CSEC Principles of Business flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Factors of production

The four resources used to produce goods and services: land (natural resources), labour (human effort), capital (man-made aids) and enterprise (risk-taking organisers). Each earns rent, wages, interest or profit.

Unlimited liability

The legal position in which the owner of a business is personally responsible for all business debts, so personal assets may be seized to pay creditors. It applies to sole traders and ordinary partners.

Limited liability

The position in which shareholders of a company can lose only the amount they invested, not their personal assets. It encourages investment because risk is capped at the shareholding.

Public limited company

A company whose shares may be offered to the general public and traded on a stock exchange. It must publish annual accounts and has limited liability and a separate legal identity.

Cooperative

A business owned and democratically controlled by its members, usually on a one-member-one-vote basis, with surpluses distributed according to member patronage rather than shareholding.

Franchise

An arrangement where the franchisee pays an initial fee and ongoing royalties to trade under the franchisor's established brand, systems and support, while bearing the operating risk.

Span of control

The number of subordinates who report directly to one manager. A wide span produces a flat structure; a narrow span produces a tall structure with more supervisory levels.

Delegation

The assignment of authority and tasks to a subordinate. The delegator remains accountable for the outcome, so authority passes downward while responsibility is not surrendered.

Business plan

A written document setting out objectives, market analysis, production and marketing plans and financial forecasts. It is used to obtain finance and to monitor performance against targets.

Primary sector

The sector of production that extracts raw materials directly from nature, such as farming, fishing, mining and forestry. Its output feeds the secondary sector for processing.

Division of labour

Splitting production into specialised tasks performed by different workers. It raises output and skill per worker but creates interdependence and can reduce job satisfaction.

Batch production

A method in which a group of identical items is produced together before the process changes to another group. It suits moderate volumes and allows some variety.

Flow production

Continuous production of large volumes of standardised output along a sequence of operations. It requires high capital investment but gives low unit costs at high output.

Economies of scale

Reductions in average cost per unit as output expands, arising from bulk buying, technical efficiency, cheaper finance and managerial specialisation, up to the optimum output level.

Diseconomies of scale

Rises in average cost per unit that occur when output grows beyond the optimum, caused by coordination problems, communication delays, lower morale and management inefficiency.

Break-even output

The quantity of output at which total revenue equals total cost and profit is zero. It is calculated as fixed costs divided by contribution per unit.

Contribution per unit

Selling price per unit minus variable cost per unit. It measures how much each unit sold contributes toward covering fixed costs and then generating profit.

Quality assurance

A system that builds quality standards into every stage of the production process rather than inspecting only finished output, aiming to prevent defects before they occur.

Reorder level

The stock level that triggers a new order. It is calculated as maximum usage per period multiplied by maximum lead time, ensuring stock lasts until delivery.

Marketing mix

The combination of the four Ps - product, price, place and promotion - that a business adjusts to meet the needs of its target market and achieve its objectives.

Market segmentation

Dividing a market into groups of buyers with similar characteristics, such as demographic, geographic, psychographic or behavioural traits, so marketing can target each group effectively.

Primary market research

Data collected first-hand for a specific purpose, through surveys, interviews, observation or experiments. It is current and specific but costly and time-consuming.

Secondary market research

Data already collected by others, such as government statistics, trade reports and published surveys. It is cheaper and quick but may be outdated or not specific.

Penetration pricing

Setting a low introductory price to attract buyers quickly and build market share, then raising the price once customers are established. It suits price-sensitive markets.

Price skimming

Setting a high initial price to capture buyers willing to pay a premium, then lowering it over time. It suits innovative or prestige products with few early competitors.

Product life cycle

The four stages a product passes through - introduction, growth, maturity and decline. Extension strategies such as rebranding or new markets delay the decline stage.

Cash flow forecast

A projection of cash receipts and payments over a period, showing opening balance plus inflows minus outflows. It predicts liquidity rather than profit.

Current ratio

Current assets divided by current liabilities. It measures whether a business can meet short-term debts; a value near 2:1 is generally considered sound.

Gross profit margin

Gross profit divided by sales, multiplied by 100. It shows the percentage of each sales dollar remaining after the cost of goods sold is deducted.

PEST analysis

A framework examining political, economic, social and technological factors in the external environment. Legal and environmental factors are often added to form PESTLE.

Tariff

A tax imposed on imported goods. It raises the price of imports, protecting domestic producers but increasing costs for consumers and possibly provoking retaliation.

Stakeholders

Groups affected by or interested in a business's activities, including owners, employees, customers, suppliers, government and the community. Their interests may conflict.