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Business studies unit 4 short notes

Hello all..

Since the May/June examinations are nearing in, I’ve decided to upload some of the quick revision notes necessary for the unit 4 EDEXCEL Business Studies Examination. Please note that this material should be used in conjunction with a comprehensive business tool kit and cannot be relied upon entirely for exam preparation.
Good Luck..
Mr Sayeedh Ghouse
Lecturer
Inception Academy

Ansoff Matrix

What is it?
It is a marketing planning tool that helps a business determine its product and market growth strategy

Market Penetration
Market Penetration - a growth strategy where the business focuses on selling existing products into existing markets
-Focuses on markets and products it knows well
-Likely to have good information on competitors and on customers needs
-Doesn’t require much investment in new market research

-Focuses on markets and products it knows well
-Likely to have good information on competitors and on customers needs
-Doesn’t require much investment in new market research

Market penetration seeks to achieve these main objectives:
· Maintain/Increase the market share of current products
è Competitive pricing strategies, advertising, sales promotion
· Secure dominance of growth markets
· Restructure a mature market by driving out competitors
è Aggressive promotional campaign
è Pricing strategy designed to make the market unattractive for competitors
· Increase usage by existing customers
è Introducing loyalty schemes

Market Development

Market Development - a growth strategy where the business seeks to sell its existing products into new markets
-It is a more risky strategy than market penetration because of the targeting of new markets

Ways to approach market development:
· New geographical markets
è Exporting the product to a new country
· New product dimensions/packaging
· New distribution channels
è Moving from selling via retail to selling using e-commerce
· Different pricing policies
è To attract different customers
è Create new market segments

Product Development

Product Development - a growth strategy where a business aims to introduce new products into existing markets
-Requires the business to develop modified products which can appeal to existing markets
-It is suitable for a business where the product needs to be differentiated in order to remain competitive

Product development places the marketing emphasis on:
· Research and development and innovation
· Detailed insights into customers needs
· Being first to market

Diversification

Diversification – a growth strategy where a business markets new products in new markets
-More risky strategy because the business is moving into markets in which it has little/no experience
-Must have a clear idea about what it expects to gain from the strategy and the risks it involves

Balance Sheet

What is the Balance Sheet?

Balance Sheet – a summary at point in time of business assets, liabilities and capital

What is included in the Balance Sheet?

· Fixed Assets
è Assets with a lifespan of more than one year (eg. investments)

· Current Assets
è Assets likely to be changed into cash within a year (eg. stock, debtors)

· Current Liabilities
è Debts that have to be repaid within a year

· Net Current Assets (Working Capital)
è Current Assets – Current Liabilities

· Long Term Liabilities
è Debts that are payable after a year

· Net Assets
è Total Assets – Current Liabilities – Long Term Liabilities

· Current Ratio
è Assesses the firm’s liquidity

· Acid Test Ratio
è Assesses the firm’s liquidity but excludes stocks from current assets

· Gearing Ratio
è Explores the capital structure of a business
Liquidity Ratios

Liquidity Ratio – illustrates the solvency of a business (the ability to pay back short term debts)
There are 2 types of liquidity ratios:
1) The Current Ratio
è Current Assets : Current Liabilities
IDEAL: 1.5 – 2 : 1 (sufficient resources)

If it LESS THAN 1.5 : 1
è Low liquidity
è Not enough working capital
è Overborrowing
è Overtrading

If it is ABOVE 2 : 1
è High liquidity
è Too much money is tied unproductively
è Can easily pay off short term debts

Superdry 2010: 2.79 : 1
Superdry 2011: 2.81 : 1
Interpretation:
· Ratio increased
è Unproductivity levels increased
è Insignificant change of 0.02
Response:
· Increase liabilities
è Increasing long term creditors
è Invest more / borrow more
· Decrease assets
è Allow longer credit periods
è Buy with cash

2) The Acid Test Ratio
è Current Assets – Stocks : Current Liabilities
IDEAL: 1 : 1

If it LESS THAN 1 : 1
è Low liquidity
è Not enough working capital
è Overborrowing
è Overtrading

If it is ABOVE 1 : 1
è High liquidity
è Too much money is tied unproductively
è Can easily pay off short term debts

Superdry 2010: 1.91 : 1
Superdry 2011: 1.59 : 1
Interpretation:
· Ratio falls by 0.32
è Liquidity falls
è More productive
è Less capital tied up as stock
Response:
· Increase stocks
· Increase liabilities
è Increase long term creditors
è Invest more / borrow more

· Decrease assets
è Allow longer credit periods
è May lead to higher stocks as customers are attracted to longer credit periods
è Buy with cash

Gearing Ratios

Limitations of Ratio Analysis

Needs to be compared with other data:
· Results for the same business over previous years
è Analyse the trend of data

· Results from firms in other industries
è Allow comparisons between 2 firms experiencing similar growth rates

It only considers the financial aspects of a business’ performance, although other elements of a business should be taken into consideration:
· The market in which the business is trading
è A firm operating in a highly competitive market is likely to experience low profits and depressing ratios

· The position of the firm within the market
è A market leader is likely to provide better returns than a small firm struggling to establish itself
è The small struggling firm may be investing heavily in developing new products and establishing a brand identity which could lead to large profits in the future

· The quality of the workforce and management team
è But the quality of the workforce would be high due to heavy investment
è Resulting in good performances

(edited 9 years ago)