Access to raw materials Greater movement of goods and services between countries Opportunities for cheaper production and therefore cheaper unit costs Greater investment opportunities such as Foreign Direct Investment (FDI) Increased profits for businesses. Trade opportunities will arise in new markets leading to an increase in demand and increased revenue and profit. The owners of businesses will see and increase in income e.g. through hi...

Risks - in business are factors that are not expected but can be quantified, such as the risk of your factory being flooded. Uncertainty - is being unsure of the factors influencing sales and therefore being unable to predict what will happen to the business in terms of its profits or growth. A business might try to minimise uncertainty by using marker research to anticipate the likely its decisions will have on its position in the market.

Sole traders - (Unincorporated) An individual owning the business on his/her own. Registered as self-employed and has unlimited liability. The sole trader owns all the businesses assets personally and is personally liable for the business debts. Therefore, their home and all of their assets may be used to pay off any debts that may incur and are unable to pay ADVANTAGES Quick and easy to set up (they can always be transferred to a limited company once launched) Simple to run - owner has complete control over decision making Minimal paperwork Easy to close/shut down All profits go to the shareholder Financial records remain private Motivation is high as the success of the individual and the business are one and the same DISADVANTAGES Full personal liability - "unlimited liability" Harder to raise finance - sole traders often have limited funds of their own and security against which to raise loans The business is the owner - the business suffers if the owner b...

Profit - surplus of revenue when costs are covered Gross profit -  Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. Operating profit -  Records how much profit has been made in total from the trading activities of the business before any account is taken of how the business is financed. Statement of comprehensive income - A formal financial document that summarises a business' trading activities and expenses to show whether it has made a profit or loss. Profit margin - tells the business just what percentage of its turnover is actually profit. It is the ratio of profit to sales revenue as a percentage PROFIT = TOTAL REVENUE - TOTAL COSTS There are 3 types of profit; Gro...

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...

Penetration Pricing - Offering a significantly lower price than normal in an attempt to maximise volume sold and to build an installed base of loyal product users/customers Example - Broadband companies or telephone companies e.g BT or Virgin Involves setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The strategy aims to encourage customers to switch to the new product because of the lower price. Penetration pricing is often used to support the launch of a new product and works best when a product enters a market with relatively little PRODUCT DIFFERENTIATION and when demand is ELASTIC - so a lower price than rival products is a competitive weapon. ☆ THIS IS THE OPPOSITE OF PRICE SKIMMING ☆ Aims: • Gain market share quickly • Build customer usage and loyalty • Build sales of higher priced related items ("Hook and bait" approach) Price can be increased once target market share is ...