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Business studies unit 4 short notes watch

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    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

    [IMG]file:///C:/Users/IA/AppData/Local/Temp/msohtmlclip1/01/clip_image002.png[/IMG]

    [IMG]file:///C:/Users/IA/AppData/Local/Temp/msohtmlclip1/01/clip_image004.png[/IMG]

    [IMG]file:///C:/Users/IA/AppData/Local/Temp/msohtmlclip1/01/clip_image006.png[/IMG]





    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
 
 
 
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